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The Australia-China trade spat

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For many years, Australia has been feeding China’s meteoric rise into becoming an economic strongman supplying commodities like iron ore and other exports such as  seafood, timber, alcohol, and coal. Yet, the geopolitics of the pandemic has forced Australia to square up to a “more assertive” China with the latter only recently revealing that its trade sanctions against Australia were in retaliation for Australia going against China’s narrative and its view of the world. To put it simply, China is using Australia as an example to the rest of the world – if a country crosses China’s path, then prepare to feel China’s wrath via economic sanctions and political desertion.

China’s approach to upending Australia’s export-heavy economy has largely proved to be somewhat of a blessing in disguise, with Australian exporters finding success in other markets beyond China. Some commentators have said these bans have diversified the markets of Australian exports, which is good given how the bans exposed Australian exporters’ addiction towards the Chinese market. Roland Rajah, an economist at the Lowy Institute noted that “Australian coal in India has been gaining market share” and that the coal trade was 9.5b AUD higher than before the ban (in annualized terms). However, sectors such as beef and alcohol seem to be struggling, and while the latter has found record sales in Britain, it still did not beat the amount the Chinese market was buying.

China achieves political desertion by instructing its allies to alienate the country in question by abandoning all diplomatic, economic and military channels. It has achieved great success in alienating Taiwan for instance, from many countries especially developing ones. In return for denouncing Taiwan and adhering to China’s view that it is a rebel territory yet to be unified with China, the country receives diplomatic, economic and military aid and partnerships. To date, only about 15 countries have diplomatic relations with Taiwan, showing how closed-door lobbying and dirt cheap Chinese credit is valued far more than Taiwan’s right to independence. Probably the most striking factor is that the United Nations does not recognise Taiwan either, leaving it abandoned on the world stage.

While concrete evidence of Australia being deserted by China is yet to exist, Australian allies have stepped up their rhetoric in their commitment to stand by Australia’s side. This is something the Trump administration was vocal about with former Secretary of State Mike Pompeo declaring that “we stand with Australia” and their decision to call for an independent inquiry into the pandemic’s origins. It should be noted this was a bipartisan response from Washington D.C with this letter signed by 27 members of Congress from both parties reaffirming its support for Australia and condemning China’s economic manipulation. 

In economic terms, the first material impact occurred when Beijing threatened – and followed through – to ban Australian barley from being imported should Australia pursue a motion for an independent inquiry into the pandemic’s origins. In 2018 alone, that market was worth AUD 1.5b. In return, Australia got the support of more than 120 member countries at the 2020 World Health Assembly and that became the catalyst for where the trade relationship rests today. 

The scope of the import bans from barley alone was extended to beef, wine, coal, cotton, timber and lobsters while China warned its local population against studying or touring in Australia. To illustrate the stakes this trade relationship holds, the Australian Department of Foreign Affairs and Trade (DFAT) estimates that in the 2018-19 year, the two-way trade between the two countries was worth AUD 235b, or 27% of all Australian trade making it the most valuable trading relationship. So, it does not help if diplomatic relations sour, as the economic repercussions follow suit. 

China’s furore did not stop there. In what was widely perceived to be a deliberate public relations stunt, the Chinese embassy in Australia released a list of 14 grievances against Australia. Items in the list included blocking Huawei from the 5G rollout, calling for an investigation into Covid-19’s origins, speaking out about the South China Sea, accusing China of human rights abuses in Xinjiang, among others. The embassy said that should Australia apologise for its anti-Chinese rhetoric, then the relationship will get back on even ground. A Chinese foreign ministry spokesperson said Australia “slandered and accused China of engaging in intervention and infiltration activities in Australia” revealing how seriously the Chinese embassy took these grievances.

Officially that list has been labelled a “massive own goal by China” by the then Secretary of DFAT, Frances Adamson. As of the time of writing, China continues to be an economic headache for Australian exporters and whether Australia can weather the storm depends on its success in pivoting to other markets. China also has a stake here as it cements its image like a dragon whose wrath better not be incurred, lest the economic tirade directed at Australia be directed at a country less stable in governance and vulnerable and reliant on foreign aid and investment. 

