World Economic Journal (WEJ#46)

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DECEMBER - JANUARY 2024/2025 (WEJ #46)

KEY RISKS 2025 INFLATION, CLIMATE, TECHNOLOGICAL REVOLUTION, AND SOCIAL CHALLENGES

R EGIONAL PERSPECTIVES C RYPTOCURRENCIES E NERGY INNOVATIONS: PROJECTS FOR 2025

DONALD TRUMP

INVESTMENT ATTRACTIVENESS, FOREIGN DEBT, US INNOVATION POTENTIAL: A NEW ERA WITH THE RISE OF TRUMP

WORLD ORGANIZATION FOR DEVELOPMENT IS AN INTERNATIONAL NON-GOVERNMENTAL ORGANIZATION WITH SPECIAL CONSULTATIVE STATUS WITH UN ECOSOC, MEMBER OF THE UNITED NATIONS GLOBAL COMPACT

Founded on December 23, 2009 by the principles proclaimed by the United Nations

Actively participates in the implementation of the 2030 Agenda for Sustainable Development and interacts with international organizations of the UN system

Develops and implements Global Initiatives to achieve Sustainable Development Goals

The United Nations has already twice recognized the Global Initiatives developed by WOD as the SDG Good Practices to achieve the Sustainable Development Goals, in 2015 and 2021

QUALITY EDUCATION

ZERO HUNGER

GOOD HEALTH AND WELL-BEING

NO POVERTY

REDUCED INEQUALITIES

CLEAN WATER AND SANITATION

PARTNERSHIPS FOR THE GOALS

AFFORDABLE AND CLEAN ENERGY

GENDER EQUALITY

INDUSTRY, INNOVATION AND INFRASTRUCTURE

DECENT WORK AND ECONOMIC GROWTH

LIFE ON LAND

SUSTAINABLE CITIES AND COMMUNITIES PEACE, JUSTICE, AND STRONG INSTITUTIONS

LIFE BELOW WATER

CLIMATE ACTION

RESPONSIBLE CONSUMPTION AND PRODUCTION

https://unwod.org/

[ INSIDE ]

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ROBERT GUBERNATOROV: FOUNDER OF THE GITE INITIATIVE — SDG GOOD PRACTICES 6 [ FINANCE ]

THE RISE OF DIGITAL CURRENCIES: WHO CONTROLS TOMORROW'S WEALTH?

[SUSTAINABILITY ]

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[ ANALYTICS ]

• I NVESTMENT ATTRACTIVENESS, FOREIGN DEBT, US INNOVATION POTENTIAL: A NEW ERA WITH THE RISE OF TRUMP • KEY RISKS 2025

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[ INNOVATIONS ]

ENERGY INNOVATIONS: PROJECTS FOR 2025 4

WEJ | December 2024 - January 2025

REGIONAL PERSPECTIVES ON SUSTAINABLE DEVELOPMENT IN DEVELOPING COUNTRIES

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[MARKETS ]

[ MEGACITIES ]

10 CUTTING-EDGE URBAN SOLUTIONS FOR ACHIEVING THE SDGS

56 68

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• PHILIPPINES

68

• V IETNAM

74

• BRAZIL

82

• INDONEZIA

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[ TRENDS ]

EVENTS

90

[ WORDS ]

ELON REEVE MUSK

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Editor-in-Chief Robert Abdullah Editorial Team Judely Delva, Adneissa Christy Alezy, Teuvo Alonen, Naitana Jn Baptiste, Elen Boyer, Chisom Maduonuorah, Erfan Alam Serniabat, Anna Sokolidou, Victoria Soll, Julico Swanidze Design by Gera Lu

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Editorial Office’s Addresses 7/F, MW Tower, 111 Bonham Strand, Sheung Wan, Hong Kong; 61 Kulatova str., Bishkek city, Kyrgyz Republic Tel.: +996550647419 +34 658 700069 e-mail: editorial@world-economic.com www.world-economic.com Establisher Global publisher: World Economic Journal WEJ Limited 7/F, MW Tower, 111 Bonham Strand, Sheung Wan, Hong Kong Publisher in Central Asia and South Caucasus under WEJ license: “World Organization for Development” LLC 61, Kulatova str., Bishkek city, Kyrgyz Republic Fonts: Adobe Fonts ISSN No2219-6374 The journal is published since 2009.

The journal is published on a monthly basis.

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The authors’ opinions may differ from those of the editors. No part of this publication may be reproduced or used in any form without prior permission in writing from the editor.

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All the enclosures to the journal are made for publicity purposes.

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[ IN FOCUS ]

ROBERT GUBERNATOROV: REDEFINING TERRITORIAL LEADERSHIP FOR A SUSTAINABLE FUTURE "With over a decade of dedication to sustainable development and a pioneering vision for global territorial collaboration, Robert Gubernatorov leads the charge in integrating territorial entities into the United Nations system, empowering regional leaders to shape the future of global progress."

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WEJ | December 2024 - January 2025

WORLD ECONOMIC JOURNAL

Robert Gubernatorov • President of the World Organization for Development • Founder of the Global Initiative for Sustainable Development of Territorial Entities (GITE) • Advocate for integrating territorial leadership into the United Nations system • Organizer of international awards: World Innovation Award, World Investment Award, and Global Awards "Angel for Sustainable Development" • Visionary leader recognized by the UN for SDG Good Practices in 2021

PHOTO: RATMIR PETROV

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he Global Initiative for Sustainable Development of Territorial Entities has been recognized by the UN as SDG Good Practices.

What inspired you to launch this initiative, and what is its mission and key objectives?

The idea for the Global Initiative for Sustainable Development of Territorial Entities (GITE) emerged from a deep academic and practical journey that began in 2009. For over a decade, I dedicated myself to researching and implementing concepts that would bridge the gap between global frameworks and regional realities. This effort included conducting analytical studies, developing rankings, awarding initiatives, establishing the World Organization for Development (WOD), collaborating with the United Nations, and producing international media. It has been a long and challenging path, but one fueled by a clear vision of how territorial entities can play a transformative role in global development.

The core inspiration for GITE came from the pressing need to address gaps in the structure of the United Nations.

Since its founding in 1945, the UN has primarily operated as an intergovernmental organization, a structure we define as the First-Level Track. In 1978, the UN-Habitat program was established as a Third-Level Track to support sus-

tainable urban development and engage mayors and municipalities. However, a critical middle layer—the Second-Level Track, representing regions, states, and provinces—has been missing from this framework.

The primary goal of GITE is to advocate for the establishment of a dedicated UN Program for Territorial Development, creating this Second-Level Track.

This program would empower regions to actively contribute to global strategies, share best practices, and address unique challenges that transcend municipal and national boundaries. GITE's mission is to ensure that territorial entities are not only recognized but fully integrated into the global decision-making process, bridging the gaps between local action and international policy.

By addressing this systemic inconsistency, the initiative seeks to modernize the UN's structure, making it more inclusive, effective, and capable of meeting the challenges of the 21st century.

In your opinion, why is it essential to involve governors of states, provinces, and regions, along with their teams, in achieving the 2030 Agenda for Sustainable Development? How do you see their role within the UN system?

Governors and their teams play a critical role in achieving the Sustainable Development Goals, as they work in direct contact with the population. They possess unique insights into local challenges and opportunities, enabling them to design policies that have a direct and tangible impact on improving quality of life.

Territorial entities are the primary customers, producers, transit hubs, and consumers of products in the new technological paradigm. Regions form the foundation for adopting innovations, driving sustainable production, and preparing societies for change.

One of GITE's key goals is to advocate for the establishment of a UN Program for Territorial Development.

This program would provide governors with a formal platform within the UN system to collaborate, share experienc-

es, and contribute to global strategies.

It’s worth noting that the UN-Habitat program has existed for decades, representing mayors of cities, even though mayors report to governors and their teams. Mayors have had a voice in the UN for years, while governors—who oversee broader territorial management—have not. This systemic inconsistency contradicts the actual governance structure at the national level. One of our goals is to resolve this contradiction by ensuring that governors are formally included in UN processes, creating a more effective link between global frameworks and local implementation.

The GITE Initiative is gaining global attention. Who among the global leaders, in addition to the UN, has already supported this initiative? What key results have you achieved so far, and what are your future plans for its expansion?

The GITE Initiative has received significant support from the United Nations, as well as from governors in various countries worldwide who understand the importance of strengthening the role of territorial entities in global processes.

Some global leaders have also expressed their support. For example, in 2017, U.S. President Donald Trump sent me an official response to my proposal for supporting UN reform and the creation of a Second-Level Track for Territorial Entities to practically achieve the Sustainable Development Goals. In his letter, he emphasized the importance of uniting efforts to address key challenges and strengthen international leadership. This response was a crucial step toward global recognition of the initiative.

We actively stimulate the achievement of the Sustainable Development Goals through several key efforts: We conduct analytical research on sustainable development at both global and regional levels. This work is carried out through our research center, WOD-Research, which identifies best practices and innovative solutions for territories. We also present international awards, such as the World Innovation Award, World Investment Award, and 7

[ IN FOCUS ] Global Awards "Angel for Sustainable Development", recognizing the significant contributions of businesses, civil society, regional authorities, and nations to sustainable development.

Additionally, we develop and implement Artificial Intelligence technologies to help regions effectively execute their strategies. We are also preparing major international events, including the Global Governors’ Summit and the World Forum for Territorial Entities. All these initiatives aim to create platforms for dialogue and the exchange of best practices, fostering closer collaboration between regions and global institutions.

Your leadership of the World Organization for Development includes organizing international awards such as the World Innovation Award, World Investment Award, and Global Awards "Angel for Sustainable Development".

How do these awards contribute to promoting sustainable development?

World Organization for Development (WOD) is an international non-governmental organization with a strong global reputation. Since 2014, WOD has held special consultative status with the United Nations Economic and Social Council (ECOSOC) and has been a member of the UN Global Compact since 2016. These designations reflect the organization’s commitment to advancing sustainable development through innovative and impactful initiatives.

One of WOD’s key contributions is its international awards: The World Innovation Award, World Investment Award, and Global Awards "Angel for Sustainable Development". These awards recognize and celebrate achievements in innovation, investment, and sustainability across diverse sectors.

The World Innovation Award highlights groundbreaking ideas that drive progress and address global challenges.

The World Investment Award honors transformative projects that foster economic growth and sustainability. The Global Awards "Angel for Sustainable Development", recognized by the UN, acknowledges initiatives that significantly 8

contribute to achieving the Sustainable Development Goals (SDGs).

By showcasing these achievements, we inspire others to follow their example, foster healthy competition for excellence, and bring global attention to outstanding projects at both regional and international levels. These awards not only highlight success stories but also promote collaboration and innovation, creating a ripple effect that advances sustainable development worldwide.

GITE (Global Initiative for Territorial Entities) focuses on collaboration, innovation, and territorial development.

What are its key features that make it unique among other sustainable development initiatives?

GITE stands out for bridging the gap between global frameworks and local implementation. While many initiatives focus on national governments, GITE is dedicated to empowering regions, provinces, and states, enabling them not only to participate but also to take the lead in achieving the Sustainable Development Goals (SDGs).

What message would you like to send to regional leaders and their teams worldwide about their essential role in achieving the Sustainable Development Goals?

To regional leaders and their teams: you are not just administrators of your territories—you are architects of a sustainable future. Your decisions today shape not only the lives of your communities but also the global resilience and progress for decades to come.

We encourage you to join GITE’s efforts to build a stronger connection between local action and global impact.

Your participation, leadership, and vision are vital to making the Sustainable Development Goals a reality, ensuring prosperity, equality, and environmental sustainability for all.

How do you see the interaction between the UN and regional leaders evolving over the next decade to achieve closer collaboration?

Over the next decade, collaboration between the UN and regional leaders will become increasingly close

Territorial entities are the architects of tomorrow's sustainable world—driving innovation, progress, and resilience in the face of global challenges One of GITE’s distinguishing features is its emphasis on developing and implementing digital tools, such as Artificial Intelligence for Territorial Entities (AITE) platforms, for sustainable governance and data-driven decision-making.

These tools ensure both the efficiency and scalability of solutions.

Additionally, GITE fosters a network of regional leaders, bringing them together to exchange best practices, collaborate, and drive collective progress. This unique model of interaction enables territorial entities to participate more effectively in the global sustainable development agenda.

WEJ | December 2024 - January 2025

and structured. I envision regional representatives gaining a formal role in key UN decision-making processes, ensuring that local perspectives and needs are adequately represented on the global stage.

Through platforms like GITE, we aim to establish mechanisms for regular consultations, joint initiatives, and innovative funding tools to support regional sustainable development projects. This collaboration will be the cornerstone for achieving the 2030 Agenda, as regions play a pivotal role in shaping a sustainable and inclusive future.

GLOBAL INITIATIVE FOR SUSTAINABLE DEVELOPMENT OF TERRITORIAL ENTITIES #SDGAction33410

2009 – 2018

Scientific development

since 2010

Implementation into practice

2021

Recognized by the UN as SDG GOOD PRACTICES

GITE stimulates the sustainable development of the Territorial entities in the innovative, technological, economic, social and other fields; creates the platform for the exchange of innovative practices for the development and management of Territorial entities and achievement of the Sustainable Development Goals

GITE forms the supranational, innovative Global Governors Platform and initiates the establishment of the United Nations Program on Territorial Entities

GITE CONSISTS OF THREE SPACES: 1. INTELLECTUAL SPACE The scientific basis of GITE, its Spaces and Tools. Developed and operates on the basis of artificial intelligence.

The scope of application: sustainable development of territorial entities of the countries of the world (AITE)

2. EVENT SPACE: • Global Governors Summit creates a platform for global dialogue, brings together the Governors and the Heads of Territorial Entities to exchange advanced innovative experiences

• Global Award for Sustainable Development awards the Governors and governor’s teams for the best world practices in the management and development of the Territorial Entities

• World Forum of Territorial Entities creates a Dialogue Platform between Governor's teams and Business, stimulates the development of Territorial Entities in the innovative, technological, economic and social spheres

3. MEDIA SPACE Unites governor’s teams, facilitating the exchange of innovative, hightech and modern practices to achieve the UN SDG

[ DIGITAL ASSETS & CURRENCIES ]

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WEJ | December 2024 - January 2025

WORLD ECONOMIC JOURNAL

THE RISE OF DIGITAL CURRENCIES: WHO CONTROLS TOMORROW'S WEALTH? Digital currencies reshape monetary systems as traditional institutions and emerging markets clash over control, regulation, and the future of global finance.

By Erfan Alam Serniabat

T

he financial landscape is currently at a pivotal point, as the introduction of Bitcoin in 2009 initiated a significant transformation in digital currency. As of today, the cryptocurrency market stands at a firm $3.66 trillion in total market capitalisation.

Research from the Gemini Global State of Crypto Report shows institutional investors pouring capital into digital assets at unprecedented rates, while Bitcoin and Ethereum push toward record valuations in 2024, with the number of users in the cryptocurrency market expected to reach 861 million by 2025.

The Bank for International Settlements' 2024 strategy demonstrates traditional finance's shifting stance on digital currencies. Their commitment to Central Bank Digital Currencies

(CBDCs) and tokenisation signals a fundamental transformation in how money moves globally. This transformation extends beyond developed economies—Chainalysis's 2024 Crypto Index highlights countries like Nigeria and India leading cryptocurrency adoption, driven by economic instability and limited banking access.

WHY TRADITIONAL BANKS FEAR THE CRYPTO REVOLUTION

Traditional financial institutions face unprecedented challenges as digital currencies bypass established banking systems. The rise of decentralised finance threatens long-standing revenue streams while creating new competition for core banking services.

Their concerns stem from fundamental changes to how money moves and grows in the digital age.

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[ DIGITAL ASSETS & CURRENCIES ]

Crypto Market Cap

Source: CoinMarketCap (Crypto Market Cap, December 2024)

Bank executives point to three major threats: direct peer-to-peer transactions eliminating profitable intermediary fees, regulatory uncertainty disrupting established compliance frameworks, and growing competition from cryptocurrency investment products offering higher returns. These factors challenge traditional banks' century-old business models, forcing them to adapt to this new business model.

• How Digital Currencies Bypass Conventional Banking Gatekeepers The impact of digital currencies on traditional banking infrastructure manifests in three key areas: • Transaction Speed: Cross-border payments now complete in seconds rather than days. A 2022 case study of remittances from the US to Mexico

• The Shifting Power Dynamics Between Centralized and Decentralized Finance Traditional banking faces unprecedented pressure from Decentralised Finance (DeFi) platforms that operate with remarkable efficiency. DeFi platforms leverage blockchain technology, which ensures transparency and immutability of transactions. This means that every transaction remains visible and verifiable, contrasting sharply with the often opaque operations of traditional banks.

DeFi platforms often offer higher yields compared to traditional financial systems. This is because DeFi protocols can operate with lower overhead costs and can offer competitive interest rates to attract users.

For example, platforms like Aave and Compound allow users to earn interest on their crypto assets by lending them out to others.

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WEJ | December 2024 - January 2025

"We're seeing transaction volumes through crypto networks grow 200% year over year.

These aren't just speculative trades anymore − they're real economic activity moving outside our system."

showed how cryptocurrency transfers reduced wait times from 3 to 5 business days to seconds.

• Cost Reduction: Traditional international wire transfers typically cost $35–50. Digital currency transfers often cost $1 or less, regardless of amount or destination. This efficiency particularly benefits small businesses and individuals sending regular cross-border payments.

• Tax Compliance: Digital currencies create automated transaction records, simplifying tax reporting. Financial institutions previously charging premium rates for transaction documentation now face competition from blockchain networks that provide this service inherently.

Venezuelans, for example, use cryptocurrencies to protect their wealth from the country's challenging 60% inflation rate, while, as of 2023, 16 million Filipinos use cryptocurrency due to a large unbanked population, high smartphone penetration, and reliance on remittances, all of which contribute to widespread adoption.

WALL STREET GIANTS SWITCH SIDES

BlackRock and Fidelity have recently made significant moves into the cryptocurrency space. Both firms

WORLD ECONOMIC JOURNAL

iShare Bitcoin Trust (IBIT)

Source: Yahoo Finance (BlackRock's Spot Bitcoin ETF (IBIT) Quote, as of 13/12/2024)

PHOTO: FEDERAL RESERVE BOARD OF GOVERNORS

launched spot Bitcoin ETFs that saw unprecedented success, each securing almost $4 and $3.5 billion, respectively, in assets within the first month.

This transition is influenced by the growing recognition of Bitcoin as a potential: 1. Hedge Against the Risks of the Financial System An essential component in the success of these ETFs has been Bitcoin's rising appeal as a hedge against conventional financial system risks.

Investors are seeking substitutes for conventional assets, and Bitcoin's decentralised nature and limited supply appeal to them. Unlike government-issued currencies, which may be printed at will, Bitcoin's maximum supply is capped at 21 million coins, generating scarcity and appealing to investors concerned about inflation.

2. "Digital Gold" Bitcoin is increasingly being recognised as "digital gold" because of its properties as a store of value and a hedge against inflation. Like gold, Bitcoin is considered a possible safe-haven asset, able to guard against the dangers related to conventional financial institutions. This view has attracted notable institutional interest in Bitcoin ETFs as well as investment in them.

• BlackRock's Spot Bitcoin ETF (IBIT) Earlier this year, BlackRock debuted its spot Bitcoin ETF, IBIT. The ETF has now amassed over $10.6 trillion in assets under management (AUM).

This makes it the most successful new ETF in the last four years. IBIT has outperformed all 50+ regional European ETFs combined, some of which have been around for over 20 years. The success of IBIT highlights how institutional investors are rapidly embracing Bitcoin and cryptocurrencies.

Federal Reserve Chair Jerome Powell recently compared Bitcoin to gold rather than the US dollar at the DealBook Summit. "People use Bitcoin as a speculative asset. It's like gold—it's just virtual and digital," Powell stated.

Source: Chainalysis (Global Crypto Adoption Index Score, 2024)

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[ DIGITAL ASSETS & CURRENCIES ]

THE RIPPLE EFFECT OF INSTITUTIONAL MONEY FLOWING INTO CRYPTO MARKETS The influx of institutional money into the crypto markets has had several notable effects: Effect: Increased Liquidity Market Implications: Institutional investors provide large capital to the Bitcoin market, therefore driving considerably higher trading volumes.

The influx of capital improves market liquidity, enabling both institutional and retail investors to purchase and sell cryptocurrencies without significant price movement. Increased liquidity also reduces transaction costs and improves market efficiency.

Effect: Market Stability Market Implications: The participation of large financial institutions provides credibility and trust to the Bitcoin market. More investors, including people who were hesitant to get into the market before, are drawn in by this newfound trust. Consequently, the market gets more stable with less “dramatic” price swings and less pricing volatility.

Effect: Market Maturity Market Implications: The presence of Wall Street titans suggests a developing state of the Bitcoin industry. This maturity encourages more acceptance and interaction with current banking systems. Often bringing sophisticated investing strategies and risk management approaches to the market, institutional investors serve to fuel the general growth and professionalism of the market.

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Effect: Development o f Financial Products Market Implications: Institutional presence encourages the creation of new financial products other than exchange-traded funds (ETFs), such as derivatives and other investment vehicles geared towards professional investors.

Effect: Regulatory Clarity Market Implications: The involvement of institutional investors typically leads to improved regulatory frameworks. Regulators understand the significance of giving institutional investors clear standards and regulations, which will in turn benefit the market as a whole. To open the path for institutional adoption, the European Union's Markets in Crypto-Assets Regulation (MiCA), for instance, aims to create regulatory clarity and unite legislation across the region.

Effect: Broader Adoption Market Implications: As institutional investors embrace cryptocurrency, it encourages greater acceptance in many different sectors.

Businesses and financial institutions may start to look into how they can use blockchain technology and digital assets in their own operations.

This could lead to more new ideas and the full integration of cryptocurrencies into the world economy.

With the Bitcoin ETF sector drawing a net influx of $6.2 billion, the November data demonstrates excellent development. Although questions of market governance and security remain major challenges, this institutional adoption points to a mature sector in which digital and traditional finance are convergent.

WEJ | December 2024 - January 2025

• Fidelity's Spot Bitcoin ETF (FBTC) Fidelity also debuted its spot Bitcoin ETF, FBTC, which in its first month of operations had amassed about $3.5 billion in AUM. This rapid buildup is evidence of the significant investor interest in Bitcoin as a vehicle of investment. With the sector having a net inflow of $6.2 billion in November 2024 alone, Fidelity's ETF has been part of a larger trend of record-high inflows into Bitcoin ETFs.

NATIONS FIGHTING FOR DIGITAL SUPERIORITY

Countries across the globe have varied approaches to regulating and developing cryptocurrency. As China adopts a government-backed digital currency, the United States opts for careful regulation, while the European Union builds structured frameworks.

These contrasting strategies reflect each region's economic priorities and financial management philosophies.

• Why China Banned Bitcoin While Building Its Digital Yuan Concerns regarding financial risks motivated the People's Bank of China (PBOC) to enact a cryptocurrency ban in September 2021. This choice reflects larger state control over financial markets and fits the "common prosperity" strategy of the nation.

Despite forbidding private cryptocurrencies, China is actively developing its digital yuan (e-CNY or e-yuan).

This state-backed digital currency intends to modernise China's financial system and potentially challenge the US dollar's supremacy through faster, more affordable payment processing.

• How US Regulators Walk the Tightrope Between Innovation and Control The US approach balances technological advancement with market stability. President Biden's March 2022 Executive Order on ensuring Responsible Development of Digital

WORLD ECONOMIC JOURNAL

Fidelity Wise Origin Bitcoin Fund (FBTC)

Source: Yahoo Finance (Fidelity's Spot Bitcoin ETF (FBTC) Quote, as of 13/12/2024)

Assets outlined a whole-of-government approach to address the risks and harness the potential benefits of digital assets: • Consumer Protection: Safeguarding investors against market manipulation and fraud • Financial Stability: Managing risks to prevent systemic economic disruption • US Financial Leadership: Maintaining America's global economic influence • Financial Inclusion: Expanding access to banking services • Innovation Support: Fostering technological advancement while maintaining oversight The administration simultaneously explores CBDC possibilities, considering both opportunities and potential risks to the financial system.