Only time will tell whether Australia sticking to its values is worth the money.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Economics

Economic catastrophe places Afghanistan in crisis

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Αντώνης Σαμαράς Πρωθυπουργός της Ελλάδας from Greece, CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0, via Wikimedia Commons

Due to severe poverty and disorganisation, Afghanistan has faced an economic collapse especially after the Taliban takeover on 15th August 2021. Moreover, the growing humanitarian crisis affects half the population as well.

The UN secretary, General Antonio Guterres spoke to reporters in the UN headquarters where he said “the international community must find ways to inject cash directly into Afghanistan’s economy to avert its total collapse as a growing humanitarian crisis impacts half the population.” In addition to that, he also discussed how the Taliban had broken promises by saying “broken promises lead to broken dreams for the women and girls of Afghanistan,” on Monday.

The EU foreign policy chief, Josep Borell said in an interview on Monday with a Spanish newspaper, El Pais “we thought we would have an acute (migration) crisis because of Afghanistan, but it has not yet happened. And it will not happen if we prevent the economic collapse of the country. 75 percent of the Afghan budget comes from foreign transfers. And now they are all frozen”. He also added that “economic collapse can occur. We have to prevent it, without recognizing or supporting the government as such.” This discussion took place across countries when the UN urged the world leaders to put money into the Afghan economy to save the country. After this discussion, the German Chancellor, Angela Markel stated that the country should not “descend into chaos.” Whereas, US President Joe Biden stressed that the aid given to Afghanistan should be via independent international organizations.

So far the money provided to Afghanistan has been in millions which can only cover the emergency needs. However, Guterres told reporters that a massive UN humanitarian aid operation is underway in a race against time so aid can reach before the winter months. According to him any measure that includes channeling the cash through the Taliban should be avoided at all costs. This is because after the Taliban takeover, the banks were closed for several days and even when they opened accessing cash was still difficult. In addition to that, due to many business owners leaving the country to escape the Taliban, the employees are without salary whilst the prices of necessities continue to increase. Furthemore, women can no longer work to support their families. This is all mostly due to the Taliban takeover.

The UN and the global community are trying to reach and help the people of Afghanistan without recognising a Taliban government, which is quite difficult. Many people are stuck in tents while winter is approaching so if something is not done immediately the people will suffer. This is of course, very difficult because the money needs to reach the people and not the Taliban. It is hoped that the UN can help provide a solution which will help the people of Afghanistan soon. 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Africa’s changing economic and business environment with continental free trade; Key opportunities and challenges

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Economic development is work in progress for most African countries. However, a significant milestone that could propel further growth is the African Continental Free Trade Agreement which was signed by 54 out of the 55 African Union Nations in March 2018. This agreement resulted in the creation of the African Continental Free Trade Area (AfCFTA) believed to be inclusive of 1.3 billion people across Africa with a combined GDP of 3.4 billion USD. 

The AfCFTA aims to boost intra-African trade by providing a comprehensive and mutually beneficial trade agreement among the member states. The agreement covers trading of goods, services, investments, intellectual property rights and a competition policy. Trading under the AfCFTA started in January 2021, and with phase two of the AfCFTA being implemented, various macro-economic prospects for Africa’s growth and development have been projected. Based on the eight strategic objectives of the AfCFTA, it could be a gamechanger for doing business and investing in Africa, although some challenges are imminent. 

Intra-African trade has been low in the past. In 2018 for instance, intra-African exports accounted for only 15% of Africa’s world exports. Also, between 2017 and 2018 intra-African exports increased by only 1%, while Africa’s exports to the rest of the world increased by 22%. Africa has not been trading with itself. However, with access to a market of 1.3 billion people through the removal of tariffs from 90% of goods, it is expected that intra-African trade will be boosted by 50%. It is expected that lesser tariffs will imply competitive pricing; thus, promoting demand for goods produced and traded within Africa. It will also enable small and medium scale enterprises (SMEs) and large corporations to set up assembly firms in other African countries to access cost effective means of production and thereby increase their bottom lines. The elimination of tariffs will further provide a cheaper source of raw materials from other African countries for these industries. This will be particularly achievable where a conscious effort or policies are enacted by African Governments to promote the demand for ‘Made in Africa’ goods.

The creation of a single market through the AfCFTA is an opportunity for economic integration and development of member countries. Historically, more than 75% of African exports outside of the continent consisted of extractive commodities. Manufacturing represents only about 10% of total GDP in Africa, on average. The AfCFTA is an avenue for African countries to pursue an industrialization agenda to transform their economies with substantive investment in the manufacturing sector. Africa’s manufacturing sector is projected to double in size with the potential to create over 14 million jobs. The size of access market implies that industries can take advantage of economies of scale if they increase production levels. Employment opportunities and income levels can grow as projected by a World Bank Report that the pact could lift 30 million people from extreme poverty by 2035.

Additional benefits based on the objectives of the AfCFTA include increasing foreign direct investment (FDI) through the protocols on investment, protecting intellectual property, and protecting women traders by enabling them to trade through formal means.

Despite the prospects for economic growth in Africa, poor infrastructure may hamper efforts at deriving economic prospects through the AfCFTA. Estimates from the African Development Bank (AfDB) indicates that the continent requires substantive investments in infrastructure to make up for the deficit. A thriving single market rides on the availability of effective transport networks, electricity, water, information, communication, and technology systems to facilitate the movement of goods across borders. However, Africa’s infrastructure paradox is a reality which needs to be addressed to achieve the economic benefits of the AfCFTA. The implementation of the Programme for Infrastructure Development in Africa (PIDA) is ongoing since 2012, but it needs to be facilitated to develop enhanced infrastructure to propel a conducive environment for doing business in Africa and attracting foreign direct investment.

The widened gap between countries with large manufacturing bases and enabling physical and industrial infrastructure compared with those with little infrastructure could hamper efforts at attaining unified benefits from the AfCFTA. Countries such as South Africa, Kenya, Egypt, Morocco, and Ethiopia are in a better position to gain the expected benefits of the AfCFTA due to their advanced state of economic development and integration, and since investors will be drawn to investing in these already established industries. Where smaller economies do not move to develop their infrastructure, the cost of lost revenue from the elimination of trade tariffs may not be replaced by increased investment or trade with these smaller nations. 

As the phase two on the implementation of the AfCFTA is ongoing, the potential economic and business landscape is changing with endless opportunities for doing business in Africa. The AfCFTA is an incentive for SMEs as well as large corporations in Africa to re-structure their operations, engage in consultations to identify business opportunities, break barriers, establish strategic partnerships with other business entities within their value chains, and develop new markets to expand their presence and brands. 

There is a need for increased investment by governments in infrastructure and technology to create an enabling environment for domestic and foreign investment in various sectors within the value chain. For instance, in Ghana, the ;1 District, 1 Factory’ (1D1F) policy, free zones enclave, and the industrial policy for the automotive industry are policies aimed at attracting investors into the country to propel industrialization. Businesses that take advantage to produce for the African market are in the best position to maximize the benefits of the AfCFTA. There should also be a focus on promoting the consumption of ‘Made in Africa’ goods to grow the market base for increased intra-African trade. Although some African countries are yet to ratify the AfCFTA agreement, it will no doubt transform the dynamics for doing business and investing in Africa as well as achieve economic integration for the continent with time. Indeed, as Chief of Staff at the AfCFTA Secretariat Silver Ojakol said, “Economic integration is not an event. It’s a process… We must start somewhere.”