• European Union's Calculated Approach to Cryptocurrency Adoption The EU's Markets in Crypto Assets (MiCA) Regulation represents a structured approach to digital currency integration. This framework prioritises market integrity through clear operational rules, consumer protection via investor safety standards, and financial stability by preventing market disruption while promoting growth.

The policy also supports innovation by creating space for technological advancement within regulatory bounds.

The EU strategy demonstrates how governments can embrace cryptocurrency benefits while maintaining financial system stability. This balanced approach allows for digital currency innovation without compromising market security or consumer interests.

Each region's distinct strategy reflects differing priorities: China emphasises a state-backed solution, the US balances innovation with regulation, and the EU provides structured integration. These approaches shape how digital currencies will function within global finance.

THE HIDDEN COSTS OF FINANCIAL FREEDOM

The “financial democratisation” through cryptocurrencies presents risks and expenses affecting investors and economies worldwide. Like other transformative financial tools, these digital assets bring significant operational, security, and environmental considerations.

• Why Bitcoin's Price Swings Keep Central Bankers Awake Bitcoin's value fluctuations pose significant concerns for financial regulators. Central banks monitor these price movements closely, as they can affect overall market stability and investor confidence. These rapid value changes occur due to various factors, including regulatory announcements,

economic events, and market sentiment shifts.

For example, when China banned cryptocurrency mining, Bitcoin's value dropped 50% within weeks. Interest rate announcements often trigger immediate price reactions. Largescale trading activities by institutional investors can also cause sudden price movements.

• Tales from the Dark Side of Cryptocurrency Theft and Fraud The cryptocurrency sector faces ongoing security challenges. Notable cases like the FTX collapse and BitConnect scheme highlight vulnerabilities in digital asset systems. The decentralised structure of cryptocurrencies, while offering freedom from traditional banking systems, creates opportunities for fraudulent activities.

Regulatory bodies work to address these security concerns through: • Enhanced monitoring systems for suspicious transactions: Coinbase uses the blockchain in partnership with law enforcement to prevent illicit activity in crypto • Stricter requirements for cryptocurrency exchanges: Mandatory proof of reserves after major platform failures • Improved investor protection frameworks: the US Securities and Exchange Commission (SEC) man15

[ DIGITAL ASSETS & CURRENCIES ]

• The Environmental Price Tag of Mining Digital Gold Cryptocurrency mining operations leave a considerable environmental footprint. The computational power required for mining consumes substantial energy resources, contributing to increased carbon emissions.

Industry participants have begun implementing solutions to address these environmental concerns: •N ew ASIC chips drastically reduce power consumption compared to previous generations; •M ining operations powered by hydroelectric plants in Norway and solar farms in Texas; •H eat recycling from crypto mining farms for energy for greenhouses; •P roof-of-stake validation reduces energy usage by 99% compared to proof-of-work.

The environmental impact of cryptocurrency mining has sparked

industry-wide discussions about sustainability. While efforts to reduce energy consumption continue, the balance between maintaining network security and environmental responsibility remains a key challenge for the cryptocurrency sector.

These hidden costs demonstrate that financial innovation through cryptocurrencies requires careful consideration of its broader implications for society, the economy, and the environment.

SMALL COUNTRIES PLACE BIG BETS

Smaller countries are leading the way in cryptocurrency adoption, driven more by practical financial needs than speculative interests. These developments provide valuable perspectives on how digital currency can be integrated on a national level.

• El Salvador's Bitcoin Push El Salvador's adoption of Bitcoin as legal tender in September 2021 represented a significant shift in the country's currency policy. The government distributed $30 worth of Bitcoin to each citizen through Chivo

Global Index score by quarter Q3 2021 — Q2 2024

Source: Chainalysis (Global Adoption of Cryptocurrency, Q3 2021-Q2 2024)

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WEJ | December 2024 - January 2025

"Anything that can conceive of as a supply chain, blockchain can vastly improve its efficiency­—it doesn't matter if it's people, numbers, data, money," former IBM CEO Ginni Rometty rightly pointed out.

Wallet while installing Bitcoin ATMs nationwide for easy access. Strategic Bitcoin purchases during price dips and plans for a blockchain bondbacked Bitcoin City demonstrate the government's commitment to this financial experiment.

• Why Emerging Markets Lead Crypto Adoption Despite the Risks Countries like India, Nigeria, and Indonesia demonstrate strong cryptocurrency usage patterns, driven by fundamental financial needs. In underserved regions, cryptocurrencies provide essential banking services and reduce international money transfer fees. Argentine workers, for example, convert salaries to stablecoins to guard against peso devaluation.

• Practical Applications in Developing Economies The Chainalysis 2024 Global Crypto Adoption Index highlights several key uses: •L ocal market purchases and bill payments • I mport-export payments without currency conversion fees •F amily support payments across borders •G uard against local currency inflation

ФОТО: ASA MATHAT / FORTUNE LIVE MEDIA / CC BY 2.0,

dated disclosure requirements for crypto investment products • International cooperation on cybercrime prevention: Joint task forces between financial intelligence units worldwide

WORLD ECONOMIC JOURNAL

Local businesses show varying levels of adaptation to the new currency system. Street vendors quickly adopted Bitcoin for small transactions, while retail stores implemented dual pricing systems. Service providers integrated cryptocurrency with existing payment methods, and the tourism sector reported increased interest from crypto-enthusiastic visitors.

BEYOND THE BITCOIN BUZZ

Cryptocurrency's impact extends far beyond speculative trading as central banks, supply chains, and legal frameworks adapt to the technology's expanding influence.

• Why Central Banks Race to Launch Digital Currencies Central banks worldwide are rapidly developing and piloting CBDCs to modernise financial systems, enhance financial inclusion, and maintain economic stability. Here's how this phenomenon is taking shape all around the globe: 1. The European Central Bank (ECB) is making substantial progress in its efforts to introduce a digital euro. The creation of a Digital Euro Rulebook is the most important aspect of the project. The purpose of this rulebook is to standardise payment procedures throughout the eurozone and to create a consistent user experience. The project intends to improve the payment infrastructure of the eurozone and lessen the region's reliance on international payment giants such as Visa and Mastercard and other similar organisations.

2. China leads CBDC implementation with its digital yuan (e-CNY or e-yuan) across 26 regions in 17 provinces. The PBOC has been developing the digital yuan since 2014, aiming to elevate the status of the renminbi and challenge the dominance of the US dollar. The digital Yuan offers faster, cheaper, and more

secure transactions compared to conventional methods. As of the end of June 2023, the total transaction value of the digital yuan stood at 7 trillion yuan (US$968 billion), which is almost four times the 1.8 trillion yuan noted a year prior, as reported by the PBOC. 3. The G20 and G7 have prioritised digital finance, recognising its potential to foster economic stability and financial inclusion. These international forums are working to establish global standards and frameworks for CBDCs to ensure interoperability and security.

The race to launch CBDCs is driven by the need to modernise financial systems, enhance financial inclusion, and maintain economic stability. As central banks continue to develop and pilot these digital currencies, the global financial landscape is set to undergo significant changes.

• The Quiet Revolution of Blockchain in Supply Chains Blockchain technology is transforming supply chains by providing transparency, traceability, and efficiency.

Companies such as IBM and Oracle

Coinbase CEO Brian Armstrong puts it boldly: "I do think some digital currency will end up being the reserve currency of the world."

are using blockchain to establish tamper-proof transaction records, which ensure product legitimacy and regulatory compliance. This technology enables organisations to track things from origin to destination, check storage compliance, and streamline payments via smart contracts.

Benefits of Blockchain in Supply Chains: 1. Transparency: Decentralized, immutable ledgers allow stakeholders to verify all transactions 2. Traceability: Product journeys from origin to destination remain permanently recorded 3. Efficiency: Smart contracts automate tasks, reducing intermediary needs 4. Compliance: Tamper-proof records provide reliable audit trails 5. Fraud Prevention: Real-time visibility enables quick discrepancy detection Real-world applications include: • Food Safety: IBM Food Trust connects farmers, distributors, and retailers • Healthcare: Pharmaceutical tracking prevents counterfeit drugs • Retail: Authentication systems for luxury goods and diamonds • Automotive: Component sourcing and quality standard verification • Smart Contracts vs. Traditional Legal Frameworks Smart contracts, self-executing agreements with the terms directly written into code, are challenging traditional legal frameworks. They offer automated execution of contractual obligations, reducing the need for intermediaries and increasing efficiency. However, integrating smart contracts into existing legal systems poses challenges, such as 17

[ DIGITAL ASSETS & CURRENCIES ]

KEY COMPARISONS BETWEEN SMART CONTRACTS AND TRADITIONAL LEGAL FRAMEWORKS

FEATURE

SMART CONTRACTS

TRADITIONAL LEGAL FRAMEWORKS

Execution

• Automated via blockchain code • Self-enforcing when conditions met • Instant execution

• Manual processing • Requires human intervention • Can take days or weeks

Intermediaries

• Direct party-to-party transactions • No middlemen needed • Reduced processing fees

• Lawyers required • Notaries often needed • Multiple intermediaries add cost

Security

• Immutable blockchain records • Tamper-proof design • Transparent transaction history

• Paper documents can be altered • Requires secure storage • Limited transparency

Verification

• Real-time tracking • Automated compliance checks • Permanent record on blockchain

• Manual verification needed • Physical document checks • Separate audit trails required

Challenges

• Technical expertise needed • Legal recognition issues • Cross-border jurisdiction questions

• Time-consuming processes • Higher costs • Physical document management

Cost

• Lower transaction fees • Minimal ongoing expenses • No intermediary costs

• Legal fees • Administrative costs • Storage and processing fees

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WEJ | December 2024 - January 2025

ensuring legal enforceability and addressing jurisdictional issues.

The integration of smart contracts marks a move towards agreement systems that are more automatic and efficient. However, it also brings up important legal and technical issues for future use around the world.

FIVE YEARS FORWARD

Global financial markets watch cryptocurrencies with growing interest as digital assets gain traction beyond speculative trading. Their integration into traditional finance accelerates through institutional investment products and central bank initiatives.

Instead of replacing fiat currency, digital currencies seem to be positioned to complement them. Data shows that they are most popular in emerging economies, where traditional banks fall short. These digital assets excel in cross-border payments, micropayments, and financial inclusion initiatives.

As cryptocurrency hubs grow outside of traditional financial centres, the balance of power in the world’s markets changes. While new payment structures allow programmable and real-time transactions, blockchain technology lessens dependence on existing middlemen.

Still, major challenges still exist.

Volatility issues still persist; scalability issues restrict transaction volumes; and unclear regulatory systems exist. CBDCs could offer a formal substitute, therefore influencing the acceptance trends of private cryptocurrencies.

Analytics note that in places where banking options are scarce, cryptocurrencies will expand exponentially.

This suggests a time when traditional and digital finance coexist peacefully, therefore promoting more inclusive and effective financial institutions.

As these trends quicken, investors should get ready for ongoing change in monetary institutions and payment systems.

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RESEARCH The analytical rating service WOD-Research regularly calculates ratings, indices; conduct analytical studies in the sustainable development of the world’s states and territorial entities of the countries, as well as international corporations

WOD-RESEARCH

IS THE SCIENTIFIC BASIS FOR DEVELOPING THE FOLLOWING TOOLS OF THE GLOBAL INITIATIVE #SDGAction33410, RECOGNIZED BY UN SDG GOOD PRACTICES: 1. Artificial Intelligence for the Development of Territorial Entities (AITE) 2. The Statistical Committee #SDGAction33410 3. Initiative to establish the United Nations Programme for Territorial Development

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PHOTO: OFFICIAL WHITE HOUSE PHOTO BY SHEALAHC RAIGHEAD; STEPHEN WALKER, TIM MOSSHOLDER / UNSPLASH; TOM BREWSTER / BUREAU OF LAND MANAGEMENT / CC BY 2.0

[ ANALYTICS ]

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WEJ | December 2024 - January 2025

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INVESTMENT ATTRACTIVENESS, FOREIGN DEBT, US INNOVATION POTENTIAL: A NEW ERA WITH THE RISE OF TRUMP The key stock indices of the US are trading near all-time highs.

By Anna Sokolidou

T

he key stock indices of the US are trading near all-time highs. The US interest rates are high as well. But many analysts expect the Fed to carry on easing its monetary policies. After all, the inflation rate is reasonably low, while the unemployment rate though not high, is not decreasing further.

Some of the optimism, however, can also be attributed to Donald Trump’s election victory. What are the market’s expectations in relation to Trump’s presidential term? It is widely expected that Trump would bring jobs

and industries that were relocated to China in the 2000s back to the US to create more jobs for US citizens.

Trump also promises to increase US oil production, cancel some regulations, and decrease US budget deficits.

He plans to do so by creating more jobs and therefore increasing tax revenues.

US ATTRACTIVENESS FOR INVESTORS

The US currency, the USD, is the world’s reserve currency. In other words, most countries’ foreign reserves are nominated in US dollars.

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Why is that? During World War II the US the Treaty of Bretton Woods was signed. Under the Bretton Woods agreement, gold was the basis for the USD. Meanwhile, other currencies were pegged to the USD. Even though the Bretton Woods system came to an end in the early 1970s under President Nixon who announced that the US would no longer exchange gold for the dollar, the USD is still considered as a good store of value and also as a medium of exchange in international trade.

This means that the demand for the US national currency is high and therefore its debt, the so-called US Treasuries, are bought by foreign investors. Moreover, the Fed is able to print more money to finance the US mounting national debt by issuing more dollars, while avoiding to make the US experience hyperinflation. This is due to the fact the USDs are exported abroad. In other words, many governments and foreign investors buy dollars in order to invest in US assets, to trade with other countries and to use the USDs to save money. In fact, residents of some developing countries where high inflation is recorded only keep their savings in foreign currencies, especially the USD, in order to

Sector Health care Information technology Financials Energy Consumer discretionary Communication services Consumer staples Matirials Industials Utilities Real estate

Share of value added to the gross domestic product of the United States in 2023, by industry

Source: Statista

protect their money from devaluation. That is why the dollar’s value does not depreciate as much despite mounting US government’s budget deficits and the Federal Reserve’s money printing. That is one of the main reasons why the US still has very high credit ratings issued by major credit rating agencies. Moody's

Price

Div yld

Buyback yld

Capital return yld

EPS (g)

LT e (r)

MOM P/E

373.3 664.6 158.9 258.5 405.8 107.2 275.9 348.0 388.2 145.6 987.4

1,7 0,7 2,7 3,9 1,2 1,1 2,9 13,0 1,8 4,0 3,6

1,0 1,1 2,2 3,9 1,4 2,4 0,9 1,1 1,5 -0,6 -1,4

2,7 1,8 4,9 7,8 2,7 3,5 3,8 4,1 3,3 3,4 2,2

5.0 3.9 0.7 -2.9 1.4 -0.4 0.5 -0.8 -1.6 -4.1 -4.4

7,6 5,8 5,6 4,9 4,1 4,0 3,3 3,3 1,7 -0,7 -2,2

17.0 48.6 34.5 23.4 29.4 44.7 6.9 16.8 30.5 2.6 9.9

Source: Saxo Bank

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still maintains a top rating, AAA, for the US government. Fitch, however, changed its rating from triple-A to AA+, also a very strong one, in August 2023, joining S&P, which has had an AA+ rating since 2011.

But what are other fundamental indicators of the US economy and its leading sectors?

WEJ | December 2024 - January 2025

18,9 28,5 12,9 11,1 19,9 18,4 18,5 17,0 20,1 14,0 25,3

PHOTO: DRAGOS CONDREA / ADOBE STOCK

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Most of the US GDP is due to the services sector.

The top three industries powering the US economy are finance, insurance, real estate, rental, and leasing; professional and business services as well as the services provided by the government. Other industries, including manufacturing, construction and mining are not as important as the services sector for the US economy.

As concerns investors’ opportunities and what sectors of the US economy look particularly attractive, MSCI has defined 11 sectors (as can be seen from the table on the previous page) capturing different parts of the economy and equity market.

The sectors highlighted in green are considered to be good investment opportunities by MSCI’s analysts.

Four of them (energy, consumer staples, health care, and utilities) are defensive sectors, which means that they are less responsive to changes in the economic cycles (changes in economic growth). So which industries offer the most attractive long-term gains?

As the table shows, the four most attractive industries are health care, IT, financials, and energy. Health care is the most attractive industry thanks to the highest expected real earnings growth which even exceeds the IT sector. A lot of growth has recently been due to Eli Lilly (LLY) and Novo Nordisk (NVO), companies selling obesity drugs.

According to experts, utilities and real estate, meanwhile, are the two worst sectors that do not offer longterm returns. Despite their dividend yield that is about 4%, these two sectors have rather poor balance sheets.

These two sectors heavily use debt to finance their operations. Moreover, higher bond yields on their debt puts financial pressure on them.

Only five sectors have positive real earnings growth estimates. So, to summarize, analysts think that

The four most attractive industries for investment are health care, IT, financial and energy intangibles offer better returns than old and capital intensive sectors.

The US economy is also famous for its high-tech sector. Information technologies and artificial intelligence seem to be investors’ top picks among all the industries included in the S&P 500.

However, we should also mention that the most popular sectors and companies are also the most overvalued ones.

For example, the Magnificent 7, consisting of Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA) has been accountable for 43.5% of the S&P 500’s growth in 2024.

The key risks investors, both domestic and foreign face are the following. First, the US interest rates are high and it is uncertain whether the Fed would ease fast enough to prevent recession in the country. The inflation numbers are reasonable but above the Fed’s 2% target, while the unemployment rate suggests the economy is sound.

So, the Fed may ease too slowly, thus provoking a recession soon.

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The inflation rate in the US

Source: TradingEconomics

The unemployment rate in the US

Source: TradingEconomics

Business Cycle

Source: Investopedia

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WEJ | December 2024 - January 2025

When, unemployment is low, inflation is above the Fed’s target rate, it means the economy is overheated.

When a country’s economy is overheated or is at the boom stage of the business cycle, it normally means that a recession may be close because after the peak stage there is traditionally a recession.

The US economic growth since the pandemic is somewhat higher than most developed economies’.

Gross national income per capita post-pandemic, meanwhile, is substantially above all the developed countries’.

Also, the US was the third most innovative country after Switzerland and Sweden from the top 15 countries.

Moreover, the US is the second most productive country after South Korea.

Also, the US is the most attractive to invest capital in.

For 2025, the IMF expects the US economy to grow 1.9%, versus 1.7% for all developed economies.

China, meanwhile, is expected to post 4.5% growth this year and 4.7% in 2025, after expanding 5.4% last year. The euro area’s economy is only forecasted to expand by 1.2% this year and 1.3% next year, compared to 0.2% growth last year.

According to the International Monetary Fund, US gross fixed capital formation—a broad measure of investment—will increase by 4.5% this year compared to 2023, more than three times the rate for all developed economies. For the 2016-2025 period, the IMF forecasts that US investment growth will total 3.3% a year on average, versus 2.3% for other developed economies.

Germany’s investment spending, meanwhile, is projected to decrease by 2.7% this year, after dropping by 1.2% last year.

Interestingly, from 2006-2015, US investment spending was rising 1.2% a year, roughly just like the rest of the developed economies.

PHOTO: DENNIS SCHROEDER / NATIONAL RENEWABLE ENERGY LABORATORY

[ ANALYTICS ]

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Another reason for the US greater economic potential is the US energy independence The main reason for such a gap between the US and Europe is due to the US increased investment in software equipment and intellectual property, which has caused a divergence in the growth rates. But another reason for the US greater economic potential is the US energy independence. So, the money EU firms spend on energy is money that could otherwise have been spent on repairing factories and investing in software to boost productivity.

According to the IMF September blog post, productivity rises by big US companies are the main reason why the US and Europe growth rates have diverged in recent years.

Now, let me talk to you about the US both public and foreign debts.

The difference between the two is that public debt is the general debt which is obtained by the US government, and foreign debts are only those debts which the US owes to all the foreign countries and institutions.

Both of these debts, as you can see from the graphs below are surging fast.

The US debt held by foreigners has increased from $5.793 trillion in 2013 to $7.933 trillion in 2023, while the country’s total public debt is above $36 trillion as of the time of writing. The US public debt is rising at a fast pace.

US FOREIGN DEBT

In 2023 two thirds of the US debt was held by the US companies, institutions and individuals, and one third was held by foreign residents and organizations.

But just over fifty years ago in 1970, just 5% of US-issued debt was held by foreigners. This means that the US government is more dependent on foreign capital.

US TOTAL PUBLIC DEBT

The reason why the US has such a high debt is due to its rising budget deficits.

As I have mentioned in the beginning

of this article, the gold standard under which the USD was tied to the price of gold was canceled by President Nixon in the 1970s. This allowed the US Fed to print more money to finance the US government’s surging expenditures. So, as can be seen from the diagram below, the US debt was negligible in the 1970s but has been mounting since then. It surged two times particularly dramatically, namely during the Great Recession in 2008 and in 2020 during the pandemic. This is due to the “helicopter money” that was made available by the US government to support the shattered economy during difficult times.

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Economic growth since the pandemic in developed economies

Gross national income per capita in selected economies

WIPO Innovation Index for the top 15 countries in 2023

The diagram on page 28 compares calendar years 2014 and 2024, and displays the difference in growth between public debt and intragovernmental debt. Both debt types combine to make up the national debt. They have risen by different amounts in the past few years. One of the main causes of the public debt surge is increased funding of government programs and services during the coronavirus pandemic.

Intragovernmental debt has not risen by much because it is mostly composed of debt owed on agencies’ excess revenue invested with the Treasury. The revenue of the largest investor in Treasury securities, the Social Security Administration, has not increased substantially in recent years, leading to this slower intragovernmental holding increase.

There are two major categories for federal debt: debt held by the public and intragovernmental holdings.

The debt held by the public has increased by 123% since 2014. Intragovernmental holdings have risen by 44% since 2014.

The US debt-to-GDP ratio is at the record highs since 1950 and is currently standing at 123%.

This debt rise is due to mounting government expenditures. The four main spending categories of the US government are Medicare (medicine, that is), social security (unemployment benefits, etc.), defense and interest on its debt.

Productivity growth among U.S. trading partners OECD projections of labor productivity of total economy relative to 2010

Portfolio investment inflows and outflows of selected economies 12-month sums through June 2024

Source: Real Economy

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Foreign holdings of debt have generally increased over the past decade Foreign Holdings of Public Debt (Billions of $)

Two-thirds of public debt is held by domestic holders Composition of Debt Held by the Public (Billions of $)

U.S. dependency on foreign lenders to finance the federal debt has risen over the last few decades

Source: Peterson Foundation

The US has always been famous for its new technologies. The Silicon Valley, the country’s most important innovation place, has been house to startups, many of which have grown to become international corporations.

The most active venture capital companies of Silicon Valley are Andreessen Horowitz, Accel Partners and Kleiner Perkins. These three companies have financed some of the most successful startups in the US, including Airbnb, Lyft and Twitter (X). Apart from financing, these firms provide their portfolio companies with mentorship that can support them in a rapidly changing high-tech world.

Venture capital is a form of private equity and a common source of financing for startup firms with high growth potential. Venture capital companies provide support through financing or mentorship. As their name suggests, venture capitalists are not conservative investors and are not interested in large sound corporations with long operational histories. Instead, its business involves investing in high-risk businesses in the hope to generate high returns. For example, one of the best US investments so far has been Amazon. Amazon raised $8 million from Kleiner Perkins Caufield & Byers, one of the VC firms I have just mentioned,

in 1995. In 1997, Amazon went public to raise additional money. By 1999, the value of the Kleiner Perkins Caufield & Byers $8 million investment in Amazon created returns of over 55,000%.

But not all high-tech companies so far have been as successful as Amazon.

Investing in high-tech is very risky.

This was especially true during times of the Dot.com bubble. It was the time in the 1990s when both professional and amateur investors rushed to panic buy high-tech companies’ shares.

Needless to say that most of these stocks were issued by highly mediocre companies and their stock prices did not match the companies’ fundamen27

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Intragovernmental holdings and debt held by the public, CY 2014 and CY 2024

Source: Fiscal Data Treasury.com

Federal Debt trends over time, FY 1948 - 2024

Source: Fiscal Data Treasury.com

Total public debt

tals. In some cases, some of the shares were ridiculously overvalued. So, investing in companies just because they deal with innovations does not guarantee high returns.

Nowadays the most popular hightech giants are the Magnificent 7, namely Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla. Their total market caps make a substantial proportion of S&P 500. According to Nasdaq, their proportion of S&P 500’s capitalization is about a third.

Many analysts forecast that generative artificial intelligence (AI), 5G expansion, internet of things, autonomous vehicles and green energy are just some fields that are predicted to grow in the next 5 years. High-tech giants, namely the whole Magnificent 7 but especially Nvidia, is subject to AI technologies growth. In fact, Nvidia has risen to the top of AI investments because it has become the building block on which AI models are built and trained. Its graphics processing units and the software that controls them, CUDA, are considered to be best of class. Big tech companies, including Amazon, Meta, Microsoft, and Alphabet are among Nvidia's biggest clients, making up roughly 40% of its revenue. Also, autonomous vehicle companies, like Tesla, are significant customers of Nvidia too.

Most of the Magnificent 7 firms are also linked with the internet of things sector. Tesla, meanwhile, produces EVs and solar batteries and aims to develop a fully autonomous vehicle.

So, it has exposure to green energy and in the future could have exposure to autonomous vehicles.

TRUMP’S ELECTION

Source: U.S. Department of the Treasury. Fiscal Service

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Trump’s key election promises included tax cuts for businesses, deportation of undocumented migrants and building a wall on the border with Mexico, sweeping tax cuts, making tips tax-free, abolishing tax on social security payments and shaving corporation tax.

PHOYO: OFFICIAL WHITE HOUSE PHOTO BY JOYCE N. BOGHOSIAN

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Investing in companies just because they deal with innovations does not guarantee high returns Mr. Trump has also proposed new tariffs of at least 10% on most imported goods, to cut the US trade deficit.

Imports from China could be subject to additional 60% tariff. The newly elected President also promised to cut climate regulations and end the war in Ukraine.

In my view, even if these promises are kept, the effect of these measures on the US economy will rather be indirect but serious. To start with, the US-China relations will likely deteriorate following the tariff rise.

However, the US-China confrontation will not only amount to only a new trade war escalation. In addition to rising tariffs on US goods in China and rising tariffs on Chinese goods in the US, the tensions around Taiwan would also rise. This is problematic for the US economy because a lion’s share of semiconductors is made in Taiwan. Semiconductors are a key component in electronics. They are used in televisions, computers, tablets, and smartphones. However, there is also demand for semiconductors in other industries, such as healthcare, transportation, communications, and military systems.

60% of the world’s semiconductors are due to Taiwan. This means that many industries in the US and other countries, including, military systems, transportation, healthcare

and electronics will suffer from semiconductor shortages, which will lead to underproduction and higher consumer prices in these industries.

So, the seriousness of the problem cannot be underestimated. Levying tariffs on Chinese goods will lead to higher US inflation numbers because many Western companies produce their goods in China. And if these imported goods still get imported to the US, they will be sold at much higher prices, thus leading to higher inflation numbers.

Deteriorating US-Mexico relations would likely also lead to higher tariffs between Mexico and the US. If the US cuts its taxes, it would lead to even higher budget deficits that would in turn cause galloping inflation. As I have mentioned above, budget deficits lead to surging national debt. In order to service it, the Fed prints more money, thus pushing the USD supply and therefore inflation upwards. Obviously, higher inflation numbers will make the Federal Reserve tighten monetary policies soon.

In turn, this may provoke a recession, thus negatively affecting consumers, investors and businesses. In addition, a trade war can add to poor investors’ and business expectations as well as stock market selloffs.

Mr. Trump also intends to bring US oil supply even further upwards.

In order to achieve that, he plans to cut some of the climate regulations.

However, I do not personally think that oil majors would automatically raise the oil production after that.

Instead of raising output, it is the best for oil companies to strengthen their balance sheets and pay higher dividends to their shareholders.

As concerns Mr. Trump’s desire to stop the war in Ukraine, he has to somehow make Russia and Ukraine reaches a compromise and signs a peace agreement. This may not happen if any of the sides disagrees with the peace conditions. However, even if the peace talks fail, there is chance 29

[ ANALYTICS ]

the US might supply fewer arms to Ukraine. Mr. Trump has recently told NBC News that Ukraine will likely receive less US aid once he officially starts serving as the US President.

This will lead to some form of agreement and therefore peace. Moreover, if the two sides reach a peace agreement, the collective West-Russia relations might get less tense than they are now. I do not personally think the sanctions will be canceled but the situation would not be as dangerous as it is now. At the very least, the risk of the World War III will not be as evident as it is now.

Another key issue under Donald Trump’s presidency will be de-dollarization of BRICS+ countries. Recently, Trump said he would require from BRICS countries to cancel their plans to create a new common currency. If they do not fulfill this requirement, they will face 100% tariffs during Mr. Trump’s presidential term. This simply means that BRICS’ countries goods will get two times more expensive for US consumers, which obviously means the demand for goods from these countries will substantially drop.

But still tariffs are not the only measure Trump’s administration can take to make the lives of BRICS+ members more difficult. Quotas, limits on the supply of imported goods, and an embargo on certain products, complete prohibition to import some goods, can also be applied to limit trade from BRICS+ countries, most notably China. The US has a very high trade deficit with this country and China can be substantially affected by these measures because it is the largest importing country to the US, even Mexico and Canada import fewer products to the US than China.

According to Trump, the BRICS+ members are trying to stop using the USD in international trade. Obviously, this is a threat to the USD as the world’s reserve currency. If 30

If the US cuts its taxes, it would lead to even higher budget deficits that would in turn cause galloping inflation many countries start trading in their national currencies or using a new common currency, other than the USD, the demand for the USD will fall substantially. That is why the US government will be unable to sell its debt abroad, while investors will be less willing to buy the USDs and invest them in American assets. That is why the US government will be unable to keep raising its debt to the extent it is doing now, while the Fed will not be able to print that much money without making inflation get out of control.

As concerns the global markets, they might not use the USD as often as they used to, following the BRICS+ de-dollarization. The BRICS+ members currently account for 35% of the global economy, based on the purchasing power parity indicator.

Also, India and China are the biggest buyers of commodities, especially oil. So, commodities markets might slowly move away from the USD and non-BRICS countries might slowly switch to other currencies to hold in foreign reserves. Other currencies, including the Chinese yuan, might get

WEJ | December 2024 - January 2025

more important for the global markets. Alternatively, a common BRICS+ currency can be created. It can be a digital currency or a cryptocurrency backed by gold.

BUT HERE IS WHAT SOME OF THE KEY EXPERTS SAY ABOUT THE FUTURE OF THE US ECONOMY UNDER DONALD TRUMP:

E&Y’s US economic forecast following Donald Trump’s victory • “Solid income growth, pro-cyclical productivity growth and strong labor force participation remain the key pillars to the US economic outperformance. Selective consumer prudence in the face of high prices continues to drive disinflation, allowing the Fed to recalibrate monetary policy toward a more neutral stance. What appears to be unfolding before our eyes is a soft-landing scenario only the most optimistic dream of.

• Looking ahead to the next six months, we foresee consumers and businesses still spending but doing so more prudently amid still-elevated costs and rates. We continue to expect a bifurcated consumer spending outlook with lower-income households with larger debt burdens exercising more spending restraint while families at the higher end of the income spectrum still spending, albeit with more discretion.

• Factoring the changes to immigration, regulatory, trade and tax policy, we foresee minimal changes to the GDP growth, inflation and Fed outlook in 2025, but more pronounced changes to the 2026-27 outlook.

• In short, we foresee real GDP growth at 2.7% in 2024, easing toward trend growth at 2.0% in 2025 (marginally lower than previously), and 1.7% in 2026 (about 0.3 percentage points (ppt) lower than previously). In 2027, we foresee growth picking up modestly to 1.8% (about 0.2ppt lower than previously).

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PHOTO: MICHAEL PROBST / AP

• We foresee headline CPI inflation closing the year around 2.4%, easing to 2.3% in Q4 2025 (marginally higher than previously) and 2.3% in Q4 2026 (about 0.3ppt higher than previously).

• We continue to expect a 25bps cut to 4.25-4.50% in December.

Thereafter, we believe the Fed may decide to slow the recalibration process as policymakers more carefully feel their way to a neutral policy stance. Considering the elections results, we now assume a rate cut at every other meeting in 2025, for a total of 100bps of easing in 2025, down from 150bps previously. This would leave the federal funds rate at 3.4% at the end of 2025.”

Capital Economics’ forecast following Trump’s win: • “For the US economy, a consensus is now forming that Trump’s re-election will result in stronger GDP growth fuelled by lower taxes and fiscal expansion. We’re not so

sure. If nothing else, the absence of a filibuster-proof majority in Congress will make it harder for Trump to pass a very large package of tax cuts.

More fundamentally, the US economy is now in a very different place to where it was during his first administration in 2016. The federal budget deficit is larger and the government debt burden is higher, meaning a major fiscal expansion would risk a strong backlash in the bond market.

What’s more, even if Trump pressed on regardless, with the economy at close to full employment this would be more likely to generate faster inflation than it would higher output.

• Indeed, while there remains enormous uncertainty about the policies that a Trump administration would enact (as well as when they might take effect), the common thread running through the president-elect’s campaign pledges is that they would be inflationary.

Curbs on immigration, substantially higher tariffs and tax cuts (if

they materialise) would all stoke price pressures. Accordingly, we are minded to add around 1% to our US inflation forecast between mid-2025 and mid-2026. We have also revised up our forecast for US interest rates by 50bps, and now anticipate that they will trough at 3.50-3.75% in this cycle. That means we now expect higher US government bond yields and a stronger dollar.”

In conclusion, Trump’s victory can have a substantial effect on the international relations, including global trade. However, the US might experience a recession due to too high interest rates, and the Fed not reacting to the economist slowdown fast enough. The key question regarding the US economic well-being remains the de-dollarization threat.

If many countries move away from the US dollar, it will be a substantial problem for the surging US debt and the Fed’s inability to print more money without causing hyperinflation.

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INFLATION, CLIMATE, TECHNOLOGICAL REVOLUTION, AND SOCIAL CHALLENGES

By Anna Sokolidou

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WEJ | December 2024 - January 2025

PHOTO: DRAGUN3D / SHUTTERSTOCK.

[ ANALITYCS ]

WORLD ECONOMIC JOURNAL

T

he year 2024 has been full of economic and geopolitical risks. The conflicts in Ukraine, the Middle East, as well as uncertainty around US-China relations have been some of the key political risks. The BRICS+ expansion is also considered to be a risk to the US global dominance. Most developed countries’ economies, meanwhile, have showed signs of slowdown.

The US Fed has got more dovish. Donald Trump’s victory is also considered to be a piece of good news for the US economy. So, most analysts expect a soft landing for the US economy. Let me explain what to expect for the coming 2025.

INFLATION

One of the key economic risks is broadly considered to be inflation, the gradual rise in the general price level. Even though moderate inflation is considered to be an absolute economic norm, uncontrollable inflation has always been one of the key risks to macroeconomic stability and one of the main causes of the poverty.

Traditionally, there are two types of inflation, namely the cost-push inflation—when prices rises due to rising costs of raw materials—and the demand-pull inflation—when consumer demand exceeds supply. However, another cause of inflation has traditionally been liquidity supply rising due to uncontrolled money printing by central banks.

During the recent economic crisis, namely the 2020 coronavirus pandemic there were all three reasons for surging inflation. First of all, in order to prevent the economic crisis from getting out of control, many governments in developed countries organized excessive “helicopter money” to support their companies, banks, stock markets and ordinary households. To start with, the Fed, the ECB and the Bank of England all brought their interest rates

to record lows. Moreover, the Fed and the ECB also started their quantitative easing (QE) programs. By this I mean they started buying back government bonds in order to fuel their economies with extra liquidity. Moreover, many businesses were also subsidized for not making their employees redundant.

Citizens also got generous unemployment benefits. For example, in the US many households received social welfare checks in order to enable them to spend more. As a result, too much money ended up chasing too few goods, thus making the general price level go up. But it was not the end of the inflation story. As observed by the White House, during the coronavirus crisis, it became clear that global supply chains were turning insignificant shocks into macro-level consequences.

For example, individual companies stopped operating due to coronavirus-related lockdowns. This created sectoral supply deficits that made the prices go up. This is especially true of the transportation and logistics industry. Supply chain disruptions and delays at ports led to record high prices for imports to the US during the coronavirus crisis. At their peak, spot shipping

Shipping prices for containers coming from China to US West Coast ports surged to more than 1000% of their 2019 levels

prices for containers coming from China to US West Coast ports surged to more than 1000% of their 2019 levels as can be seen from the graph below.

You could see that there is a strong correlation between supply chains and inflation from the Global Supply Chain Pressure Index graph below. The index grew dramatically over the first year of the pandemic, touching its highest-ever level in April 2020, only to reach an even higher peak by December 2021.

Since then, the index has decreased.

Recent research estimates that sectoral supply chain bottlenecks were responsible for a substantial share of total observed US inflation from 2021 to 2022 (Comin et al. 2023, Giovanni et al. 2022). According to Santacreu and LaBelle (2022), supply chain disruptions during the lockdowns were a large component of cross-industry inflation for producers.

But what did higher inflation readings lead to? Well, they led to extra expenses for consumers, companies and the government. In order to cope with the rising prices, everyone has to spend more. At the same time, the incomes might not rise proportionally with prices. For example, companies selling goods might face higher raw material costs but their customers might be unwilling to pay for the extra expenses.

The same is true of employees. They might face higher living costs but might not necessarily start receiving higher salaries from their employers. Uncontrolled inflation makes planning more difficult. When this happens, not just companies but also governments do not know exactly how to plan their budgets.

For example, the government does not know by how much to raise taxes and by how much to increase social benefits.

Firms cannot accurately plan their expenses and estimate by how much to raise prices.

But most seriously affected by inflation, in my opinion, are consumers and savers. Consumers are unable to consume as much as they used to because 33

[ ANALITYCS ]

Spot shipping prices from China to US West Coast

Global supply chain pressure index

Source: The White House

their incomes do not rise proportionately with inflation. Savers’ deposits also do not cover rising inflation numbers.

So, their real savings also decrease.

How do governments usually deal with rising inflation readings?

Normally central banks play the key role here. They increase the interest rates and in some cases start quantitative tightening (QT) programs. These measures help take extra liquidity of the market, while decreasing consumer demand thanks to the lack of cheap credit. After the Covid-19 pandemic when inflation numbers surged, the Fed first stopped the quantitative easing (QE) program and started raising the interest rates.

Alternatively, governments fight cost-push inflation by imposing price controls and ensuring supply of key raw materials. This was the case in the 34

1970s after the oil crises, when the US established the Strategic Petroleum Reserve (SPR) of up to one billion barrels of petroleum. The SPR was set when President Ford signed the Energy Policy and Conservation Act (EPCA) on December 22, 1975.

Before that wars in the Middle East made the US and many other Western countries experience oil deficits. Poor fuel supplies made the general prices surge in the countries concerned.

In order to somehow prevent such situations from happening, the SPR was established. This proved as an effective measure. But in addition to that, the US government also financed additional drilling or fracking to increase the country’s oil production.

This did not only prevent the US from fuel deficits, it also helped decrease inflation readings.

WEJ | December 2024 - January 2025

But if we take inflation levels in developed countries and compare these to developing countries, we will see that developing economies have substantially higher inflation numbers.

However, in the EU and the US the target inflation rate is fixed at 2%, which is an average reasonable inflation level. However, other countries where inflation is a much bigger issue, For example, the central bank of Türkiye set a target inflation rate of 5%. But its 2023 inflation rate totaled a whopping 64.77%. A higher inflation target is set in Türkiye compared to developed economies due to the structural transformation in Türkiye in the recent years as well as history of high inflation readings.

The EU has traditionally experienced periods of low inflation due to its low economic activity. In other words, the EU’s GDP growth has been low for a while and before the stimulus measures the ECB took during the Covid-19, the EU’s inflation readings have been very moderate and even below the 2% target range.

As concerns the US, due to the fact the US dollar is still the world’s reserve currency and also a medium of exchange, the demand for America’s national currency is high. Therefore, the US avoids a situation when too much liquidity circulates in its economy. That is one of the reasons why inflation readings do not get out of control.

CLIMATE CHANGE

Climate change, sustainability and the “green agenda” are one of the most popular topics discussed during intragovernmental meetings and in international organizations. As the UN’s Secretary-General António Guterres pointed out in September, “the climate emergency is a race we are losing, but it is a race we can win”.

According to the UN, “rising temperatures are fueling environmental degradation, natural disasters, weather extremes, food and water insecurity, economic disruption, conflict, and ter-

WORLD ECONOMIC JOURNAL

PHOTO: NIRUT SANGKEAW / ADOBE STOCK

rorism. Sea levels are rising, the Arctic is melting, coral reefs are dying, oceans are acidifying, and forests are burning.

It is clear that business as usual is not good enough. As the infinite cost of climate change reaches irreversible highs, now is the time for bold collective action.”

• One of the main challenges highlighted by the UN are rising global temperatures.

Glaciers in Northern regions are already melting at a record fast rate, making sea levels rise. Almost two-thirds of the world’s large cities are based in areas at risk of sea level rise and almost 40% of the global population live within 100 km of a coast. If no measures to change the situation are taken, entire districts of New York, Shanghai, Abu Dhabi, Osaka, Rio de Janeiro, and many other cities could sink the next few decades, thus leaving millions of people without a shelter.

The last several years marked with record high temperatures. According to a September 2019 World Meteorological Organization report, we are at least one degree Celsius above preindustrial levels and close to “unacceptable” temperatures. The 2015 Paris Agreement on climate change recommends holding eventual warming below at least two degrees Celsius. But if the world does not slow emissions, temperatures could increase to above 3 degrees Celsius by 2100, causing damage to the environment. The Paris agreement is among the most important international incentives to battle climate change. After years since its entry into force, low-carbon solutions have become more common.

More and more countries and companies are setting carbon neutrality targets. Zero-carbon solutions are getting more competitive across economic sectors accounting for 25% of emissions.

• Another cause for concern is food and water insecurity.

Global warming affects everyone’s food and water security. Climate change is

We are at least one degree Celsius above preindustrial levels and close to “unacceptable” temperatures due to soil erosion, which limits the amount of carbon the earth is able to contain. About 500 million people nowadays live in places affected by erosion.

Meanwhile almost 30% of food is lost as a result. In addition, climate change limits the availability and quality of water for drinking and agriculture.

Obviously, substantial amounts of crops are lost as a result of water deficits. Global warming is likely to the

wealth gap between the world’s richest and poorest countries grow wider.

• New weather extremes are also a cause for concern for the UN. Natural disasters and weather extremes have recently become more frequent.

90% of disasters are considered to be weather- and climate-related, costing the world economy 520 billion USD each year. As a result, 26 million people are pushed into poverty.

• Also worth noting that climate change is a catalyst for conflict.

It raises competition for resources such as land, food, and water, thus raising social tensions.

Climate is a risk factor that makes already existing problems even worse.

For example, poor water supplies in Africa and Latin America lead to political unrest and violence. According to the World Bank, in the absence of action, more than 140 million people in Sub-Saharan Africa, Latin America, and South Asia will have to leave their homes by 2050.

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• Among the available solutions the UN proposes changing ways to grow food, use land, transport goods, and power our economies.

Among the proposed solutions are renewable energy, which is in some cases now the cheapest energy source. Also, the UN suggests making electric cars mainstream to decrease pollution.

Nature-based solutions, recommended by the UN to tackle climate change include “improved agricultural practices, land restoration, conservation, and the greening of food supply chains”. These measures would allow the world’s population decrease carbon footprint while also keeping vital ecosystem features, namely biodiversity, access to fresh water, improved livelihoods, healthy diets, and food security.

Among additional measures taken to battle climate change are CO2 emissions taxes. For example, in Germany as of 2021, there is CO2 pricing for the heating and transport sectors. Via the national CO2 emissions trading regulated in the Brennstoff-Emissionshandelsgesetz (BEHG, Fuel Emissions Trading Act), greenhouse gases emitted from heating and transport will have to be paid for. The German government will reinvest the income from CO2 emissions taxes in climate protection measures.

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Artificial intelligence seems to be the key change of 2024 and beyond Also, in China the concept of a circular economy is highly popular.

It involves encouraging of reducing, re-using and recycling. This means improving efficiency, where the input of resources is reduced, while output levels are raised. This leads to less production and therefore lower CO2 emissions.

Obviously, this also leads to battling climate change.

TECHNOLOGICAL REVOLUTION

• Artificial intelligence seems to be the key change of 2024 and beyond. Every business sector has been affected by AI. It seems likely to me that in 2025 the trend will continue. Even more advanced and specialized AI applications will be available to both businesses and individuals. Two types of AI, namely

WEJ | December 2024 - January 2025

Generative AI and Conversational AI, are expected to see substantial expansion and refinement.

Generative AI is used in many different industries, including healthcare. In medicine it is used to improve patient experiences and analyze large amounts of data. In supply chain optimization, Generative AI identifies patterns and trends and forecasts future insights.

Conversational AI, on the other hand, is significantly affecting the e-commerce, healthcare, and banking sectors. It is starting to properly understand and respond to human speech.

In medicine AI can help in transcribing patient experiences and encounters.

In 2025, we are likely to see even more advancement in natural language processing and machine learning, which will improve organizations' working processes to make them more productive.

All looks fine so far. But how would AI impact the employment market?

As I have mentioned above, AI can understand and respond to human speech and it can generate new content, including texts and images. Even though AI is not quite as creative and intellectually flexible as a human brain just yet, in some working processes it can even now replace human employees. For example, applications like Chat GPT generate reasonable quality con-

PHOTO: SUMMIT ART CREATIONS / ADOBE STOCK

[ ANALITYCS ]

PHOTO: RONNIE CHUA / SHUTTERSTOCK

WORLD ECONOMIC JOURNAL

tent. It can write summaries, rewrite texts in different words and generate translations. However, some editorial work is often needed to improve the content’s quality. But companies do not need to employ as many copywriters and translators as they did before. So, it is likely that many text professionals will face redundancies in the near future, in my opinion. Likewise AI is able to generate attractive and original images. This means that many designers may also lose their jobs. These are just few examples of how different professional can be made redundant.

Obviously, lower employment numbers mean higher economic and social risks, including lower consumption and higher levels of social discontent.

At the same time, AI can also create new jobs. Professionals able to operate AI apps will become more employable.

But overall, in my view, there will be fewer intellectual jobs available on the market.

• Another key trend of 2025 will likely be cybersecurity growth.

The importance of Internet of Things (IoT) security, particularly due to the expanding network of connected devices has risen greatly in 2024 and will only grow in 2025 and beyond.

There will be growth and development of more sound, standardized security protocols for the Internet of Things devices.

With this technology trend, companies would strengthen their cybersecurity investments and enforce effective strategies. But in order for them to be able to do so, they will have to employ more personnel to keep up.

• Software development in 2025 will only continue.

The year 2024 was significant for the growth of software development, driven by several key factors. Advanced technologies such as AI, machine learning, and cloud computing have already created new opportunities in software development. This trend allows developers to consistently innovate and improve their skills.