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Are cashless payments now the rule and not the exception; An overview of cashless payments in today’s globalised economy

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Physical currency has been in use since ancient times. Historical civilisations such as the Roman empire are well known for their use of coins. Indeed, the unique characteristics of physical currency established its acceptance by central banks as legal tender to facilitate trade in various global economic systems demonstrates just how essential it is to everyday lives. The rise of cashless payment has of course been greatly beneficial, but is it so successful that physical currency is threatened with extinction?

Cashless payments are defined as digital methods for exchanging financial transactions between two parties. Cashless payments are however not legal tender on their own; they are a backing to existing physical money controlled and owned by a consumer and provide an alternative to using traditional paper or coin currency. Various terminologies such as digital payments, electronic payment or mobile money have also evolved and generally describe forms of cashless payments. Types of cashless payments include: bank cards, contactless payments, mobile wallets, Quick Response (QR) Codes, Point Of Sale (POS) devices, Gift cards and vouchers, and electronic clearance devices. The Centre for Finance Technology and Entrepreneurship further describes the following as types of digital payments: biometric authentication, mobile point of sales, contactless payments, smart speakers, social media payment options and cards to codes. 

Common historical data suggests that PizzaHut may have been one of the first retailers to execute a cashless transaction. The company began allowing people to order pizza on its website as early as 1994. Similarly, Coca-Cola offered the first mobile payment transaction in 1997. The beverage retailer created special vending machines that enabled consumers to pay for their drinks by sending text messages from mobile devices. Furthermore, more recently, in 2011, Chinese company Alipay designed a QR code payment method, which allowed partnering offline stores to accept payment by scanning an individual’s QR code in Alipay wallet.

Cashless payments may have started up as the exception, but are now widely accepted as the rule for executing payments around the globe. The projection by Statista states that, mobile payment transaction volumes could rise from US$25 billion in 2016 to nearly US$275 billion in 2021. There has been a seismic shift in consumer preferences for how people purchased products in the COVID-19 pandemic era. Covid has encouraged a surge in cashless payments. 

The benefits of e-payments are a win-win for customers who make payment through these systems and for businesses. Consumers and businesses today cannot but relish how easy, convenient and fast most cashless or digital payments are. Customers can use various e-payment options to pay instantly for goods from the comfort of their homes. Businesses can receive multiple payments at any point in time from customers without the pressure of serving customers at a single payment point. The need for trips to the bank to deposit cash is also reduced. 

Cash is vulnerable to loss in circumstances such as theft, fire or flood. Cashless payments reduce this risk of loss. This is particularly advantageous to cash intensive businesses where theft by employees is a major threat. Cashless payment methods are secured with features such as personal identification number (PIN), tokenization, encryption, Secure Socket Layers (SSL). There are many more features so that even where technological device for payment transaction is lost, cashless money may be retrieved. There is also less burden on customers to carry huge sums of cash for daily transaction with a fear of loss. 

Cashless transactions are conducted through technological devices such as smartphones, laptops, POS devices, etc and these are reliable sources of evidence of payment or tracking, which may be referred to during any dispute of a transaction. Businesses may also track transactions for bookkeeping and accounting purposes.

Cashless payments are not without drawbacks though. The use of cashless payments and digital payments, include service fees charged by service providers. Also, the investment in software, hardware, and training of employees to automate payment systems and the requirement for availability of certain conditions such as telecommunication network, internet connection also makes it unusable in locations or circumstances where these are unavailable.

Concerns over fraudulent activities by cybercriminals and mobile money fraudsters is perhaps the biggest threat to the reliability of cashless, payment methods. These security issues include increased vulnerability to hacking, data breaches, and customer data sharing with third parties. Businesses and consumers who have their accounts hacked, cards stolen, or PINs stolen may lose substantial amounts of money from these fraudsters. The most common means of cyber fraud include identity theft, phishing, ransomware, SMART cities, cyberespionage and distributed denial of services. Research by TransUnion , a global information and insights company, showed a staggering increase in digital fraud attempts. Financial technology companies may invest in increased security systems to make cashless payment systems safe and reliable. However fraudsters are forever up to new tricks to circumvent safeguards. 