Many companies now employ expert machine learning and artificial intelligence engineers with knowledge and understanding of the industry who can quickly deliver high value. The demand for ML/AI engineers is set to increase by 40% from 2023 to 2027. Besides ML/ AI engineers, more software developers and DevOps engineers will be employed. In fact, the US Bureau of Labor Statistics says there will be a 26% growth in the demand for software developers in the next decade. So, more jobs opportunities for high-tech experts will become available.

• Industry Cloud Platforms In 2024, industry cloud platforms grew rapidly, marking a milestone in how businesses deal with cloud computing.

These platforms are indeed different from traditional cloud services. They offer solutions tailored to specific industries, including but not limited to healthcare, finance, manufacturing, and retail. This growth trend is fueled by the necessity to address industry challenges and requirements, including regulatory compliance and operational efficiencies.

The industry’s growth trend will also

attract more cloud engineers.

Overall, these new high-tech job opportunities will make more young people get information technology and similar high-tech degrees or take additional courses in artificial intelligence to improve their employability.

• Green energy Green energy is another big topic, which is getting popular even in developing countries. For example, China is working to decrease air pollution and also invests heavily to facilitate the circular economy concept to reduce emissions and increase sustainability.

However, in the past the green energy agenda was typical of developed countries such as the EU and the US. As the concept gains popularity, it seems likely that the demand for green energy sources will only rise.

As a result, more jobs opportunities will be created. For example, the production of wind turbines and solar batteries will rise. So, more factory workers to produce them will be needed. At the same time, the world will move slowly from fossil fuels, thus making employees working in this area redundant.

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[ ANALITYCS ]

SOCIAL INEQUALITY

38

The pandemic already set back the fight.

Extreme poverty increased after decades of decline

Impact of output shocks on inequality during stagnation

Source: IMF staff estimates.

Note: The response of the Palma ratio to a one standard deviation shock in output during stagnation spells, with long stagnations defined as lasting at least 4 years.

The Palma ratio measures the ratio of the income of the top 10 percent of the income distribution to the income of the bottom 40 percent. Shaded areas indicate 90 percent confidence intervals.

WEJ | December 2024 - January 2025

PHOTO: CATALIN LAZAR / SHUTTERSTOCK

Here is the IMF’s outlook regarding economic growth and growing social inequality: “The global economy is stuck in low gear, which could deal a major blow to the fight against poverty and inequality.

Group of Twenty finance ministers and central-bank governors gathering this week in Rio de Janeiro face a sobering outlook. As the IMF’s latest World Economic Outlook update shows, global growth is expected to reach 3.2 percent this year and 3.3 percent in 2025, well below the 3.8 percent average from the turn of the century until the pandemic. Meanwhile, our medium-term growth projections continue to languish at their lowest in decades.

To be sure, the global economy has shown encouraging resilience to a succession of shocks. The world didn’t slip into recession, as some predicted when central banks around the world raised interest rates to contain inflation.

Yet, as we move beyond the crisis years of the pandemic, we need to prevent the world from falling into a prolonged period of anemic growth that entrenches poverty and inequality.

The pandemic already set back the fight. Extreme poverty increased after decades of decline, while global hunger surged and the long-term decline

in inequality across countries stalled.

New IMF analysis suggests periods of stagnation lasting four years or more tend to push up income inequality within countries by almost 20 percent— considerably higher than the increase due to outright recession.

During periods of stagnation, sluggish job creation and wage growth increase structural unemployment and reduce the share of a country’s income flowing to workers. Together with limited fiscal space, these forces tend to widen the gap between those at the top and bottom of the income ladder.

In other words, the longer we’re stuck in a world of low growth, the more unequal that world would become. That in itself would be a setback to the progress we’ve made in recent decades. And as we have seen, rising inequality can foster discontent with economic integration and technological advancements.”

So, based on the IMF’s outlook, we will face slower economic growth, and more social inequality. But more affected will be developing countries. During the pandemic these countries’ poverty only got more stunning.

Most heavily affected was the Sub-Saharan Africa region. The numbers of the poor were surging during the pandemic and post-pandemic.

Also, in Latin America the number of the poor surged substantially.

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At the same time, the number of the rich surged substantially during the coronavirus crisis.

About $42 trillion in new wealth was created in the first two years of the pandemic. Two-thirds of that amount has made even wealthier the richest 1% of the world’s people, according to a report out Monday from the nonprofit organization Oxfam. In the US, billionaires are a third richer now than they used to be before the coronavirus lockdowns.

According to Elise Gould at the Economic Policy Institute, “So much of what typical people in the US have is based on their income and what they make in the labor market,” said. “But that’s not the case for the superwealthy”, she said.

That is because those at the very top of the wealth hierarchy are making successful investments in real estate, in companies, in the stock market, all of which have gone up in value during the pandemic simply because they have the money.

As mentioned by Molly Kinder at the Brookings Institution, “the stock market boomed through 2021”… “Companies did extremely well. They benefited from [Federal Reserve] policy, from low interest rates, from big government spending.” Obviously, when large businesses did extremely well, so did the very rich who had their money invested in them.

“And that’s because the bulk of stock in this country, of shares, are owned by the wealthiest households.

Upwards of 70% of all stock is owned by just the top 5% of richest households,” she said.

So, to conclude, if there is a serious economic crisis in 2025, the rich will only get richer and the poor will only get poorer. Stagnation expected by IMF in the next few years will not decrease social inequality. As a result, social discontent will intensify. Most affected countries will be more likely to face social unrest. International organizations, including the UN, do not play such a crucial role in fighting social inequality due to their inability

Nowcast of extreme poverty, 2015-2022, Global

Nowcast of extreme poverty, 2015-2022, Sub-Saharan Africa

Nowcast of extreme poverty, 2015-2022, Latin America and the Caribbean

Source: The White House

to intervene too much in sovereign countries’ internal affairs. However, the UN aims to encourage “equal opportunities and reduce inequalities of outcome, including by eliminating discriminatory laws, policies and practices and promoting appropriate legislation, policies and action in this regard.” At the same time, the UN can only recommend such measures

but cannot take them instead of local governments. Local governments and businesses can do much more to eliminate extreme poverty. Businesses can create more jobs, while governments can pay social security benefits, improve medicine and access to education. Moreover, governments can pass new laws ensuring fair labor conditions.

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10 CUTTING-EDGE URBAN SOLUTIONS

FOR ACHIEVING THE SDGS

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PHOTO: SIEMENS MOBILITY; ©2024 GRUNDFOS HOLDING A/S; GIVEPOWER; STAFFORDSHIRE COUNTY COUNCIL; SKY GREEN; AYHAN TUNALI / IN-VISIONEN.DE

[ MEGACITIES ]

WORLD ECONOMIC JOURNAL

1

WASTE-TO-ENERGY PLANTS Provider: Veolia, France SDGs: Responsible Consumption and Production, Climate Action Problem: Growing urban waste volumes and the need for alternative energy sources.

Solution: Veolia operates plants that convert solid municipal waste into electricity through combustion processes with energy recovery, reducing landfill volumes and providing renewable energy.

Features: • Produces up to 500 MW of electricity from waste • Reduces landfill waste volumes by up to 90% • Complies with strict emission standards

2

SOLAR DESALINATION PLANT Provider: GivePower, USA SDGs: Clean Water and Sanitation, Affordable and Clean Energy Problem: Limited access to clean drinking water in arid regions.

Solution: GivePower developed solar-powered desalination systems that convert seawater into drinking water using solar energy. The first such system was installed in Kiunga, Kenya, and can produce up to 75,000 liters of fresh water per day, meeting the needs of up to 50,000 people.

Features: • Production capacity: up to 75,000 liters of water per day • Zero-emission solar energy operation • Sustainable solution for remote and arid regions givepower.org

PHOTO: GIVEPOWER; LEEDS CITY COUNCIL 2024

veolia.com

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[ MEGACITIES ]

4

3

VERTICAL FARMS Provider: Sky Greens, Singapore SDGs: Zero Hunger, Sustainable Cities and Communities Problem: Limited space for agriculture in urban areas.

Solution: Sky Greens developed the world’s first commercial vertical farm using hydroponics and rotating racks to grow vegetables. These farms produce more yield in less space while using less water and energy.

Features: •1 0 times higher yield per square meter compared to traditional farming •U ses 95% less water • E co-friendly production with minimal environmental impact skygreens.com

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WEJ | December 2024 - January 2025

Provider: Navya, France SDGs: Affordable and Clean Energy, Sustainable Cities and Communities Problem: Urban road congestion and air pollution.

Solution: Navya produces autonomous electric shuttles already in use in cities like Lyon and Las Vegas for short-distance passenger transport, reducing emissions and improving mobility.

Features: • Fully electric with zero emissions • Capacity of up to 15 passengers • Integration with smart city systems navya.tech

PHOTO: SKY GREENS / MINISTRY OF NATIONAL DEVELOPMENT SINGAPORE; MATÍAS ANTONIASSI

AUTONOMOUS ELECTRIC SHUTTLES

PHOTO: MATÍAS ANTONIASSI; PIERRE SALOMÉ - "AISHUU"; COURTESY OF CITY OF ST. PETE BEACH

WORLD ECONOMIC JOURNAL

5

SOLAR-POWERED STREET LIGHTING Provider: Solar Street Lights USA, USA SDGs: Affordable and Clean Energy, Sustainable Cities and Communities Problem: High energy consumption of street lighting.

Solution: Solar Street Lights USA installs streetlights powered by solar panels that do not require grid connection, reducing CO₂ emissions.

Features: • Saves up to 100% electricity • Operates autonomously for up to 5 days without sunlight • Resistant to extreme weather conditions solarstreetlightsusa.com

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[ MEGACITIES ]

6

HYDROGEN BUSES

Provider: Toyota, Japan SDGs: Affordable and Clean Energy, Sustainable Cities and Communities Problem: Air pollution from public transport.

Solution: Toyota manufactures hydrogen buses powered by fuel cells, emitting only water as a byproduct, making them environmentally friendly.

Features: • Range of up to 400 km per refueling • Zero harmful emissions • Noise reduction and improved air quality toyota.com

URBAN ROOFTOP FARMS Provider: Gotham Greens, USA SDGs: Zero Hunger, Sustainable Cities and Communities Problem: Food scarcity in densely populated areas.

Solution: Gotham Greens creates rooftop farms that grow fresh vegetables in urban settings with minimal transportation costs.

Features: • Year-round organic vegetable cultivation • Saves up to 90% water compared to traditional farming • Reduces carbon footprint through minimized transportation gothamgreens.com

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WEJ | December 2024 - January 2025

PHOTO: TOYOTA MOTOR CORPORATION; GOTHAM GREENS

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8

SMART WATER MANAGEMENT Provider: Grundfos, Denmark SDGs: Clean Water and Sanitation, Sustainable Cities and Communities Problem: Inefficient water resource management in cities.

Solution: Grundfos offers smart pumping solutions and monitoring systems to optimize water and energy consumption in urban water networks, reducing losses and improving efficiency.

Features: • Reduces water loss by up to 50% • Saves up to 40% electricity through pump optimization • IoT integration for analysis and water consumption forecasting grundfos.com

PHOTO: ©2024 GRUNDFOS HOLDING A/S; SIEMENS MOBILITY; EVODOMUS

10 9

SMART TRAFFIC MANAGEMENT SYSTEM Provider: Siemens, Germany SDGs: Sustainable Cities and Communities, Climate Action Problem: Urban traffic congestion and associated CO₂ emissions.

Solution: Siemens developed smart traffic management systems using sensors and real-time data analysis to optimize traffic flows and reduce emissions.

These systems have been successfully implemented in cities like London and Copenhagen, reducing congestion and improving air quality.

Features: • Reduces road delays by up to 30% • Decreases CO₂ emissions by up to 20% • Scalable for cities of different sizes

SUSTAINABLE CONSTRUCTION

Provider: evoDOMUS, USA SDGs: Sustainable Cities and Communities, Climate Action Problem: High CO₂ emissions from building construction and operation.

Solution: evoDOMUS specializes in designing and building modern, energy-efficient modular homes with minimal environmental impact. The company uses sustainable building materials and technologies to reduce carbon footprints and enhance energy efficiency.

Features: • Utilizes recycled and eco-friendly construction materials • Smart energy management systems • Custom designs adhering to sustainable development principles evodomus.com

siemens.com

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[ INNOVATIONS ]

ENERGY INNOVATIONS:

PROJECTS FOR 2025

By Chisom Maduonuorah

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WEJ | December 2024 - January 2025

WORLD ECONOMIC JOURNAL

Energy, primarily electrical energy, is the bedrock of all modern economies. Global economic growth depends on energy consumption from various sources, such as petroleum, coal, natural gas, solar, and wind.

PHOTO: TOPE007 / STOCK.ADOBE.COM

H

istorically, most countries have relied on fossil fuels like coal, petroleum, and natural gas for energy production. However, fossil fuels release carbon dioxide and other greenhouse gases, causing air pollution and climate change from heat trapped in the

atmosphere.

The proven link between fossil fuel usage and climate change has spurred many countries to invest heavily in and create favorable policies for non-polluting, renewable energy.

195 countries, or all United Nations-recognized sovereign states, have signed the Paris Agreement, a legally binding treaty to reduce greenhouse gas emissions and curb global warming.

Transitioning to a carbon-free, renewable energy-based world requires massive investments and policy shifts. Despite exponential growth in the renewable energy sector, coal, oil, and gas currently constitute 81% of global energy consumption.

Decarbonizing the global energy industry is feasible but wrought with many financial, technical, and political challenges.

Transitioning to wind, solar, and other renewable energy sources requires public support, which can be difficult to build in some countries. It also requires substantial capital from government and private institutions to resolve crucial technical issues, like affordable battery storage.

Fortunately, these challenges are being resolved as time passes, spurring unseen growth in renewable energy production. In 2023, the world added a record-shattering 473 gigawatts (GW) of renewable power capacity, mainly solar and wind2. This momentum is set to continue in 2024.

According to BloombergNEF3, solar and onshore wind are the cheapest new electricity sources for at least two-thirds of 1 2

Energy consumption by source. Our World in Data. (n.d.)

Systemic Changes Needed to Triple Renewables by 2030. IRENA (n.d.).

Bloomberg­—Solar and Wind Cheapest Sources of Power in Most of the World (2020, April 28).

3

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[ INNOVATIONS ]

Energy consuption by source, world

2023

Data source: Energy Institute—Statistical Review of World Energy (2024)/ Our World in Data1.

the world’s population. The record-shattering new solar and wind power plant installations worldwide prove this claim.

Rapid innovations from commercial and government institutions propel global renewable energy growth. This article will examine the key innovations and policies boosting renewable energy production and efficiency.

KEY PROJECTS FOR 2025

2025 will be a crucial year for the renewable energy industry, with many innovations and expectations amid an industry-wide boom. Let’s explore the key projects to note in the solar, wind, and hydrogen energy sectors.

• Wind energy and solar power plants Solar and wind have taken center stage in the renewable energy transition and will continue to do so in 2025. According to the International Energy Agency (IEA)4, solar alone will fulfill half of the global growth in electricity demand in 2025.

• The solar boom The solar boom is driven primarily by decreasing costs and advancements in photovoltaic technology. According to the International Renewable Energy Agency (IRENA), solar module costs have fallen 90% since 20095. Reduced costs lead to rapid growth for both rooftop solar installations and utility-scale solar farms. This benefit is more pronounced in developing countries with significant financial constraints.

Increased efficiency is the core technical advancement driving solar energy growth. Efficiency is the percentage of sunlight converted into usable electricity by photovoltaic panels.

Most solar panels’ efficiency hovers at 15% to 20%6. An uptick in this efficiency means more energy harvested from 48

WEJ | December 2024 - January 2025

solar panels of the same size, translating to more energy to supplant fossil fuel production and reduce greenhouse emissions.

China is the biggest manufacturer of solar panels, and its domestic manufacturers drive the most innovation in this sector. China was helped by economies of scale stemming from its 1.4 billion-strong population and rising energy demand.

The government was incentivized to find affordable energy sources to meet growing demand, and solar proved a good bet.

Local companies responded to subsidies, tax breaks, and other incentives and catapulted China to the leading solar energy producer.

In June 2024, the world’s largest solar power plant, the Ürumqi Solar Farm with a 3.5 GW capacity7, went live in China. It beat the previous record holder, India’s Bhadla Solar Farm, with a 2.7 GW capacity8.

In September 2024, Longi, a Chinese solar panel manufacturer, unveiled a prototype with 34.6% efficiency⁹. This prototype used perovskite cells, unlike the silicon most solar cells currently use. It’s far from mass production, but it demonstrates how efficient solar panels could become soon and boost renewable power production.

Though China leads, many other countries contribute to advancing solar energy production. The US. added a record-setting 26.3 gigawatts of solar power capacity in 202310 and 11.8 gigawatts in the first three months of 202411. Solar now accounts for three-quarters of the electric generation capacity added to the US grid.

Other countries across Asia, Europe, North America, the Middle East, and Africa have seen record solar installations.

WORLD ECONOMIC JOURNAL

Solar energy’s affordability has made it the go-to option for new power generation capacity, beating long-running sources like coal and natural gas.

• The wind energy rush Like solar, wind energy has experienced record-setting installations worldwide. According to the World Wind Energy Association (WWEA), the global wind industry installed 116 GW of generation capacity in 2023, up 34% from the previous year and more than double the capacity installed five years before12.

In 2023, the total wind power capacity surpassed 1 terawatt, or 1,000 GW, for the first time. 2024 and 2025 are expected to witness more record-breaking wind power installations worldwide.

Several factors drive the wind energy boom. For one, many countries have invested heavily in wind power to meet renewable energy targets. Wind turbine efficiency has increased thanks to lighter materials and larger blade sizes that capture more wind speed.

Streamlined blades reduce drag to capture and convert more wind energy into electricity, and newer turbines have adjustable blade angles to capture the maximum energy under varying wind conditions. New investments and permitting are driving a boom for offshore wind power plants, where wind is stronger and more consistent than on onshore plants.

China leads the world in total wind energy production, followed by the US and Germany. However, Sweden and Denmark are the biggest producers per capita, generating 24%13 and 53%14 of domestic electricity from wind, respectively.

Wind and solar power generation are growing immensely because of their relative affordability. They’re the cheapest new power generation sources, prompting government and commercial institutions to invest in them rationally. The solar energy boom and wind energy rush aren’t stopping, but the situation isn’t all rosy.

Wind and solar have major challenges because they’re intermittent. The wind doesn’t blow every time, and sunshine is limited to daytime hours. This intermittency means wind and solar must be paired with large-scale battery storage or other baseload sources to provide energy when they aren’t capable.

Clean-energy-produced hydrogen is a potential baseload source that’s gaining steam. lobal Electricity Demand Set to Rise Strongly This Year and Next, Reflecting Its G Expanding Role in Energy Systems Around the World - News - IEA, 2024 Power generation costs. IRENA (n.d.)

6 Staff, A. (2024, November 15). A guide to solar panel efficiency. Aurora Solar.

7 Shaw, V. (2024, June 6). World’s largest solar plant goes online in China. Pv Magazine International.

8 Largest solar PV power plants worldwide 2023 | Statista. (2024, May 22). Statista.

9 Bellini, V. S. a. E. (2024, September 12). Longi achieves 34.6% efficiency for two-terminal tandem perovskite solar cell prototype. PV Magazine International.

10 National Survey Report of PV Power Applications in the USA 2023 - IEA-PVPS. (2024, October 24). IEA-PVPS. 11 Yuen, S. (2024, June 6). US breaks Q1 record to add 11.8GWdc solar capacity in previous quarter. PV Tech.

12 WWEA Annual Report 2023: Record year for Windpower.

13 Sweden. (n.d.). IEA Wind TCP.

New installed wind capacity [MW]

Source: World Wind Energy Association (WWEA)12

Cumulative wind power capacity worlwide [MW]

Source: World Wind Energy Association (WWEA)12

Wind installations as of 2023

4

5

Capocity figures include both onshore and offshore wind are on an alternating current basis.

Source: Energy Institute—Visual Capitalist/Statistical Review of World Energy (2024)15

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HYDROGEN ENERGY

Hydrogen is a clean fuel for baseload electricity generation because it can be burned without releasing carbon dioxide.

However, its clean tag depends on being produced from renewable energy electricity sources like solar and wind.

Producing hydrogen from natural gas releases carbon dioxide, which countries want to avoid.

Getting to know the hydrogen color palette

Source: BloombergNEF17

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Hydrogen is a tricky element. It’s the third-most abundant element on earth but hardly obtainable in its pure form. Instead, it can be obtained by electrolysis, i.e., using electricity to split water into hydrogen and oxygen.

Solar and wind electricity generation can be paired with hydrogen production for baseload capacity. During peak solar and wind hours, excess clean electricity can be used to produce hydrogen. Then, the hydrogen fuel can be burned when solar isn’t available or wind power is low. The hydrogen is produced and burned without greenhouse gas emissions, a win-win.

Yet, producing hydrogen isn’t as simple as it sounds. The process is currently too costly for most large-scale projects.

Electricity costs constitute 45–60% of hydrogen production costs16, and obtaining cheap, clean energy can be difficult.

According to BloombergNEF17, the cost of green hydrogen (produced without carbon emissions) is currently $4.5 to $12 per kilogram, compared to $1.8 to $4.7 for blue hydrogen produced from fossil fuels in carbon-emitting processes.

Green hydrogen production costs must be reduced to spur mass adoption, and some innovations are making this gradually happen.

For instance, green hydrogen production relies on an industrial electrolyzer powered by clean electricity. Commercializing new types of industrial electrolyzers, such as the anion exchange membrane water electrolyzer (AEMWE), can reduce production costs. Existing electrolyzers can also be made more efficient to reduce production costs, i.e., to convert more of their electricity input into hydrogen.

“The more electrolyzers are deployed, the cheaper they’ll become,” says Adithya Bhashyam, a BloombergNEF hydrogen analyst. “In Brazil, China, India, Spain, and Sweden, green hydrogen from new plants is going to start undercutting gray

PHOTO: FOTOGRIN / SHUTTERSTOCK

[ INNOVATIONS ]

WORLD ECONOMIC JOURNAL

hydrogen from existing plants by the end of the decade,” he says.

“Remarkably, this holds true even for green hydrogen plants built without subsidies.”

In 2022, Australian startup Hysata claimed it developed an electrolyzer with a 98% efficiency under lab conditions18. This efficiency is far above the average 70% of existing electrolyzers19. It implies generating much more hydrogen from the same electricity input, reducing production costs. However, translating this higher efficiency from lab conditions to largescale production will take some time.

An innovative US-based startup, Koloma, wants to sidestep the electrolysis process to obtain pure hydrogen. Its approach is to drill naturally occurring hydrogen from underground deposits, helped by existing oil and gas industry drilling technologies.

Koloma was born from extensive academic research by Ohio State University geologist Tom Darrah, the company’s chief technology officer. It has secured over $300 million in venture funding20, including from Bill Gates and United Airlines. It also won a $900,000 research grant from the US Energy Department20 to explore geologic hydrogen production.

If Koloma’s approach succeeds, the costs of obtaining hydrogen could drastically reduce, spurring a clean energy future based on solar and wind plus hydrogen for baseload generation. Innovation has brought hydrogen production costs down from historical levels, but more must be done to make largescale production feasible. Companies like Koloma and Hysata are leading these innovations.

THE ROLE OF TECHNOLOGY IN A RENEWABLE ENERGY FUTURE

Technology will play a major role in the global transition from fossil fuel to renewable energy production. Let’s explore the key technologies powering this transition and their key challenges.

• Artificial intelligence and energy grid management Transitioning towards a clean energy future requires innovations in more than just the generation aspect. Smart grid management is also crucial to integrating renewable energy into existing consumption patterns. The rise of artificial intelligence (AI) will help speed up this integration.

The power grid is fondly called the most complex machine ever built. Clean electricity travels many complex steps from power generation plants to the population centers where it’s consumed. Computers are crucial to managing these steps, and AI has already begun making it more efficient.

For instance, AI makes it easier for assets within the electricity grid to communicate, knowing when to spin up or reduce power output to keep the grid balanced. Sensors can detect risks early and redistribute or reroute power to prevent outages.

AI models can analyze historical weather and grid demand patterns to forecast future energy consumption. This predic-

Lithium-ion battery price worldwide 2013 to 2023 (in 2023 US dollar per kilowatt-hour)

Source: Statista25

tive analytics guides electricity producers in delivering ample power during peak consumption periods.

During peak periods, solar and wind often produce significantly more energy than the required consumption. Battery storage remains a pressing issue, so much of this power is wasted instead of stored. AI can analyze the grid to detect peak wind and solar generation, telling residential and industrial consumers when to run the highest loads at the lowest costs.

Demand management is vital, as demonstrated by the US Federal Energy Regulatory Commission, whose study indicates 150 GW can reduce peak loads through smart grid management21. 150 GW is equivalent to the output of 2,000 peaker power plants, and reducing this load saves tons of carbon emissions.

In November 2024, Singapore signed a deal to build its first district-level AI-based smart grid22. Danish power companies have begun leveraging AI to inspect grid components and minimize unnecessary physical grid inspections23. In 2023, Denmark. (n.d.). IEA Wind TCP. Energy Institute. (n.d.). Home. Statistical Review of World Energy.

16 Reducing low-carbon hydrogen investment and operating costs - Capgemini.

(2024, July 5). Capgemini.

17 BloombergNEF. (2023, August 9). Green hydrogen to undercut gray sibling by end of decade | BloombergNEF. BloombergNEF. 18 Hysata’s electrolyser breaks efficiency records – Hysata. (2022, March 15).

19 Hydrogen science and Engineering. (n.d.). Google Books.

20 Ohnsman, A. (2024, February 12). Bill Gates-Backed clean fuel startup raises $246 million to aid plans to drill for hydrogen. Forbes.

21 National Assessment & Action Plan on Demand Response – 2009 National Assessment. (n.d.). Federal Energy Regulatory Commission.

22 Singapore to build its first district-level smart grid. govinsider.asia (n.d.).

23 De Marie, O., & De Marie, O. (2023, September 23). Artificial intelligence revolutionizes power grid management in Denmark. Microgrid Media.

14 15

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NEW ONSHORE AND OFFSHORE WIND ENERGY INSTALLATIONS IN EUROPE IN H1 2024

New EU wind power installations by country.

Source: WindEurope33

2024-2030 ANNUAL WIND POWER INSTALLATIONS IN THE EU

Expected wind power installations in the EU from 2024 to 2030.

Source: WindEurope33

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the US government announced $3.9 billion in grants for smart grid solutions, including AI-based advancements24.

Artificial intelligence is in its relative infancy, so the best is yet to come. The next decade will likely witness exceptional AIbased advancements for energy optimization, helping usher in a clean, energy-powered future.

• Battery technologies and energy storage With sufficient battery storage, excess capacity from wind and solar power plants can be stored for future usage. However, affordable battery storage is a core challenge in transitioning to renewable energy.

Batteries store energy by converting electrical power into chemical energy. Later, the chemical energy can be released to produce electrical power. Lithium-ion batteries are most commonly used for utility-scale storage. They work by moving lithium ions between a battery's cathode (positive side) and anode (negative side) to release electrical current.

Lithium-ion batteries currently need to be cheaper for most commercial power suppliers despite hitting a record low of $139 per kilowatt-hour (KWh) in 202325. Prices must be reduced substantially to spur large-scale battery storage projects, which will provide electricity during low-output periods of wind and solar power plants.

The good news is that battery manufacturers are innovating rapidly to reduce costs. The cost of raw lithium, the main ingredient in lithium-ion batteries, also dropped substantially from $80,000 a ton in December 2022 to $10,000 a ton in December 202426, a 90% reduction within two years. This sharp drop translates to lower production costs for lithium-ion battery manufacturers.

China-based CATL is the world’s leading lithium-ion battery manufacturer. Other top manufacturers include China-based BYD, South Korea’s LG Chem, and Japan’s Panasonic. These companies have invested heavily in research and development to reduce production costs and increase battery efficiency, with good results.

2024 CATL unveiled Tener, a 6.25 MWh storage system stacked in a 20-foot equivalent unit (TEU) container27. This battery system’s defining feature is increased energy density, enabling more energy to be stored in less space. It makes building utility-scale storage facilities in populated areas technically and financially easier.

The chart on page 51 demonstrates lithium-ion battery prices falling from $780 per kilowatt-hour in 2013 to $139 in 2023. This reduction will keep pace in 2024, 2025, and beyond. With reduced prices, expect more massive utility-scale storage projects to usher in a renewable energy future.

For instance, the US Energy Information Administration (EIA) forecasts domestic battery storage capacity to double in 202428. This doubling is driven by new utility-scale storage projects in California and Texas, the two biggest renewable energy-producing states in the US.

WORLD ECONOMIC JOURNAL

Australia, a major solar and wind energy producer, added 3.9 GWh of battery storage capacity from July to September 202429, a 95% year-on-year growth rate. If this growth in the US, Australia, and other countries persists, global battery storage capacity could soar to 1,000 GW by 203030, compared to 126 GW in 202431, helping humanity edge closer to clean power generation.

ENERGY TRANSFORMATION IN NATIONS

PHOTO: ES SARAWUTH / SHUTTERSTOCK

The global transition from fossil fuels to renewable energy is spearheaded by public-private partnerships. Governments kickstarted the renewable energy industry with incentives, and private companies followed suit. Let’s examine key transformation energy initiatives across Europe, the US, and China, the three biggest energy consumers.

The European Green Deal • The European Green Deal is a set of policy agreements aimed at making all 27 European Union (EU) countries climate-neutral by 2050. Launched in 2020, this policy inked a deal to make European Union countries net zero emitters of greenhouse gases by 2025. In 2021, the Green Deal became legally binding after the passage of the European Climate Law. • The Green Deal centers on transitioning the EU from fossil fuel energy consumption towards renewable sources. EU countries are investing heavily in boosting renewable energy production with effective results.

• In the first six months of 2024, EU countries generated more electricity from solar and wind (30%) than from fossil fuels (27%)32. It marked the first time wind and solar surpassed fossil fuel generation in the EU. “Following two record years for renewables installations, in the first half of 2024 wind and solar have risen to new highs, overtaking for the first time fossil fuels in our electricity mix,” EU Energy Commissioner Kadri Simson confirmed. “The EU is now well equipped to meet its climate neutrality goal while ensuring that industry stays competitive.”

As of 2024, EU countries have 225 GW of wind capacity, accounting for most of Europe’s 278 GW capacity. In the first half of 2024, the EU installed 6.4 GW of new wind power capacity, with offshore wind plants constituting 83% of this new capacity. Germany, France, and Spain account for most of the new wind power capacity33.

From 2024 to 2030, the EU is expected to add 22 GW of wind farms annually, although the Green Deal aims to increase it to 33 GW. By 2030, the EU targets 425 GW of wind power capacity.

Solar is also booming in the EU, which installed a record 55.9 GW of new capacity in 2023. Germany, Spain, and Italy contributed the most to new solar power installations. The EU's total solar power capacity reached 263 GW in 2023, up 27% from the previous year34. Double-digit growth is expected from 2024 to 2027, implying the solar boom is still ongoing.

The European Green Deal has spurred EU members to create favorable policies and monetary incentives for clean energy production, primarily wind and solar. Many opportunities abound for investors to profit from renewable energy production and reduce carbon emissions to create a safer world, making a two-bird killing with one stone.

Battery price per kwh 2023 | Statista. (2024, October 1). Statista.

TRADING ECONOMICS. (n.d.). Lithium - price - chart - historical data - news.

Maisch, M. (2024, April 12). CATL unveils first mass-producible battery storage with zero degradation. Pv Magazine International.

27 US battery storage capacity expected to nearly double in 2024 - US Energy Information Administration (EIA). (n.d.).

28 Maxhall. (2024, November 11). Australia closed on a record 3.9 GWh of battery storage capacity in July-to-September - Energy Storage. Energy Storage.

29 BloombergNEF. (2021, November 10). Global energy storage market set to hit one Terawatt-Hour by 2030 | BloombergNEF. BloombergNEF. 30 Statista. (2024, June 28). Forecast battery storage capacity 2024, by global leader.

31 Frost, R. (2024, September 12). Wind and solar have risen to ‘new highs’ in the EU overtaking fossil fuels for the first time ever. Euronews.

32 WindEurope asbl/ vzw. (2022, April 2). Product | WindEurope. WindEurope.

33 EU market Outlook for solar Power 2023-2027 - SolarPower Europe. (n.d.).

34 Shaw, V. (2024a, February 2). China’s new PV installations hit 216.88 GW in 2023. Pv Magazine International.

35 Bloomberg. (2024, December 5). China to set another solar record even as industry struggles. Energy Connects.

36 Infographic: China’s solar capacity growth in 2023 sets new record. (2024, February 8).

S&P Global.

37 Global installed wind power capacity additions 2023 | Statista. (2024, April 26). Statista.

38 Statista. (2024b, July 19). Renewable energy capacity in China 2009-2023.

24 25

26

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TOTAL GLOBAL SOLAR PV GENERATION CAPACITY

CHINA'S ANNUAL RENEWABLE CAPACITY ADDITIONS

CHINA'S RENEWABLE CAPACITY GROWTH YET TO REFLECT IN POWER SUPPLY

CHINA DOMINATES GLOBAL RENEWABLE CAPACITY ADDITIONS IN 2023

Source: S&P Global37

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WORLD ECONOMIC JOURNAL

Innovative projects in China and the USA China leads the world in renewable energy production.

According to the Chinese National Energy Agency, it added a record 216 GW35 of solar capacity in 2023, or as much as the rest of the world combined. In 2024, it is projected to install 230 to 260 GW36 solar panels, besting its previous record.

China added 77 GW of wind power in 2023, beating all other countries by a wide margin. The second-highest addition came from the US. with 6.4 GW of capacity38.

Like the EU, the Chinese government has committed to transitioning towards renewable energy-based consumption. It pledged to reach 1,200 GW of renewable capacity by 2030 and has already surpassed that pledge, with 1,450 GW installed as of 202339.

The US, the second-largest energy consumer after China, has similarly bet big on renewables. It deployed 32 GW of new solar capacity in 2023, up 52% from the previous year. For the first time, solar accounted for over half of the new electricity-generating capacity added to the US grid. In 2023, the US nearly doubled its solar module manufacturing capacity from 8.5 GW to 16.1 GW40.

New wind power capacity in the US hit a record 6.4 GW in 2023. These record-shattering additions were helped by the Inflation Reduction Act passed by the US government in 2022.

This Act, the most significant climate law passed in US history., allocated over $100 billion in grants41 for clean energy development.

A sample US government loan recipient is Redwood Materials, a company developing innovative ways to recycle lithium-ion batteries. It breaks down old batteries to provide raw materials for new batteries, reducing manufacturers' costs. To scale its recycling capacity, it received a $2 billion loan from the US Energy Department42.

As solar panels and wind turbine blades reduce in price and increase efficiency, expect more record-shattering additions from Europe, the US, China, and many other countries in 2025 and beyond. Manufacturers are improving existing processes to harness as much clean energy power as possible, encouraged by favorable government policies and incentives.

PROSPECTS AND RISKS

The renewable energy sector has good prospects yet has its risks. Let’s explore what lies ahead for this booming industry.

• Forecast for 2025 and beyond Renewable energy is currently on a tear and isn’t projected to stop anytime soon. By 2030, a landmark year of climate pledges, the International Energy Agency expects renewable energy to fulfill 46% of the world’s electricity demand, compared to 30% currently43.

The renewable energy sector continues to supplant fossil fuels in the biggest energy-consuming regions, including the US, China, and the EU. As time goes on, we expect this

LEADING COUNTRIES IN NEWLY INSTALLED WIND POWER CAPACITY IN 2023 76,660

China United States

6,402

Brazil

4,817

Germany

3,824

India

2,806

Netherlands

2,457

Sweden

1,973

France

1,760

Canada

1,720

UK

1,383 0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000 80,...

New installed capacity in megawatts

New installed capacity in megawatts

Source: Statista38

trend to spread to other countries attracted by the low costs of renewable energy.

For example, Texas, the largest oil and gas-producing state in the US, has become the largest producer of renewable energy despite little government incentives. Since 2014, the state has seen a 70-fold increase in solar generation44. It demonstrates the resilience of the renewable energy industry, spurred by rapid innovations and falling production costs.

• Investment opportunities The shrinking costs of solar modules, wind turbines, and battery storage have opened more lucrative opportunities for investors to build renewable power capacity. Investors can make long-term profits from renewable energy power plants.

The cost of renewable energy production is mostly a onetime investment, unlike carbon-emitting power plants, which require a constant fuel input, and prices are subject to changing economic conditions.

Solar and wind power plants receive free energy inputs from the sun and natural wind, respectively, which reduces their maintenance costs. Government incentives also lower production costs and increase potential profits for commercial power producers. Ample opportunities abound in the rapidly growing renewable energy industry. iGangi, D. (2024, March 6). US deployed a record 32 GW of solar generating capacity in D 2023: SEIA. Utility Dive.

40 Volcovici, V. (2024, December 3). Biden pushes out over $100 billion in clean energy grants as term winds down. Reuters.

41 LPO offers conditional commitment to Redwood Materials to produce critical electric vehicle battery components from recycled materials. (n.d.). Energy.gov.

42 Global overview – Renewables 2024 – Analysis - IEA. (n.d.).

43 New analysis: Texas continues dominance in wind and solar power generation. (2024, October 23).

39

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REGIONAL PERSPECTIVES ON SUSTAINABLE DEVELOPMENT IN DEVELOPING COUNTRIES

PHOTO: WANG AN QI / SHUTTERSTOCK

By Naitana Jn Baptiste

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[ SUSTAINABILITY ]

S

ustainable development is paramount for developing countries, as it is critical to address challenges such as poverty, inequality, and environmental degradation. According to the World Bank, almost 700 million people are still living in extreme poverty today; most of them live in the Sub-Saharan region of Africa, which alone accounts for 67% of people living in extreme poverty in the world.

On the other hand, global crises such as COVID-19 and the recent commodity crisis have resulted in an increased investment gap from $2.5 trillion to $4 trillion annually. Additionally, with urbanization on the rise, the need for sustainable development is only getting more pressing. By 2050, cities will have to cope with an additional 2.5 billion people. Therefore, sustainable development promises to reduce poverty, guarantee inclusive growth, and build resilient communities that thrive despite climate or economic challenges.

As developing countries grapple with interconnected challenges involving economic growth, social equity, and environmental sustainability, sustainable development continues to be a central vision for many of them. Although progress has been made globally toward meeting the United Nations’ Sustainable Development Goals (SDGs), the results continue to be uneven, especially in developing areas of Africa, Asia, and Latin America. These resource-rich areas are also struggling with the effects of climate change, poverty, inequality, and rapid urbanization.

As urbanization continues, particularly in those areas, providing sustainable infrastructure becomes increasingly challenging. With cities expecting substantial growth, more pressure is placed on resources and public services. This rapid change

not only exacerbates environmental issues but also ecosystem degradation.

The global economy is experiencing major, significant change in pursuit of green, comprehensive, and adaptable expansion. Emerging technologies, changes in population, and climatic transformations are all driving this shift, particularly impacting developing regions, which are both profoundly susceptible to such variations yet indispensable to accomplishing sustainable progress worldwide. The World Bank in 2023 observed that worldwide financial gains have become progressively interconnected with eco-friendly methods. For developing countries, though, the goal is to equalize rapid development while guarding the setting and ensuring social well-being. New technologies provide new chances but also create problems in balancing these new opportunities with traditions. Long-established communities struggle to preserve cultural traditions while also adjusting to the changes in the global market.

For many developing regions, the race to modernize and compete globally often leads to environmental and social tensions. Balancing economic development while being eco-friendly remains a key challenge, especially when resources are decreasing. While new technologies offer new opportunities, they should be implemented with consideration for nature and local customs.

The regions and peoples who inhabit areas prone to the ravages of climate change stand to suffer the most from its effects.

Places like low-lying island nations (Pacific, Indian Ocean, and Caribbean islands) and forested areas in the developing world face an uncertain future as temperatures rise and sea levels creep ever higher. Meanwhile, poverty persists in western Yunnan, Southwest China, due to natural and cultural challenges. The

60 50 40

60%

30 "Our biggest challenge in this new century is to take an idea that seems abstract—sustainable development—and turn it into a reality for all the world's people."

— Ban Ki-moon, Former UN Secretary-General.

26%

20 10 0 Africa Source: World Bank, 2023

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30%

Asia Region

Latin America

PHOTO: D THOMPSON / CHATHAM HOUSE / CC BY 2.0

Poverty Levels, %

Poverty Levels by Region

WORLD ECONOMIC JOURNAL

"In South Asia, maternal health remains a pressing issue. Despite improvements, many women still lack access to essential healthcare services during pregnancy and childbirth."

— Dr. Natalia Kanem, Executive Director of UNFPA.

PHOTO: LUKELAKE79 / SHUTTERSTOCK; GLOBALBOOKENDS / CC BY-SA 4.0

Africa’s youthful population, Asia’s technological revolution, and Latin America’s green initiatives are central to their sustainability efforts area's rugged terrain and traditions have slowed down development.

Regions, including Africa, Asia, and Latin America, have made progress on these issues, but their improvements have been inconsistent. Africa’s youthful population, Asia’s technological revolution, and Latin America’s green initiatives are central to their sustainability efforts. This report examines the current state of sustainable development in these regions, focusing on progress made up until now and any remaining barriers or challenges left to overcome.

UNDERSTANDING KEY CHALLENGES IN DEVELOPING NATIONS

Here are some challenges faced by developing countries in relation to SDGs: • Economic Barriers Developing countries face important economic barriers in achieving sustainable development, with money being one of the primary issues. According to the IMF, low-income countries often have limited access to capital, making investing in infrastructure, renewable energy, and technology hard.

High poverty rates and youth unemployment remain widespread. In sub-Saharan Africa, over 60% of the population lives on less than $2.15 a day. The rising unemployment rate among youth is particularly alarming, intensifying social instability and obstructing the economic mobility needed for sustainability.

• Social Issues The UNDP Human Development Report states that inequality in income and opportunity remains pervasive in many developing countries. The wealth gap, particularly between urban and rural populations, continues to limit social mobility and hinder economic progress.

Sustainability Indicators Region

Africa Asia Latin America

Poverty Levels (% population)

Renewable Energy (% of total energy)

60 25 30

15 35 40

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Impact Severity by Region (Scale of 1-5)

Climate Change Impact Severity by Region 5 4

3 2 1

Low-Lying Islands

Soush Asia

Latin America

Data from: World Bank, WMO

Africa Region

Despite some progress, access to high-quality healthcare and education remains a top priority. In Sub-Saharan Africa and parts of South Asia, fundamental services like primary education and prenatal care are still not widely accessible.

• Environmental Threats Developing nations are often on the frontlines of environmental destruction and climate change. Climate change threatens many SDGs because of its impacts on ecosystems, biodiversity, and climate-related disasters.

Climate Change Consequences: The United Nations Framework Convention on Climate Change (UNFCCC) states that climate events disproportionately affect developing nations, contributing the least to global emissions.

North America and Europe experience flooding, landslides, large-scale displacement, and food loss. For example, South Asia is facing erratic weather and rising sea levels.

Loss of Biodiversity: In 2023, the World Bank highlighted that Latin America, the Amazon, and Africa's Congo Basin are grappling with serious biodiversity reduction, which impacts the economy and the living standards of populations who rely on natural resources.

GEOGRAPHIC NUANCES AND STRATEGIC PERSPECTIVES

As sustainability challenges and opportunities vary widely across the globe, each region offers unique insights into 60

WEJ | December 2024 - January 2025

addressing them. From integrating technology to fostering community-driven initiatives, these geographic nuances reveal diverse strategies that contribute to a sustainable future. Let’s explore how different regions are approaching these pressing issues.

• Africa The sustainability success in Africa depends on a holistic approach that integrates agriculture, natural resource management, and technology simultaneously. In this context, efforts have been made by them increasingly turning to digitalization to overcome the developmental challenges.

Programs for sustainable agriculture and natural resource management: • The African Development Bank’s Agricultural Transformation Agenda reinforces the drive towards more sustainable agriculture using resilient farming, better water management, and soil health initiatives.

• The Africa Agriculture Development Program (CAADP) is also an initiative aiming to ensure agricultural productivity and progressively improve food security all around the continent. Countries must devote at least 1% of their national budgets to agriculture to ensure a 6% annual growth in the sector. Overall, this program builds not only better agriculture but also enhances land management and water resources and provides rural infrastructure.

• Alliance for a Green Revolution in Africa (AGRA) is another promising project with the goal of facilitating access to high-

PHOTO: NAYPONG STUDIO / ADOBE STOCK; MWANZO MILLINGA / UNCTAD / CC BY-SA 2.0

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Renewable energy programs and infrastructure development: Southeast Asia is also making major investments in renewable energy. Countries such as the Philippines and Vietnam are integrating wind, solar, and hydroelectric power into their governmental agendas—a move that, if executed properly, according to the Asian Development Bank (ADB), can help the environment and expand economic opportunities.

According to the International Trade Administration (ITA), ambitious targets have been set in Thailand to increase renewable energy use to over 50% by 2040 through what is called the Thailand National Energy Plan (NEP). The PDP includes major investments in solar, wind, and biomass energy. The government also launched the “Solar Farm” initiative to promote solar energy generation in rural areas.

Singapore has launched the SolarNova program to promote solar energy deployment across the country. It consists of installing solar panels on rooftops of public housing government buildings, targeting 540 megawatts of solar capacity by 2030. er-quality seeds, fertilizers, and farming techniques. It also advocates for greater agricultural expansion and prone capacity building, market access, and financial inclusion of farmers.

• Latin America Latin America has been taking the lead with initiatives that include ecology.

Successes in poverty alleviation through digitalization: Successes in poverty alleviation using digitalization include Hello Tractor, a platform in Nigeria and other African countries that has significantly increased productivity. According to the company report, farmers with access to the machinery through the platforms observe a 40% increase in productivity. The platform has connected more than 200,000 farmers and allowed them to save time and labor with access to tractor services.

Green projects and initiatives in ecology: The Inter-American Development Bank (IDB) supports efforts towards green energy in the region with projects like Brazil’s Bolsa Verde. It is an initiative rewarding families who adopt sustainable farming practices and environmental conservation measures.

Other projects regarding ecotourism in Costa Rica that preserve biodiversity and uplift local communities highlight Latin America’s progress in using social policies to address poverty and environmental degradation.

Technological innovations for accelerated sustainable development: Countries like China and India have carried out renewable energy innovations. India, particularly, has emerged as a world leader in solar power, especially through the National Solar Mission, which plans to install 100 GW of solar energy by 2025. On the other hand, with the Jiuquan Wind Power, China has the largest wind farm on earth, with more than 7,000 turbines and a capacity of 20 GW. This wind power can supply millions of homes. Plus, it is equipped with an ultra-high-voltage transmission system capable of transferring electric current over very long distances. This particular project continues to expand and is a major step forward for China in renewable energy innovation.

Renewable Energy Usage by Region 40 Renewable Energy Usage (%)

PHOTO: PXHERE.COM

• Asia While technological innovation and accelerated industrialization have shaped Asia’s development, the continent needs to shift to a green economy today.

30 20 10 0 Africa

Asia Region

Latin America

Source: IRENA 2024

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PROVEN SUCCESS STORIES

Let’s look at some actual projects with significant impact:

Objectives 1. Combat desertification The project aims to stop the spread of the sands from the Sahara by recovering degraded land and encouraging land management practices.

2. Restore biodiversity The GGW wants to restore ecosystems and enhance biodiversity, which is essential for the survival of the local community.

3.Reduce climate change By creating forest cover and vegetation, the project wants to contribute to carbon sinks and potentially reduce climate change impact.

4.Develop economy Create green jobs that benefit locals and improve their lives.

Achievements As of 2023, the UNCCD reported that this project has restored more than 15 million hectares of land. It has allowed thousands, especially women and youth, to make a living from sustainable agriculture and forestry. Plus, the project has strengthened local engagement and active participation, which encourages communities to take charge of restoring their territories.

Asia: India’s Solar Mission This program, launched in 2010, is part of the Indian government’s national action plan on climate change. Its primary objective is to ensure India’s transition to green energy sources while reducing reliance on fossil fuels, particularly its overreliance on coal. It targets producing 100 gigawatts (GW) of solar energy by 2025.

Objectives 1. Energy independence The project aims to reduce India’s reliance on coal by using solar power for electricity as a more reliable energy source.

2. Energy affordability This initiative helps reduce energy costs for rural communities and improve living standards.

3. Economic opportunities Create new and diverse jobs from manufacturing and installation to maintenance of solar systems.

4. Technological advancement Promotes innovative technologies and practices and helps solar energy be efficient and cost-effective.

Achievements This initiative has helped India achieve a 60 GW solar installation capacity, making it the third-largest solar installation in the world. The country is getting closer to its goal of 100 GW by 2025. According to IRENA, over 1 million jobs have been created thanks to the solar energy sector. This covers areas such as manufacturing, installation, maintenance, and more, without mentioning the important price reduction (down over 80%) since the beginning of the project in 2010. Some rural areas have been equipped with solar home systems, including water pumps and mini-grids.

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PHOTO: WIRESTOCK CREATORS, ECOPRINT / SHUTTERSTOCK

Africa: The “Great Green Wall” Initiative The Great Green Wall (GGW) is a project that spans 8,000 kilometers from Senegal in the west to Djibouti in the east, covering countries such as Burkina Faso, Mali, Niger, Nigeria, Chad, Sudan, and Eritrea.

WORLD ECONOMIC JOURNAL

Latin America: Costa Rica’s Ecotourism Costa Rica leads in ecotourism. They use their rich biodiversity to build an eco-friendly attraction for tourists. According to the Costa Rican Tourism Institute, ecotourism in the country generates $4 billion each year, accounting for about 8.2% of the nation’s GDP while preserving its forests and wildlife.

Solar photovoltaic employment in 2023: Top ten countries MILLION JOBS 4.6 4.5

65 % of PV

Solar PV in 2023:

jobs 7.11 million

jobs

Overview 1. Biodiversity and natural resources The country alone accounts for 5% of the world's biodiversity.

It includes a variety of ecosystems, from rainforests to cloud forests to coastal regions. This diversity makes it a popular destination for nature lovers and eco-tourists.

2. Economic impact Ecotourism contributes around $4 billion annually to the country's economy, about 8.2% of the national GDP (ICT). The industry also creates thousands of employment opportunities in hospitality, wildlife conservation, and guided tours.

3. Sustainable practices This approach to promoting tourism activity with minimal environmental impact encourages green hotels, eco-friendly transport, and wildlife conservation initiatives.

4. Community involvement Local communities are actively involved and provided with economic opportunities. Community-based tourism helps ensure that at least some tourism revenue goes to residents, creating a sense of ownership over natural resources.

4.4 Top 10 countries:

86 %

of PV jobs

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PHOTO: CHRISTIAN HESS ARAYA / UNSPLASH

Direct and indirect jobs in renewable energy in India, 2023 Solar Heating and cooling

Biogas

85K

8.3 %

17K 1.7 %

Solid biomass 58K 5.7 %

Solar photovoltaic 319K 31.3 %

Wind power 52K 5.1 %

Hydropower

Liquid biofuels 35K

3.5 %

453K 44.5 %

Source: IRENA's Renewable Energy and Jobs Annual rewiew 2024

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REGIONAL SUSTAINABLE DEVELOPMENT INITIATIVES TABLE

The regional sustainable development initiatives table compares sustainability efforts across regions. It outlines key initiatives, challenges, and outcomes for Sub-Saharan Africa, South Asia, Latin America, and Asia, showcasing how they address climate change, urbanization, and biodiversity through targeted strategies.

Role of international organizations (UN, World Bank, UNCTAD) in supporting sustainable development International organizations like the UN, World Bank, and UNCTAD play an important role in supporting sustainable development projects globally. Regarding their roles in the projects mentioned previously, here is what to consider: • The Great Wall Initiatives UNCCD: Help African countries to work together, providing resources and coordination of land restoration projects.

World Bank: Provide loans for sustainable land management and green jobs.

Region

UNDP/UNEP: Provide technical knowledge and collaborate with communities to ensure that the restoration is delivering and restoring species.

• India’s Solar Mission Asia World Bank: Provide financial and technical assistance to expand solar energy in the country.

UNFCCC/GCF: Facilitate the policy alignment with international climate agreements.

IRENA: Offers guidance on renewable energy technologies and helps create jobs in the solar sector.

• Costa Rica’s ecotourism UNWTO: Promote Costa Rica’s ecotourism around the world, bring visitors, and build infrastructure.

World Bank: Provide funding for environmental conservation and sustainable tourism development.

UNEP: Ensures eco-friendly tourism practices and supports sustainable tourism policies. Therefore, these institutions are crucial in helping nations realize sustainable development through resource delivery, technical support, and global collaboration.

Key Initiatives

Challenges

Key Outcomes

Great Green Wall, AGRA, Comprehensive Africa Agriculture Development Program (CAADP)

High poverty rates, youth unemployment, climate change, biodiversity loss

Restored 15 million+ hectares of land; increased agricultural productivity

South Asia

National Solar Mission (India), Urbanization, energy Jiuquan Wind Power (China) dependence, maternal

health challenges

India: 60 GW solar capacity installed; China: largest wind farm (20GW capacity)

Latin America

Generated $4B from ecotourism; created jobs in sustainable farming

Sub-Saharan African

Costa Rica's Ecotourism, Balancing biodiversity Bolsa Verde (Brazil) conservation with

social equity

Asia

Renewable Energy Expansion, SolarNova (Singapore)

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Technological innovation, urbanization challenges, climate adaptation

Largest renewable energy investments globally; leadership in green tech

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International organizations like the UN, World Bank, and UNCTAD play an important role in supporting sustainable development projects globally PROSPECTS AND RECOMMENDATIONS

PHOTO: IMF PHOTO / TAMARA MERINO / CC BY-NC-ND 2.0

As we look toward 2025, developing regions such as Africa, Asia, and Latin America are expected to experience significant transformations in terms of sustainable investments. Here’s a look at projected trends and developments from region to region: • Africa 1. Growing need for sustainable investment Urbanization and climate change are likely to worsen challenges related to food security, water scarcity, and infrastructure gaps.

The following agricultural and technological practices should be prioritized: Resilient Farming Techniques: a. Adoption of drought-resistant crop varieties to reduce the effects of climate change. b. Implementation of agroforestry systems that integrate trees into farming landscapes to improve soil fertility and biodiversity.

Precision Agriculture: a. Use of GPS technology and data analytics to improve planting, watering, and harvesting, reducing resource waste. b. Deployment of remote sensing technologies to monitor crop health and predict pest outbreaks.

Sustainable Water Management: a. Increasing the use of drip irrigation to save water in dry areas. b. Development of rainwater harvesting systems to support small farmers.

Capacity Building and Education: a. Training programs for farmers to learn modern techniques and financial skills. b. Partnerships with local universities and NGOs to provide tools and share knowledge.

2. Digitalization As digitalization continues, it will play a big role in fostering economic development. Technological innovations may bring economic opportunities, particularly in fintech, e-commerce, telemedicine, and other sectors.

Strengthening digital infrastructure will improve service delivery in education, health, and public services, filling the equity gap in access and quality.

3. Renewable energy expansion Africa is likely to see significant investment in renewable energy projects, particularly solar and wind because of its various existing projects. This transition will increase accessibility to energy sources in rural communities while decreasing fossil fuel consumption.

• Asia 1. Technological innovation Asia is expected to continue to lead the world in technology innovation. Countries like China, India, and Japan are likely to be the top in the sector.

Innovation is essential if we are to transition to a low-carbon economy. Inventions such as energy storage technologies, smart grids, and electric cars are key to making that happen. Here is how they can contribute: 65

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2. Green energy focus Investing in green technology means focusing on sustainable agriculture and water management. At the same time, it poses great opportunities for man to create a better environment while promoting economic growth.

Governments and companies are expected to work more in synergy on initiatives that save the environment and cut carbon emissions like the use of lithium-ion batteries and green hydrogen to store energy.

3. Urbanization challenges Urbanization will continue to grow rapidly, accompanied by rising pollution and heavier demand for infrastructure.

Governments should concentrate on developing smart cities with renewable energy integration, such as solar rooftops, and wind-powered grids to meet the demands of growing urban populations. They should also reduce pollution levels in cities like Beijing and Delhi through the adoption of large-scale electric vehicles.

India's National Solar Mission generating 100 GW of solar energy will help reduce dependency on coal and other fossil fuels 66

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Latin America 1. Social welfare programs The expansion of social welfare in Latin America is expected to increase.

Sustainable agriculture and environmental protection are two areas that will receive much attention when it comes to programs that are both social and environmental.

2. Environmental sustainability Countries in the region will pay more attention to the conservation of biological diversity and the natural endowment in addition to the adoption of sustainable agriculture and forestry strategies.

Funding for renewable energy sources like wind and solar will increase as key strategic objectives to reduce reliance on greenhouse gases.

3. Public-private partnerships Collaborative efforts between governments, NGOs, and the private sector will increase as they are essential for funding and implementing sustainable development initiatives.

Practical steps for advancing green energy and social reforms in the region: • Develop Financial Inclusion Programs Create microfinance programs to support small businesses and farmers in adopting eco-friendly technologies.

Provide low-interest loans for households to install renewable energy systems or adopt sustainable practices.

• Improve Education and Skills Training Establish green job training centers focusing on skills for renewable energy industries, such as solar panel installation and maintenance.

Collaborate with universities and NGOs to provide scholarships for environmental science and renewable energy studies • Strengthen Land and Resource Rights Launch fair land redistribution programs to help small farmers adopt sustainable practices.

Protect Indigenous land rights to ensure their involvement in biodiversity conservation.

PHPTO: DEWALD KIRSTEN / SHUTTERSTOCK

Solar Energy: Initiatives like India's National Solar Mission generating 100 GW of solar energy will help reduce dependency on coal and other fossil fuels.

Wind Power: China's Jiuquan Wind Power Base, delivering 20 GW of clean energy will support the country's growing urban energy needs.

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BEST STRATEGIES FOR SUSTAINABLE GROWTH

Adopting comprehensive and forward-thinking strategies is essential to achieving long-term sustainability while balancing economic, environmental, and social goals.

1. Governments must prioritize funding for clean energy (solar, wind, and biomass), sustainable agriculture practices, and green technologies (EVs, carbon capture systems).

2. Governments and private companies should collaborate to expand projects in infrastructure and renewable energy.

Public-Private Partnerships (PPPs) facilitate the mobilization of financial resources, spur innovation, and ensure efficient implementation.

3. Education and skills in green industries should be promoted. That way, countries will have a workforce capable of ensuring long-term sustainability.

4. Cities should adopt eco-friendly designs, architecture, and smart transportation to reduce environmental impact and enhance urban livability.

5. The government should establish policies rewarding sustainable actions as incentives. This includes but is not limited to taxing carbon, offering rebates for green innovations, ensuring regulation of waste emissions and environmental waste, and subsidizing research to build clean energy sources.

CONCLUDING PERSPECTIVES

Sustainable development is crucial for developing countries to tackle poverty, inequality, and environmental degradation. While progress has been made in Africa, Asia, and Latin America, disparities persist. Each region presents unique challenges and opportunities; Africa’s focus on digitalization and sustainable agriculture, Asia’s leadership in renewable energy technologies, and Latin America's balancing ecosystem protection and social equality.

Overcoming these challenges requires a unified global effort. A comprehensive approach is needed to build resilient economies. This includes increased renewable energy investment, infrastructure development, and public-private partnerships. Regional cooperation should be complemented by strong international support to address resource gaps and ensure fair progress. As stated by Kofi Annan, former UN Secretary-General :"Recognizing that sustainable development, democracy, and peace are indivisible is an idea whose time has come." Sustainable development requires combining these principles to create a world where economic growth, environmental protection, and social fairness thrive in harmony.

SOURCES: 1. Alliance for a Green Revolution in Africa (AGRA). (n.d.). Home. https://agra.org/ 2. Costa Rican Tourism Institute (ICT). (n.d.). Costa Rica seeks to position itself as the perfect destination to connect with life’s essential values. https://www.ict.go.cr/ en/featured-news/1558-costa-rica-seeks-to-position-itselfas-the-perfect-destination-to-connect-with-life’s-essentialvalues.html 3. Georgieva, K. (2023, March 31). The time is now: We must step up support for the poorest countries. International Monetary Fund Blogs. https://www.imf.org/en/ Blogs/Articles/2023/03/31/the-time-is-now-we-must-stepup-support-for-the-poorest-countries 4. International Renewable Energy Agency (IRENA).

(2024, October). Renewable energy and jobs 2024. https://www.irena.org/-/media/Files/IRENA/Agency/ Publication/2024/Oct/IRENA_Renewable_energy_and_ jobs_2024.pdf 5. International Trade Administration. (n.d.). Thailand energy. https://www.trade.gov/country-commercial-guides/ thailand-energy 6. Singapore Economic Development Board (EDB).

(2022). ASEAN set to play key role in global solar supply chain. https://www.edb.gov.sg/en/business-insights/ insights/asean-set-to-play-key-role-in-global-solar-supplychain.html 7. United Nations Development Programme (UNDP).

(2023). Human development report 2023-24. https://hdr. undp.org/system/files/documents/global-report-document/hdr2023-24reporten.pdf 8. World Bank. (n.d.). Poverty, prosperity, and planet. https://www.worldbank.org/en/publication/poverty-prosperity-and-planet 9. World Bank. (2022, April 11). On the frontlines of climate change: Small island states can lead in resilience. https://www.worldbank.org/en/news/feature/2022/04/11/ on-the-frontlines-of-climate-change-small-island-statescan-lead-in-resilience 10.World Bank. (2022, September 22). The importance of budget support for progress on sustainable development.

World Bank Blogs. https://blogs.worldbank.org/en/ arabvoices/importance-budget-support-progress-sustainable-development 11.World Bank. (2023). World Bank FY23 climate-related financial disclosure. https://thedocs.worldbank.org/en/ doc/23a63a4bde452fe676c0843ab879405a-0340022023/ original/World-Bank-FY23-Climate-Related-Financial-Disclosure.pdf 12. World Bank. (2023, February 7). World Bank issues sustainable development bond while highlighting importance of sustainable cities in eliminating poverty. https://www.worldbank.org/en/news/press-release/2023/02/07/world-bank-issues-sustainable-development-bond-while-highlighting-importance-of-sustainable-cities-in-eliminating-povert 13. World Bank. (2023, September 7). September 2023 global poverty update: World Bank new data on poverty during the pandemic in Asia. World Bank Blogs. https:// blogs.worldbank.org/en/opendata/september-2023-global-poverty-update-world-bank-new-data-poverty-duringpandemic-asia 14.World Bank. (2023, December 7). A sustainable world needs sustainable finance. https://www.worldbank.org/en/ news/feature/2023/12/07/a-sustainable-world-needs-sustainable-finance 15. World Meteorological Organization (WMO). (2024).

New report shows impacts of climate change and extreme weather in Latin America and the Caribbean. https://wmo. int/media/news/new-report-shows-impacts-of-climatechange-and-extreme-weather-latin-america-and-caribbean-0

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PHILIPPINES: INVESTING IN SUSTAINABLE INFRASTRUCTURE AND TOURISM

By Adneissa Christy Alezy

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WORLD ECONOMIC JOURNAL

PHOTO: CHANWIT WHANSET / STOCK.ADOBE.COM; SHUTTERSTOCK

T

ourism is one of the biggest industries in the Philippines, contributing 8.6% of gross domestic product (GDP) in 2023.

Though dampened by the 2020 COVID-19 pandemic, the Philippines’ tourism industry is gradually recovering, opening up new opportunities for domestic and foreign investors.

Tourism is closely linked to infrastructure development, and government and commercial institutions are investing heavily in it in the Philippines. This infrastructure boom was kickstarted by the “Build! Build! Build! (BBB)” program under former President Rodrigo Duterte, which earmarked $165 billion for public works projects.

Under current President Bongbong Marcos, the Build! Build! Build! program has been replaced by the Build Better More (BBM) program. Government officials pitched the BBM program as an expansion of the previous infrastructure program, earmarking more investment for public works.

A recovering, fast-growing tourism industry and an infrastructure boom provide many investment opportunities.

Investors can take advantage of new infrastructure, such as airports, roads, water, and seaports, to develop tourism projects that were not previously feasible.

Let’s explore the infrastructure projects driving the Philippines’ boom, the trends in the tourism industry, and how they intersect to open up new investment opportunities.

The Philippine government partnered with commercial firms to co-develop some projects under the BBB program. By 2022, when Duterte stepped down as President, a dozen flagship projects, including the Clark International Airport expansion and Metro Rail Transit Line 3 Rehabilitation, had been completed.

President Bongbong Marcos assumed office in 2022 and unveiled an expanded infrastructure program, the Build Better More (BBM). This program earmarked another $164 billion over six years for flagship infrastructure projects, including those conceived by the previous Duterte administration.

The BBM program’s goal was clear: the Philippines has significant infrastructural deficits, and major funding is required

to close that gap. The government will lead the way, and commercial investors will follow to augment these projects.

The new infrastructure projects will open more opportunities for industrialization, which leads to higher domestic economic output, and tourism, which boosts foreign income.

Two major projects under the BBM program include: • Metro Manila Subway Manila, the Philippines’ capital, and its surrounding metro areas have a population of nearly 15 million. It is the world's most densely populated area, with 111,000 people per square mile. This large population and density naturally lead to congestion problems.

A recovering, fast-growing tourism industry and an infrastructure boom provide many investment opportunities

INFRASTRUCTURE PROJECTS In 2017, then Philippines President Rodrigo Duterte launched the Build!

Build! Build! (BBB) program to address the country’s significant infrastructure gap and encourage economic growth. This project earmarked $165 billion over five years for public works projects, including airports, public transport, seaports, water, and power supply.

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In 2023, Manila topped the TomTom Traffic Index list with the worst metro area traffic. Congestion is a common problem experienced by locals and tourists, and public transport is one effective way to tackle it.

The Metro Manila Subway is a $4 billion+ project funded mainly by a loan from the Japanese government. This underground rapid transit line is currently under construction and will stretch 33 kilometers with 17 stations across the Manila metro area. It will be integrated with Metro Manila's existing public transit system, enabling passengers to access road-based public transport from subway stations to their final destinations.

Once completed, the Metro Manila Subway, with an expected daily ridership of 400,000 to 800,000 people, will significantly reduce traffic congestion. Reduced congestion translates to a greater quality of life for locals and tourists, spurring increased foreign visits as the Philippines recovers from the COVID-19 pandemic travel slump.

• New Manila International Airport Construction is ongoing on a new international airport that will reduce congestion at the Ninoy Aquino International Airport (NAIA), the main airport serving Manila and its surrounding Metro areas.

Downtown Manila, the capital of the Philippines

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Number of foreign tourist arrivals to the Philippines from 2012 to 2023 (in millions)

*Only covers February to December 2022 Source: Statista

Once completed, the Metro Manila Subway, with an expected daily ridership of 400,000 to 800,000 people, will significantly reduce traffic congestion

PHOTO: PXHERE.COM; MC1 ALEXANDER KUBITZA; E911A / CC BY-SA 4.0

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The aptly named New Manila International Airport is being constructed on a coastal area 35 km north of Manila. It is planned for an initial capacity of 35 million passengers, expandable to 100 million. Though initially planned to open in 2026, construction delays have pushed back the $13 billion project to 2028.

Notably, this project is handled by a domestic conglomerate, the San Miguel Corporation, with no government guarantees or subsidies. It illustrates how private investors can profit from the Philippines’ long-term economic growth.

Ninoy Aquino International Airport (NAIA), Manila's main airport, is severely congested. In 2019, before the COVID-19 pandemic, it handled 48 million annual passengers, well above its 33 million capacity.

The New Manila International Airport will ease pressure on the NAIA, providing travelers with more convenient experiences and encouraging more foreign visits. It’ll help usher in the Philippines’ tourism sector growth, which investors can leverage to make profits.

DEVELOPMENT OF THE TOURISM SECTOR Tourism is one of the Philippines’ main economic sectors. It contributes significantly to the country’s GDP, foreign exchange market, and global economic standing.

• Recovery after the COVID-19 pandemic The Philippines received 5.45 million tourists in 2023, up from 2 million in 2022 and 1.5 million in 2020, the year after the COVID-19 pandemic. Although the sector hasn’t recovered to its pre-pandemic high of 8.3 million foreign arrivals, it’s rebounding significantly and creating new investment opportunities.

The Philippines expects to receive 6 million foreign visitors in 2024 and 9.7 million by 2028, well above the pre-pandemic 8.2 million record.

• Ecotourism and the natural landscape of the Philippines Ecotourism is a driving force behind the recovery of the Philippines’ tourism industry. Ecotourism refers to nature-oriented

tourism aimed at conserving the natural environment and interpreting the natural world. Though conventional tourism still dominates, ecotourism is a nascent space with opportunities for investors to build formidable, sustainable businesses.

With its numerous beaches, diving spots, wildlife, volcanoes, and other natural wonders, the Philippines is well-positioned to build on the ecotourism boom.

• Contribution of the hospitality and restaurant industries to GDP The hospitality and restaurant sectors are central to the Philippine tourism industry.

Tourists stay at hotels and often want to try local foods, so restaurants and hospitality always track the tourism industry’s growth.

Employment in the Philippine hospitality industry has grown from 4.6 million in 2020 to 6.2 million in 2023. It hasn’t reached its pre-pandemic record of 7 million, but it’s on track to bounce back.

Number of people employed in the Philippine tourism industry (in millions)

Source: Statista

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Hospitality investors can look to the Philippines as a key growth driver. Numerous opportunities exist for lodging, event planning, theme parks, travel agencies, food and beverage suppliers, restaurants, nightclubs, and bars.

Some hospitality firms exited the Philippines during the COVID-19 pandemic and haven’t returned. These exits created a void that new investors, especially hotel developers, could fill.

Foreign brands can partner with local developers to create long-lasting brands.

The Philippine tourism sector is set to boom in the ensuing years, and investors shouldn’t overlook this boom.

RISKS AND CHALLENGES Though booming, the Philippines’ tourism industry has its fair share of risks and challenges; these risks are mainly environmental and growing tourism competition from other Southeast Asian countries.

• Environmental challenges The Philippines’ vast natural landscape is a mixed blessing. It makes the country a tourist magnet but leaves it vulnerable to environmental changes.

Climate change has increased the intensity of the Philippines' natural hazards, including typhoons, extreme rainfall, droughts, and sea level rise. These hazards can damage infrastructure and livelihoods, risking economic development.

In 2023, tropical cyclones caused 18 billion Philippine pesos ($309 million) in damages, and earthquakes caused 2.8 billion pesos ($48 million). Fortunately, the fatalities caused by natural disasters have declined since 2013, as the Philippine government increased its disaster mitigation expenditure to a record 108 billion pesos ($1.9 billion) in 2022 and similarly high amounts in the following years.

Adapting new and existing infrastructure to climate change is central to the Philippines’ economic growth. Public transport, buildings, airports, seaports, water supply, and more must be resilient against environmental changes, requiring innovative construction techniques and extra funding.

Public-private partnerships are needed to secure the funds and domestic regulations to make Philippine infrastructure resilient to climate change effects. Widespread efforts are also required to reduce the country’s greenhouse gas emissions.

Disaster Mitigation Expenditure in Billion Phillipine Peso, 2015 to 2022

Source: The Philippine Statistics Authority (PSA)

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The government has already taken action, committing to reduce emissions by 75% in 2030, one of the most ambitious targets in Southeast Asia.

• Increasing competition in Southeast Asia The Philippines is not the only Southeast Asian country eyeing a tourism boom.

Several nearby nations, mainly Vietnam, Thailand, and Singapore, are investing heavily in infrastructure and tourism development to drive economic growth.

Thailand already holds the crown of Asia’s most visited country, with 28 million foreign visitors in 2023 and an expected 36 million in 2024. Vietnam received 12.6 million visitors in 2023, 3.5x higher than the previous year, and Singapore recorded 13.6 million tourist arrivals in 2023.

The record visits in Thailand, Singapore, and Vietnam imply increasing competition for the Philippines. These countries have created conducive environments for tourism and infrastructural development, and the Philippines needs to step up its game to compete.

The Philippine government is on the right track with its infrastructure development to create a favorable environment for tourism projects. Ecotourism is another way it can drive robust growth while competing with other Southeast Asian countries. More could be done, but these existing efforts are commendable.

WORLD ECONOMIC JOURNAL

THE PHILIPPINES: A HUB FOR SUSTAINABLE DEVELOPMENT Economic trends point to the Philippines as a hub of sustainable development. The country can build on its existing tourism sector to become a global destination for sustainable infrastructure investments.

From airports and public transport to renewable energy, the Philippines provides many opportunities for investors to profit from the transition towards sustainable investments. For example, the world’s largest solar plant, with 3.5 GW of solar panels and a 4.5 GWh battery energy storage system, is currently being constructed in the Philippines, in line with the country’s pledge to reduce carbon emissions by 75%.

San Miguel Corporation, a local conglomerate, is building the New Manila International Airport. These projects exemplify the Philippines as a hub of sustainable long-term economic development. Many opportunities exist for both domestic and foreign investors.

PHOTO: VOJO / SHUTTERSTOCK

RECOMMENDATIONS FOR FOREIGN INVESTMENTS Foreign investors targeting the Philippine market should consider infrastructure and tourism investments from a sustainability perspective. The Philippines has a substantial infrastructural deficit, including roads, energy, and public transit, which private investors can help fill. Hospitality brands can also build new lodging, events, theme parks, restaurants, bars, and similar businesses to take advantage of the Philippines’ tourism rebound.

Save for 2020, the anomaly year of the COVID-19 pandemic, the Philippine economy has grown by at least 5% annually over the past decade. This economic growth indicates the growing opportunities for foreign investors in the domestic economy.

The Philippine government has positioned the country as a sustainable development hub, and investors are welcome to capitalize on the ample investment opportunities.

The Philippines’ GDP growth rates from 2019 to 2023 and expected growth rates from 2024 to 2029

* Estimate Source: Statista/World Bank data

REFERENCES 1. Authentication challenge pages. (n.d.). psa.gov.ph 2. Philippines: Build! Build! Build! | NEWS+ | IJGlobal.

(2017, October 2).

3. TED CORDERO,GMA News & TED CORDERO, GMA News. (2022, April 27). DPWH: 12 out of 119 Build, Build, Build projects completed. GMA News Online.

4. Lopez, T. (2024, June 24). Five things BBM did in two years. Philstar.com.

5. Manila, Philippines population 2024. (n.d.).

6. Manila, Philippines population 2024. (n.d.).

7. Yu, L. S. (2024, March 7). Metro Manila has world’s worst metro area traffic in 2023. What can we learn?

RAPPLER. 8. Japan set to fund Metro Manila subway, 2 other rail projects. (n.d.). Republic of the Philippines | Public-Private Partnership Center.

9. Mark Demayo, ABS-CBN News. (2024, October 28).

LOOK: Ongoing construction of the Metro Manila Subway Project | ABS-CBN News. ABS-CBN. 10. Ganic, E. (2024, February 5). New Manila International Airport - dredging today. Dredging Today.

11. CEDTyClea. (2024, August 26). Construction issues to push back operations of Bulacan airport to 2028.

BusinessWorld Online.

12. Keating, B. S. (2019, September 18). SMC signs New Manila International Airport concession. TXF. 13. Burgos, J. (2024, March 19). Billionaire Ramon Ang’s San Miguel-Led Group signs deal to upgrade congested Philippine airport. Forbes.

14. Statista. (2024a, June 13). International tourist arrivals Philippines 2012-2023.

15. Monzon, A. M. (2024, November 13). PH ʼ24 tourism arrivals forecast cut to 6M. INQUIRER.net.

16. CEDTyClea. (2024b, November 12). PHL tourist arrivals to hit 9.7 million by 2028. BusinessWorld Online. 17. Statista. (2024b, June 27). Tourism sector employment figures Philippines 2012-2023.

18. Philippines: value of damages by natural disasters by type 2023 | Statista. (2024, March 26). Statista.

19. Disaster Mitigation Posted the Highest DRR Expenditure at PhP 107.97 Billion in 2022 (n.d.-b).

20. Philippines. (2023, November 24). UNDP Climate Promise.

21. Statista. (2024d, July 10). Foreign tourist arrivals Thailand 2015-2023.

22. Walker, T. (2024, November 1). Thailand aims for record-breaking tourist traffic in 2025.

23. International visitors to Vietnam reach 12.6 million arrivals in 2023, increased 3.5 times to 2022.

(2024, January 2). Vietnam National Authority of Tourism.

24. Tourism. (n.d.). Base. singstat.gov.sg 25. Jowett, P. (2024, November 20). Contractor selected for world’s largest solar plant. Pv Magazine International.

26. Statista. (2024, November 15). Gross domestic product (GDP) growth rate in the Philippines 2029.

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WORLD ECONOMIC JOURNAL

“Despite the pandemic and global geopolitical risks, Vietnam’s economic growth remains substantial, drawing attention from multinational corporations attracted by increased consumer spending, urbanization, and infrastructure development," said Warrick Cleine, Chairman and CEO of KPMG in Vietnam and Cambodia.

By Robert Abdullah

W

ith a population of almost 100 million, Vietnam is a new Southeast Asian ‘dragon’ that has shown amazing endurance and steady development, making it a dynamic force in the global economy. It is one of the fastest-growing economies in the area, ranking 24th in terms of purchasing power parity (PPP) and 34th globally in terms of nominal GDP in 2023, according to the World Bank.

VIETNAM'S CURRENT ECONOMIC LANDSCAPE: A GLOBAL FORCE IN THE MAKING The Đổi Mới (New Way) reforms, which were started in 1986 and signaled a relatively successful transition from a centrally planned economy to a market economy with a socialist bent, are primarily responsible for this quick and sustainable change. Over this period, real GDP per capita rose from under US$700 in 1986 to nearly US$4500 in 2023, while the proportion of people living in poverty dropped sharply from 14% in 2010 to below 4% in 2023. The foundation for such long-term growth was laid by the changes that gave priority to economic liberalization, promoted the growth of the private sector, and allowed foreign investment in Vietnam.

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Vietnam’s Key Industrial Sectors Vietnam's industrial sectors have been instrumental in driving its economic growth. The World Bank reported that Vietnam’s GDP grew at an annual rate of 6.4% in 2024, up from 5% in 2023. This growth was fueled by strong manufacturing exports, rising domestic consumption, and increasing foreign direct investment (FDI).

According to the General Statistics Office, the added value by industries in Q1 2024 rose by 6.18% compared to the same period last year, contributing 2.02% to the economy’s total added value. Key contributors included: •M anufacturing: Increased by 6.98%.

• E lectricity production and distribution: Grew significantly by 11.97%.

• I n early 2024, companies like Samsung produced 40% of their global smartphones in the country, with electronics accounting for 15% of the nation’s exports.

•W ater supply, garbage, and waste management: Rose by 4.99%.

•M ining industry: Declined by 5.84%.

•C onstruction industry: Demonstrated strong growth at 6.83%.

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Industrial Production Highlights • The industrial production index (IPI) for Q1 2024 increased in 54 localities.

• The consumption index of manufacturing grew by 8.2% in Q1 2024.

• The inventory index in manufacturing rose by 14.1% compared to the same period last year.

• The number of employees in industrial enterprises, as of March 1, 2024, increased by 1.1% compared to the same time last year.

Electronics and High-Performing Sectors According to World Bank’s 2024 report, • The Purchasing Managers Index (PMI) rose sharply to 55,5 in June 2024—its highest level since June 2022 and well above the ASEAN average.

The green economy in Vietnam is rapidly gaining momentum, driven by a national commitment to sustainable development. Companies that prioritize sustainability are poised to benefit from government incentives, enhanced brand reputation, and access to eco-conscious consumers” – Rizwan Khan, Managing Partner, Acclime Vietnam.

Manufacturing production rebounded…

Manufacturing PMI

Source: S&P Global and World Bank staff calculations Note: a PMI above 50 suggests manufacturing expansion. A PMI below 50 suggests a contraction in manufacturing activities

…driven by electronics, petroleum, and mineral products IPI by sector (2015=100)

Source: GSO and World Bank staff calculations

WEJ | December 2024 - January 2025

PHOTO: ACCLIME VIETNAM

Vietnam has achieved remarkable growth in international trade by effectively blending market-driven strategies with socialist-oriented economic principles. This approach has strengthened its trade relationships with key partners such as Japan, Singapore, Hong Kong, Taiwan, Korea, and the European Union.

In an era of increasing regionalization and globalization, Vietnam’s membership in the World Trade Organization (WTO), the Association of Southeast Asian Nations (ASEAN), and the Asia-Pacific Economic Cooperation (APEC) have played a pivotal role in boosting its economy and facilitating its integration into the global market.

In 2022, Vietnam’s exports of intermediate goods reached an impressive value of US$49.358 million, accounting for a 13.31% share of its total trade, underscoring its growing role in global supply chains.

PHOTO: STEFFEN SCHMITZ (CARSCHTEN) / CC BY-SA 4.0; RYAN LE / UNSPLASH; SHUTTERSTOCK

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It is projected to reduce poverty by 600.000 people at the $5.50/day poverty line by 2030 • Electronics production surged by 39 pp in June 2024, driving much of the growth in industrial output.

• Petroleum production increased by 34 pp, while metal products grew by 45 pp.

• Traditional industries like footwear and textiles recovered modestly by 1.9% but from a low base.

Trade and International Cooperation Vietnam’s integration into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has positioned it as one of the agreement's top beneficiaries. By 2030, the CPTPP is projected to significantly impact Vietnam’s economy:

• Increase Vietnam’s GDP by 3.5% under conservative productivity assumptions.

• Higher gains of 6.6% are possible under the TPP-12 scenario compared to 1% under RCEP. • Boost Vietnam’s exports by 4.2% and imports by 5.3%.

• With productivity gains, exports could rise 6.9% and imports 7.6%.

• Lower average trade-weighted tariffs faced by Vietnamese exporters to CPTPP markets from 1.7% to 0.2%.

• Reduce non-tariff measures (NTMs) faced by Vietnam in CPTPP markets by 3.6 percentage points in ad valorem tariff-equivalent terms.

Sectorally, the largest growth in

output under CPTPP is expected in food, beverages, tobacco, clothing and leather, and textiles, along with more modest growth in other manufacturing subsectors and services. At the same time, imports are expected to grow across all sectors.

CPTPP is also expected to have a positive social impact. It is projected to reduce poverty by 600.000 people at the $5.50/day poverty line by 2030.

Although all income groups are set to benefit, highly skilled workers in the top 60% of the income distribution will likely see the greatest gains, highlighting the need for investments in human capital to maximize the agreement's benefits.

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Exports by destination, baseline conditions (US $, billions)

• Recent partnerships in AI and semiconductors, including those announced by Nvidia and Microsoft, highlight Vietnam's growing role in high-tech industries.

In 2023, FDI reached record levels, rising 54% to $15.3 billion in the first ten months, contrasting with China's negative FDI during the same period.

Vietnam’s low industrial wages and untapped rural labor pool, combined with its strategic policy and infrastructure investments, have made it a cornerstone of the ‘China Plus One’ strategy.

Source: Author’s estimates

THE ‘CHINA PLUS ONE’ STRATEGY The China Plus One strategy has further strengthened Vietnam’s status as an alternative manufacturing hub. Rising labor costs in China, combined with geopolitical uncertainties, have prompted global firms to diversify operations. Vietnam has positioned itself as a prime destination, offering competitive labor costs, proximity to China, and a business-friendly environment.

Vietnam’s ‘bamboo diplomacy,’ which balances relations with major powers while maintaining neutrality, has further

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solidified its appeal. The nation has negotiated free trade agreements with 15 countries, allowing it to integrate seamlessly into regional supply chains.

Key corporate investments reflect Vietnam’s growing prominence: • Samsung employs over 200.000 people and has invested $17 billion in facilities to produce smartphones and other devices.

• Foxconn Technology assembles Apple’s MacBooks outside Hanoi and plans to expand into electric vehicle charger production.

WEJ | December 2024 - January 2025

Despite Vietnam's success over the past decade in the provision of infrastructure services, changes are required in the way that infrastructure is supplied and managed in order to deal with important shifts in the economy. The World Bank ‘Urban Development Strategy’ report highlighted that Vietnam has the highest motorcycle ownership per capita in the world, with over 1.5 million motorcycles registered in Hanoi and 2.5 million in Ho Chi Minh City.

Road safety is a significant concern, as the country records one of the highest traffic accident rates globally. In Hanoi, only 11% of the city's land area is dedicated to transportation facilities, far below the proposed standard of 25%. Encroachment into transportation rights-of-way, often for commercial or

PHOTO: NORBERT BRAUN / UNSPLASH; NGUYEN MINH TUU / SHUTTERSTOCK

URBAN TRANSPORT CHALLENGES

WORLD ECONOMIC JOURNAL

residential use, further reduces road capacity and contributes to traffic issues.

PHOTO: QUANG PRAHA / PIXABAY

HOUSING CHALLENGES In 2002, around 25% of Vietnam's urban population lived in substandard or temporary housing, with significant regional differences influenced by climate, materials, and income levels. Slums are more prevalent in the south, with an estimated 300.000 people in Ho Chi Minh City living in such conditions, while 30% of Hanoi’s population faces overcrowding, averaging just 3 square meters per person compared to the 14 square meters target set by the Ministry of Construction.

A market-driven housing boom in major cities, led by state-owned developers, primarily benefits middle- and upper-income groups, leaving low-income residents underserved. Land speculation has exacerbated affordability issues, with

Vietnam has positioned itself as a prime destination, offering competitive labor costs, proximity to China, and a business-friendly environment

inflated land prices and a ‘freeze’ in the real estate market since 2004. Meanwhile, informal construction dominated until the 2004 Land Law, which aimed to regulate developments and encourage planned housing.

The Asian Development Bank (ADB) has committed $16.5 billion to Vietnam to address these challenges. Key initiatives include: • Developing climate-resilient transportation systems to enhance connectivity and mitigate disaster risks.

• Promoting sustainable urban planning to manage increasing urban populations.

• Expanding rural infrastructure to alleviate regional disparities and reduce poverty.

Energy infrastructure remains a critical bottleneck. Vietnam’s Power

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VIETNAM'S KEY 2025 PERSPECTIVES Vietnam’s economy is projected to grow at a robust pace in 2025, driven by domestic consumption, infrastructure investments, and favorable demographic and economic dynamics. Key forecasts

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Vietnam’s young and growing population continues to support consumption and labor force expansion and perspectives highlight the interplay of these factors in shaping the country's near-term economic trajectory.

Economic Growth Projections Vietnam is expected to achieve a GDP growth of 6.5% in 2025, provided the government actively stimulates the real estate market and accelerates infrastruc-

WEJ | December 2024 - January 2025

ture spending. This optimistic scenario hinges on consumer confidence and domestic demand offsetting slower export growth. If government action is limited to infrastructure spending without addressing real estate market challenges, growth is estimated at 5%. A scenario with no significant intervention could see GDP growth dip to 4.5%, reflecting weaker external demand, particularly from the US, Vietnam's largest export market.

The Asian Development Bank (ADB) has also revised Vietnam’s 2025 growth forecast to 6.6%, emphasizing stronger trade activities, accelerated public investment, and supportive fiscal and monetary policies.

Drivers of Growth Vietnam’s growth outlook is shaped by key long-term drivers, including: • Demographics and Urbanization: Vietnam’s young and growing population continues to support consumption and labor force expansion.

PHOTO: VINFAST

Development Plan VIII aims to achieve 32% renewable energy in its energy mix by 2030, but outdated grid systems and regulatory obstacles have slowed progress. Industrial zones in northern Vietnam faced planned blackouts in 2024, emphasizing the need for grid modernization and diversified energy sources.

Efforts to address these issues include collaborations under the Just Energy Transition Partnership (JETP), which pledged $15.5 billion to support Vietnam’s transition to renewable energy.

Investments in wind and solar projects combined with regulatory reforms are essential to meeting the country’s energy demands while reducing environmental impacts.

WORLD ECONOMIC JOURNAL

• Education and the Digital Economy: Investments in education and technological advancements contribute to sustained productivity and innovation.

• Infrastructure Development: Major projects such as Ho Chi Minh City’s new airport and Hanoi’s ring roads are expected to bolster consumer confidence through improved connectivity and the ‘wealth effect’ associated with rising property values.

Consumption as a Key Growth Engine Domestic consumption, which accounts for over 60% of the economy, is critical to Vietnam’s economic performance. Consumer sentiment, subdued throughout much of 2024, is projected to improve significantly in 2025. The combination of fiscal stimulus, infrastructure projects, and the easing of real estate market pressures is expected to spur spending among middle-income consumers.

KEY RECOMMENDATIONS

PHOTO: BEN KOORENGEVEL / UNSPLASH; ACCLIME VIETNAM

Based on KPMG’s ‘The Investor’s Guide to Growth’ 2024 report, the following aspects of Vietnam's economy are recommended as key focus areas for investors:

each offering distinct advantages regarding liability, bond issuance, and shareholder requirements. Choosing the right structure is critical for regulatory compliance and long-term success.

“To succeed in the Vietnamese market, investors should seek to synergize their international best practices and commercial practices that made them successful in the first place, with a solid, practical understanding of the Vietnamese business environment and regulatory context.” – Vlad Savin, Partner, Acclime Vietnam.

Leverage Investment Incentives Investors should actively pursue projects that qualify for Vietnam’s robust investment incentives, including corporate income tax (CIT) reductions, import duty exemptions for raw materials, and land use tax exemptions. These incentives are particularly attractive in prioritized sectors and disadvantaged regions, making them essential for maximizing profitability and competitiveness in the Vietnamese market.

With the help of its strategic reforms, strong industrial growth, and integra-

“Vietnam has a young and energetic workforce that is eager to work and learn new skills.

This makes the country an attractive place for companies looking to hire employees” – Do Thi Thao, Partner, Acclime Vietnam.

tion of international trade, Vietnam has become a resilient and dynamic force in the global economy. Urbanization, consumer spending, and infrastructure development have all contributed to its ability to draw in multinational firms, serving as a model for sustainable economic change.

Focus on High-Value-Added Production Investors should align their investments with industries and sectors that offer high-value-added opportunities, such as high-tech, education, and healthcare. Vietnam's government is focusing incentives on these areas to enhance its competitive advantage and attract sustainable growth.

Choose the Appropriate Business Form Foreign investors need to carefully select the type of legal entity for their operations in Vietnam based on their strategic objectives. Options include a limited liability company (LLC), jointstock company (JSC), or a partnership,

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BRAZIL:

AN AGRICULTURAL GIANT WITH INVESTMENT POTENTIAL

B

razil is one of the world’s top agricultural exporters. In 2023, it exported a record $166 billion worth of farm products, including coffee, soybeans, beef, and sugar. As a top exporter of many agricultural commodities, Brazil has fostered economic growth and boosted its standing in the global trade echelons. Yet, with the right investments and regulations, there’s still more to be achieved. “Agriculture productivity growth in recent decades in Brazil has been mainly driven by investments in agriculture innovation,

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facilitation of sector financing, and trade liberalization,” World Bank expert Diego Arias concurs.

Brazil’s agricultural industry has grown rapidly and broken records over the past two decades. Its 2023 exports stood at $166 billion, nearly double the $85 billion exported in 2013. The agriculture sector’s share of gross domestic product (GDP) rose from 4.6% in 2017 to 6.2% in 2023. These figures indicate a robust, fast-growing agricultural industry with many investment opportunities.

Despite its robust performance, Brazil’s agricultural sector still has ample

WEJ | December 2024 - January 2025

space for more productivity, even while paying attention to sustainability. For instance, research by the Brazilian Agricultural Research Corporation suggests the country could convert an additional 70 million acres of existing pastureland to crop production without deforestation.

Technology innovations can help Brazil maximize its agricultural output and build a more resilient economy. Let’s explore what makes Brazil suited for this growth and how investors can profit from these opportunities.

PHPTO: LOURENCOLF / SHUTTERSTOCK

By Chisom Maduonuorah

WORLD ECONOMIC JOURNAL

KEY AREAS IN THE AGRICULTURAL SECTOR Brazil specializes in agricultural commodities like soybeans, coffee, and beef.

It also has a burgeoning timber export business that presents opportunities for investors. Sustainability is a major investment theme, as Brazil’s agricultural industry has received significant criticism for environmentally harmful practices like deforestation.

The key areas in Brazil’s agricultural sector include: • Soy and meat production Brazil is the world’s largest soybean exporter, accounting for 57% of global exports in 2023. Soybean is a crop in high demand for food and industrial products. It's an ingredient for everything from cooking oil to animal feed and paints. Brazil’s dominance of soybean exports gives it considerable economic and political clout.

Beef is another area in which Brazil dominates the international market. It’s the world’s largest beef exporter, shipping 3 million tons in 2023, far ahead of the runner-up, India, which shipped 1.48 million tons.

Brazil is expected to set a new record for soybean shipments in 2024, beating the 22.4 million tons it shipped in 2023. The same applies to beef exports. Brazil’s beef production is expected to grow by 7% in 2024, and exports are projected to grow by 4.2%.

These statistics indicate a lucrative soy and beef market from which domestic and foreign investors can benefit.

• Development of organic farming Organic farming prioritizes sustainability and maximizing the use of natural inputs. It’s a fast-growing agricultural segment in Brazil, driven by the global shift towards climate change mitigation and Brazil’s environmental challenges.

Organic farmland in Brazil is over 1.5 million acres as of 2024, compared to around 950,000 acres in 2015. The country had nearly 26,000 organic producers as of 2023, a 123% increase from 2015.

Volume of beef and veal exported in 2023, by country (in thousands of ton)* 3,012

1,475

1,422

1,400 3,182 795

BR

IN**

US

AU

AR

645

625

585

485

445

NZ

EU

CA

UY

PY

Others

* As of Aprile 2023 ** Export ''carabeef" of buffalo meat Source: Statista

Deforestation levels in the Brazilian Amazon since 1988.

It reached a nine-year record low in 2024 square killometers 25, 000

20, 000

15, 000

10, 000

5, 000

0

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Source: Mongabay/The Brazilian National Institute for Space Research

Brazil’s organic farming shift is crucial because of its vulnerability to climate change effects. 90% of Brazilian agriculture relies on rainfall, making production vulnerable to droughts. Organic farming includes shifting to drip irrigation (tubes laid on the ground to trickle water across soil), which is more efficient than rainfed agriculture.

Globally, rainfed agriculture produces 50% less output than irrigated agriculture. Hence, a simple shift towards irrigated systems can significantly boost Brazil’s agricultural output. This illustrates how

the right investments can boost profits for agricultural producers and investors.

• Forestry and timber export Brazil accounts for 55% of timber product exports from South America and 2.7% of global exports. Major timber products include wood pulp, wooden frames, plywood, and furniture. With the world’s second-largest forested area, Brazil has numerous resources to grow its forestry and timber exports.

Brazil’s forestry industry faces notable environmental challenges, mainly illegal

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logging. However, the government has implemented fruitful efforts to tackle this challenge and permit logging only in suitable areas. In 2024, deforestation dropped by 31% compared to 2023 and plunged to its lowest nine-year level. These efforts pave the way for domestic and foreign investors to profit from sustainable timber harvests, unlike illegal loggers, who pay little attention to environmental practices.

INVESTMENT OPPORTUNITIES

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Brazil issued its first $2 billion green bond in November 2023 and another $2 billion in June 2024 ers’ profits. Investments to tackle this inadequacy can substantially improve Brazil’s agricultural productivity.

For example, the Port of Santos, Latin America’s busiest container port, is being expanded to improve capacity from 6 million TEU containers annually to 9 million. This expansion will open more space for Brazil’s agricultural producers to ship products to global customers.

It’s spearheaded by a partnership between a state-owned logistics company and private investors, demonstrating how businesses can help boost agricultural productivity and profits.

• Financing sustainable agricultural projects Brazil needs considerable investment to speed up sustainable agricultural practices. The transition towards sus-

WEJ | December 2024 - January 2025

tainability requires massive investments to revamp existing production processes, and domestic companies often lack access to this capital. Foreign investors can help close this gap, and local investors can also contribute.

For example, Brazil participates in the Climate Bonds Initiative, which helps countries mobilize financing based on sustainability milestones. The country issued its first $2 billion green bond in November 2023 and another $2 billion in June 2024. Green bonds often have lower interest rates than traditional bonds, giving Brazil more capital to fund sustainable investments and boost agricultural exports.

RISKS AND CHALLENGES The Brazilian agricultural sector faces notable risks and challenges, mainly climate change, political headwinds, and global macroeconomic changes.

• Climate change effects Brazil’s vast agricultural sector is vulnerable to climate change effects like drought, flooding, deforestation, and sea-level rise.

The adverse effects are already being seen, such as a flood disrupting road and rail links to a major grain port in May 2024 and a drought halting river grain transport in September 2024.

Environmental disasters significantly affect agricultural output and transport, making them core investment risks.

PHOTO: LEONIDAS / ADOBE STOCK

Brazil’s robust and fast-growing agricultural sector presents investment opportunities in three core areas: crop yield enhancements, logistics, and sustainability. Let’s explore these opportunities further.

• Technologies to enhance crop yields Despite its robustness, the Brazilian agricultural sector requires considerable work regarding mechanization and technological adoption. We’ve mentioned that 90% of Brazil’s agricultural output is rainfed, which yields less than irrigated agriculture. Another example is indoor farming, which increases crop yield in limited spaces.

We can then consider more advanced solutions, such as satellite imagery, to guide decision-making and remote sensing to monitor weather, soil moisture, weed locations, pest infestations, and other crucial farming conditions. Brazil’s agricultural sector is ripe for advanced technology solutions to boost crop yields, and investors can make money by providing these solutions.

• Building logistics infrastructure for exports Brazil’s agricultural industry relies on seaports, airports, roads, rail networks, and other logistics infrastructure to export massive volumes of goods.

However, the country faces significant logistical challenges, such as overstretched ports and inadequate road and rail networks.

Many agricultural regions lack adequate transport networks, which causes higher transport costs that reduce farm-

WORLD ECONOMIC JOURNAL

Fortunately, Brazil’s government and commercial entities have made efforts to reduce disaster risks, including building resilient transport infrastructure and investing heavily in renewable energy to reduce greenhouse gas emissions.

In 2023, Brazil commissioned its largest solar power plant with 1.2 GW capacity. The plant was built by a private company, demonstrating how investors can profit from sustainable investments, in line with Brazil’s pledge to reduce greenhouse gas emissions by 59%-67% by 2035, relative to 2005 levels.

PHOTO: BRASTOCK IMAGES / ADOBE STOCK

• Deforestation Deforestation, mainly caused by illegal logging, reduces arable land and increases soil erosion, harming longterm agricultural output. Brazil faces considerable deforestation, which risks agricultural productivity for farmers and investors. However, as mentioned earlier, Brazil has made progress in tackling this issue, with deforestation currently at a nine-year low.

• Political and economic risks The agricultural sector is greatly affected by business and environmental regulations, which change depending on political leadership. Polarization and institutional conflicts challenge Brazil’s political landscape, often leading to inconsistent regulations that discourage long-term planning. The country is progressing in this area, but more work is needed to mitigate political risks.

Brazil’s agricultural sector is also vulnerable to global macroeconomic headwinds, such as the 2020 COVID-19 pandemic, which disrupted supply chains and workforce productivity.

Remarkably, Brazil’s agricultural industry outshined other domestic sectors in 2020, growing 2% even as others contracted. “The rapid devaluation of the Brazilian real made the country’s agricultural exports attractive on the international market. Weak real also discouraged dollar-denominated imports and fueled internal demand for domestically produced agricultural products.

Brazilian agriculture, working in tandem with government decision-makers, overcame early transportation hurdles to boost exports, while also maintaining internal supply,” said US Agriculture Department specialists Evgenia Ustinova and Katherine Woody during the COVID era. This resilience demonstrates Brazil’s readiness for profitable agricultural investments.

DEVELOPMENT OF THE AGRICULTURAL SECTOR BY 2025 Brazil’s agricultural sector is expected to increase by 5% in 2025, continuing the growth trends seen in previous years.

This sector is a beacon in Brazil’s developing, industrialized economy.

With the right technology investments to boost crop yields, organic farming growth, and increasing timber production, Brazil’s agricultural sector is poised to grow further over the next decade. “Owing to its incredible natural endowment, its advanced agribusiness and research sectors, its stability within an unstable world, and its well-devel-

oped integration into global agriculture and food markets, Brazil is now and will remain a leading agricultural powerhouse and a critical partner in addressing the global food crisis,” notes Atlantic Council experts Valentina Sader and Peter Engelke. Global investors can capitalize on this growth to earn profits.

OPPORTUNITIES FOR INTERNATIONAL INVESTORS Foreign investors should target infrastructural and sustainable investments in Brazil’s agriculture sector. The Brazilian government has spearheaded several public-private partnerships, demonstrating its intention to create a favorable climate for foreign investments.

Brazil's agricultural sector presents endless investment opportunities, from fertilizer production to renewable energy, port upgrades, road construction, machinery production, and yield-boosting technologies. Global trends point towards sustainable growth in this sector, enabling investors to earn substantial long-term profits.

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INDONESIA:

THE SUCCESS OF A NEW ECONOMIC TIGER

I

By Elen Boyer

ndonesia is the largest archipelago in the world and one of the fastest-growing economies in Southeast Asia. The country is the fourth-most populous country in the world. According to UN calculations, there are currently 284,492,380 people living in Indonesia. This is about 3.5% of the world's population. By 2030, the population could grow to 295 million, a 14.7% increase from 2015.

Indonesia's GDP is also growing strongly, with the figure increasing 15-fold over the past 20 years to $1.5 trillion, making it Asia's third largest economy after China and India. The country is already ranked 16th in the world in terms of GDP and is increasingly being recognised as a top investment destination thanks to its rapid economic growth, young, fast-growing population, favourable strategic location and abundant natural resources.

KEY INDUSTRIES AND GROWTH DRIVERS Many people associate Indonesia mainly with vacations in Bali, but the country has enormous reserves of mineral resources.

It is also one of the largest producers of agricultural products due to its location.

• Natural resources: extraction and export of minerals Indonesia is rich in deposits of various minerals: high-quality oil, tin, bauxite, nickel, manganese, lead, copper, zinc, chromium, gas deposits, and precious stones. For example, Indonesia is the leader in terms of predicted nickel reserves; according to the latest data from the USGS (United States Geological Survey) they are estimated at

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55 million metric tons. The USGS estimates Indonesia's production in 2023 in terms of pure metal at 1.8 million metric tons.

S&P Global Commodity Insights calculates that Indonesia produced 40.2% of the world's nickel in 2023 and could increase production to 43.9% by 2027.

The Australian Department of Industry, Science and Resources, which uses slightly different figures, forecasts that Indonesia's production will continue to increase— from 2 million metric tons in 2023 to 2.5 million metric tons in 2025, which would be equivalent to 56% of global supply.

In addition to nickel, Indonesia is also actively capturing the global coal market, following a similar pattern: supplying large volumes of products of lower quality than its competitors but at a very competitive price. According to S&P, Indonesia produces thermal coal with low thermal conductivity and low ash and sulfur content and is its largest exporter. Indonesia's coal production in 2023 reached a record high of 775.2 million metric tons, up 12% on the previous year and exceeding the 694 million metric tons target set by the Indonesian government.

Coal exports from Indonesia increased by 20% in H1 2024 to 208.50 million metric tons, compared to 173.77 million metric tons in H1 2023. In H1 2024, non-coking coal exports from Indonesia were 206.50 million metric tons, and coal exports were 2 million metric tons. Coal exports to Asian countries reached 205.88 million metric tons in the first half of 2024, compared to 170.99 million metric tons in the first half of 2023. This is 20.39% more than the previous year but 6.38% less than May, accounting for 98.73% of total exports.

WEJ | December 2024 - January 2025

China remains the main destination, with 61.42 million metric tons in H1 2024 shipments compared to 51.99 million metric tons in H1 2023, up 18.17% year-on-year.

• Tourism and infrastructure development Indonesia is the largest island nation in the world, comprising more than 17,000 islands. Thanks to this unique ecosystem, tourism in the country is developing rapidly. Now, it is the second most popular destination in Asia among European tourists. According to Statista, about 7-8 million travelers flock to the islands with

"Indonesian nickel has flooded the market as low production costs allow the country to keep metal prices low while other producers are struggling,"— noted the analysts at S&P Global Commodity Insights.

PHOTO: PXHERE.COM

WORLD ECONOMIC JOURNAL

evergreen jungles, stunning fauna and flora, and a rich underwater world of coral reefs annually. And their number is growing every year. For example, Indonesia's most popular island, Bali, was visited by 24% more tourists in the first half of the year compared to the same period in 2023.

While the island used to be a destination of choice for budget holidaymakers, Bali is now considered a top holiday destination for affluent European tourists. According to statistics from Indonesia's Central Agency, international tourists visiting Indonesia in 2023 spent about $1,625 per visit, up 12.25% from 2022. The demographics of travelers also explain the reason for this spending—the main occupation of tourists in Bali is managerial positions. The increase in average foreign tourist spending per visit in 2023 is partly due to an increase in the length of stay of foreign tourists from an average of 12.45 nights in 2022 to an average of 12.71 nights in 2024.

The development of tourism stimulates the construction of new infrastructure in Indonesia. Thus, in the fall of 2024, construction of the first railway, about 30 km long, began in Bali. The LRTBali light rail

will connect the local airport Ngurah Rai with the city of Mengwi and should solve the problem of growing traffic jams. Also, in 2025, a theme park for children and adults called UniversalPark & Gardens Bali is scheduled to open on Bali's west coast in the district of Jembrana. As the largest country in the region by area and population, Indonesia will also build a Formula 1 circuit in Bali.

These projects, as well as the new international airport, cruise ship port, Bali Metro, and railway, all contribute to the development of road and transport infrastructure and certainly increase the island's attractiveness to tourists.

• Innovation in agriculture and the productive sector Indonesia is one of the largest producers of food products. Agriculture employs about one-third of all workers (38.2 million people or 29.8%, including 18.1% in East Java Province, 12.1% in Central Java Province, and 9.6% in West Java Province).

32.5% of the country's territory (62.3 million hectares) is agricultural land, of which 42.2% (26.3 million hectares) is arable land,

40.1% (25 million hectares) is perennial plantations, and 17.7% (11 million hectares) is pasture. There are 6.7 million hectares of irrigated land and 92.7 million hectares of forests (48.4% of Indonesia's land area).

Indonesia's main crops are rice, maize, oil palm, coffee, and sugar cane. The country's livestock production is based on cattle breeding and fish farming. The most common cattle species are the Balinese bull and the Banteng, a breed of water buffalo. The total number of cattle in Indonesia is about 16.3 million.

Breeding freshwater fish, particularly tilapia and carp, is also an important livestock industry. Indonesia produces about 1.5 million metric tons of fish annually.

Palm oil is the mainstay of Indonesia's agricultural exports, accounting for 45.7% of agro-industrial exports. The leading buyers are India, China, and the EU. In addition to palm oil, Indonesia exports rubber, copra, coffee, cocoa beans, spices, and other agricultural products.

The Indonesian government actively stimulates agricultural development through various measures. The key areas of state support include subsidizing interest rates on loans for farmers, developing rural infrastructure, and stimulating exports of agricultural products. About $2 billion from the state budget is allocated annually to support Indonesian agriculture.

INVESTMENT CLIMATE The business environment in Indonesia is becoming increasingly favorable for foreign investors and entrepreneurs. The government is focusing on simplifying procedures for starting and running a business, which includes removing bureaucratic barriers, reforming the tax system, and ensuring the protection of property rights.

• Reforms to attract foreign investors In 2024, Indonesian authorities launched a long-term visa program to attract foreign investors. Individual investors must set up a company worth $2.5 million to receive a five-year Golden Visa. For a 10-year visa, an investment of $5 million is required.

If the investor does not plan to set up a company, he must deposit $350,000 for a five-year visa and $700,000 for a ten-year

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• State business support programs Indonesia has 15 Special Economic Zones (SEZs). They were established to stimulate economic development by attracting investment, accelerating industrial and economic growth, and improving access to global markets. The largest are: 1. SEZ Sebalu: industrial zone centered on agro-industry and palm oil; 2. SEZ Tanjung Api Api: predominantly focused on the processing of natural resources and their production; 3. SEZ Mandalika: main focus on tourism—offers well-developed infrastructure to support the tourism industry; 4. SEZ Batam: one of the oldest and most successful projects, focused on technology, manufacturing, and logistics, strategically located near Singapore.

In SEZs, Indonesian enterprises are granted various tax incentives, simplified customs, and administrative procedures.

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The Indonesian government actively supports foreign trade and foreign investors. Important aspects for those who want to invest in the country's economy: • Free trade agreements: Indonesia has signed numerous agreements with ASEAN countries, Australia, China, and others.

• Simplifying procedures: Automating customs procedures and reducing bureaucracy make the export process more transparent.

• Tax incentives: Tax incentives are available for companies investing in priority sectors.

In addition to attracting foreign investors, the authorities of the island state actively help local enterprises. For example, there is a whole system of grants and incentives for small and medium-sized businesses. With their help, the government tries to support enterprises that employ almost 95% of the country's able-bodied population.

Among the most popular government business support programs are: • Loan for business • Startup Incubator Programme • Microloan program for micro businesses • Direct Assistance Programme • E-brochure programme • Tax incentives • Loan Restructuring • Working Capital Policy • Working capital loan guarantee scheme Examples of successful investments In November 2024, British energy giant bp, along with its partners, announced the final investment decision for the Tangguh Ubadari Carbon Capture, Utilisation and Storage (CCUS) and Compression (UCC) project in Papua Barat, Indonesia. The $7 billion project aims to produce an additional 3 trillion cubic feet of gas resources, a significant step in meeting growing energy needs in the region.

WEJ | December 2024 - January 2025

"This project not only provides access to fantastic gas reserves but is also the first project in Indonesia to use CCUS to maximize gas recovery. BP has been operating in Indonesia for more than 55 years, and the strength of our relationship allows us to bring a wealth of technical expertise to bear on this innovative project. We are deeply grateful for the continued support of the Indonesian government and partners and look forward to helping the region meet its growing energy needs," said Murray Ashincloss, CEO of BP.

Apple recently announced a $100 million investment in the Indonesian economy.

This decision is related to the company's desire to strengthen its presence in the Indonesian market and comply with local legislation—to ensure that at least 40% of product parts are manufactured directly in the country. The corporation plans to use these funds to build a factory to produce components and accessories for its devices.

RISKS AND CHALLENGES Due to its geographical location and large area, Indonesia faces serious climate challenges and infrastructure development difficulties.

Vulnerability to climate change Composed of more than 17,000 islands and with a long coastline, Indonesia is particularly vulnerable to the effects of climate change. These include rising sea levels and extreme weather events such as floods, droughts, and storms.

Some other factors that increase Indonesia's vulnerability: • High rate of forest loss. The country is one of the world's largest sources of greenhouse gas emissions due to large-scale deforestation.

PHOTO: BP

visa. These funds can be used to buy Indonesian government bonds, shares in public companies, or deposits.

Corporate investors must invest $25 million to get five-year visas for directors and commissioners. A 10-year visa will require an investment of $50 million.

The immigration agency said investors in the new $32 billion capital, now under construction in the jungles of Borneo Island, will receive a five-year visa for a $5 million investment and a ten-year visa for a $10 million investment.

Indonesian Immigration Director General Silmi Karim expressed confidence that authorities will issue 1,000 "golden visas" by the end of this year.

"It's not about a large number of visas because the Golden Visa is a very exclusive, specific program that should benefit Indonesia. This year's target is 1,000 recipients, and hopefully, it will be achieved by the end of 2024," he said.

In order to boost oil and gas exploration, the country's authorities have offered investors participation in oil projects. Thus, at the end of 2024, Indonesia announced a tender for the development of six blocks with oil reserves, the potential of which is estimated at 48 billion barrels of oil equivalent.

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• Atmospheric air pollution. In some cities, it is caused by industrial and motor vehicle emissions; in rural areas, it is caused by the formation of haze and smog due to forest fires.

• Mining. Climate change exacerbates environmental risks as changing rainfall patterns reduce water availability and increase the risk of flooding and landslides.

• Living near the sea border in slums.

These are the people who are most vulnerable to climate disasters, as they lack the means to move and improve their living conditions.

In 2021, experts from the environmental organization Nature Conservancy, who published an article in the journal Lancet Planetary Health, conducted a study that showed that deforestation and global warming in one Indonesian province led to an increase in temperature by almost a full degree Celsius in 16 years, which led to an 8% increase in mortality.

Problems with bureaucracy and infrastructure Investors may face some problems with bureaucracy and infrastructure in Indonesia: • Excessive regulation and a complex licensing process. This may discourage investors.

• Lack of coordination at the ministerial level. Because of this, some of the infrastructure required for Special Economic Zones (SEZs) has not yet been built.

• A limited number of skilled workers. In particular, this applies to those who have a high level of education and professional training and are needed by technology-based startups.

Insufficient infrastructure development. For example, some SEZs have not yet developed the minimum necessary infrastructure, primarily the local network of roads and railways.

The Indonesian government has recognized these problems and is working to address them. For example, it offers new incentives to companies wishing to invest in SEZs and grants long-term land rights.

PERSPECTIVES FOR 2025 Indonesia is the largest and one of the fastest-growing markets in Southeast Asia.

The country's economy is expected to continue growing at a steady pace, and its GDP is expected to average 5.1% between 2024 and 2026.

However, the World Bank still defines Indonesia as a lower-middle-income economy. Although it is still a poor country, its economy has the potential to grow tenfold, making it an attractive investment destination.

Among the most promising niches for foreign investors, experts name: • Logistics and infrastructure. For any country, transport infrastructure is a major unifying factor. For Indonesia, which is located on thousands of separate islands, it is also a fundamental problem. Niches for investment here are obvious—ports, airports, highways. There are problems with food logistics, such as difficulties with containers and freezer storage. There are still free niches in the sphere of marketplaces, stores, and distribution centers. J&T Express, a local company that organizes parcel delivery by car, became a "unicorn" at the beginning of 2022 with a valuation of $20 billion.

• Edtech. The Indonesian authorities are actively promoting the development of vocational training projects. Analysts estimate that by 2030, 113 million Indonesians will need vocational training. There are already almost 400 EdTech projects in the country, offering both full-fledged courses or online tutoring services and self-learning platforms. However, there are still prospects for new products.

• Medicine. Quality healthcare is now a top priority on the national agenda.

In 2014, the Indonesian government launched a program for universal healthcare, BPJS-Kesehatan (also called JKN), with about 83% of the country's population registered. This has made a significant contribution to the medical business as the program has indirectly increased the number of patients.

The central and regional governments are actively building new medical facilities, but there are still too few to fully meet demand. Today, Indonesia has 2,925 hospitals.

They have just over 318,000 beds, or 1.17 beds per thousand population—the lowest in ASEAN (Association of Southeast Asian

Nations). There is an opportunity for foreign investors to fill the current market deficit.

The pandemic has accelerated the growth of digital medicine, so another attractive segment is telemedicine. Since March 2020, local healthcare app Alodokter has registered more than 30 million active users. In a country with only one doctor per 2,500 people and a population living on more than 17,000 islands, telemedicine ensures medical services even in the most remote regions. It is obvious that this industry will develop rapidly in the near future, while there is no high competition in it today.

• FinTech. The fintech industry in Indonesia is at the beginning of its development.

There are about 63 million UMKM (micro, small and medium enterprises) in the country, accounting for more than 60% of the country's GDP. However, only 20% of these businesses use financial products such as e-money and wallets. Given this situation and the growing middle class, the need for FinTech startups is great.

Nearly half of the country's population also does not have bank accounts. In the country as a whole, most transactions are still done using cash. Only 25–30% of the population regularly use electronic means of payment. This is a very low figure, although the share of such users is rapidly increasing.

Investors should also examine the market for credit cards, wallets, and POS products (point-of-sale loans). As of early 2024, Indonesia had only 16.3 million credit cards for a country of many millions—a very attractive starting point for investment in this industry.

CONCLUSION Indonesia offers tremendous opportunities for investors due to its dynamic market, geographical advantages, and favorable investment climate. In addition to the sectors listed above, the potential for investors lies in agriculture, tourism, IT, and energy. However, success in the Indonesian market requires in-depth analyses, adapting offers, and establishing strong business relationships with local partners.

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MARCH DIGITAL ASSETS WEEK HONG KONG 2025 This event will explore the future of digital assets, including tokenization, CBDCs, and stablecoins. Participants will gain insights into new applications of technology in finance and trends in digital currency regulation. It is a unique opportunity to connect with industry leaders and explore innovative business solutions.

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MOBILE WORLD CONGRESS (MWC) 2025 The largest mobile industry exhibition showcasing the latest mobile technologies and devices. Participants will see advancements in 5G, AI, IoT, and other innovative technologies. The congress offers unique opportunities for networking and launching new technologies.

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CRYPTO EXPO EUROPE 2025

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Description: A platform for discussing global investment opportunities, sustainable strategies, and innovative projects. The forum brings together leading investors, startup representatives, and governments to exchange ideas and insights. Topics will focus on ESG trends and the digital economy.

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An annual festival combining music, film, and interactive media that attracts creative professionals from around the world. The event features performances by renowned artists, film premieres, and discussions on media and technology.

SXSW is also a platform for launching new startups and ideas.

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WORLD CONFERENCE ON ENTREPRENEURSHIP IN HIGHPOTENTIAL ECONOMIES IN THE DIGITAL ERA The conference gathers scholars, entrepreneurs, and students to discuss innovative solutions and plans for the digital age. Topics include digital economy, startups, and technology management. Attendees can exchange ideas, present research, and find partners for new projects.

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INTERNATIONAL CONFERENCE ON MANAGEMENT, BUSINESS AND ECONOMICS This conference focuses on management, business, and economics, providing a platform for sharing experiences and best practices. The program includes keynote speeches, panel discussions, and analysis of key industry challenges.

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HANNOVER MESSE 2025 Hannover Messe presents state-of-theart industrial technologies, including automation, robotics, and AI. The 2025 theme focuses on sustainable production and digitalization in industries.

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DC BLOCKCHAIN SUMMIT 2025 The DC Blockchain Summit gathers blockchain and digital asset leaders with policymakers and regulators to discuss the future of technology. Topics include regulation, blockchain integration in public systems, and the evolution of digital currencies. This summit serves as a critical platform for addressing global challenges and opportunities in the blockchain industry.

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