It has therefore become imperative for consumers and businesses to adopt safeguards to control the risks of fraud in cashless transactions. For consumers, basic security measures such us regularly changing passwords or PINs, maintaining high confidentiality of passwords, blocking or avoiding fake or deceitful websites and making online purchases from verified business pages, could minimize the risk of cashless account theft or fraud. Increased consumer preference for cashless payment also indicates that businesses can gain a competitive advantage if they offer customers safe and secure cashless payment options. Increased investment in technology and establishment of risk management systems could minimize these threats. Furthermore, central banks are expected to promote the formulation of policies and regulations on cashless payments, to ensure security of customers and businesses. 

As consumers and business have skilfully adapted to technological innovations in the digital landscape, the plausibility of a cashless payment economy being the rule and not the exception, becomes imminent. Sweden has set the pace, with a target to become a cashless economy by 2023; other countries may well follow the same path in due course.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Bitcoin plummets as China declares crypto-currency illegal

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Bitcoin and other cryptocurrencies have been around for some time now and have attracted a huge market ranging from the average person to big names in business and politics. Countries have reacted with different views to the emergence of this new currency and expressed concerns over its management and decentralised nature. In an announcement on Friday, the Central Bank of China declared all cryptocurrency transactions as illegal, effectively banning them from the Chinese market. Banks have been prohibited from facilitating or having any affiliations with the crypto market.

China has been used as a popular bitcoin mining centre and has been subjected to a harsh crackdown on mining centres since last year. The mining industry for crypto has hence fled with several losses to recover this year with China, the largest crypto-currency market closing down. Earlier this year Bitcoin faced losses of up to $30 000 due to the actions of the Chinese government and continues to be in a state of decline. 

The release of the official statement immediately saw Bitcoin falling by over $2,000 and shutting down many of its important transactions. It is reported the new home of bitcoin mining is being set up in Texas, United States and may even reap benefits for the US in the future. The United States has not yet indicated its opinion on the developments and what it means for them. China on the other hand, has expressed its clear disapproval of an untracked monetary system like cryptocurrency from existing and operating within its country.

The dangers of Bitcoin are not unknown, it has been linked with countless cases of money laundering, weapons, and drug trafficking and hence it does not sit well with many established economic and political institutions. Other reasons include the lack of control government systems have over a privately owned currency like Bitcoin creating a conflict of interest. Amongst other countries that have banned the use of crypto are Bolivia, Indonesia, Turkey & Egypt.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

US Economy suffers due to impact of Covid- 19

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The United States Department of Labor released employment figures on Friday 3rd September 2021, highlighting the lacklustre 235,000 job growth. These figures leave citizens wondering how well the economy will recover from the Covid-19 pandemic. August’s number contrasts starkly with July’s creation of 1.05 million jobs. The unemployment level was recorded at 5.2% in August 2021, a drop from 5.4% in July 2021. As these numbers were recorded two weeks into August hence, they do not account for the impact of Hurricane Ida and Hurricane Henri. Earlier estimates had pegged the growth at close to 700,000.

The US Bureau of Labor Statistics highlighted impressive numbers of jobs in sectors such as professional and business services, transportation and warehousing, private education and manufacturing. 

President Joe Biden expressed his disappointment in the numbers, “Total job creation in the first seven months of my administration is nearly double, double any prior first-year president… While I know some wanted to see a larger number today, and so did I, what we’ve seen this year is a continued growth, month after month in job creation.”

Further, Seema Shah from Principal Global Investors said, “Not only did payrolls rise by less than a third of what was expected, the [labour market] participation rate was unchanged suggesting that labour supply is still struggling to recover as Covid confidence takes another hit…The Fed has hung its hat on the assumption that people are starting to return to work, and unfortunately today’s number will be a disappointment to them.” Her statement reflects the fact that many US citizens are still at home, despite there being a demand for jobs.

The chief global strategist at HSBC Asset management, Joe Little said, “Record levels of job openings means that the demand for labour remains high…As we head into the autumn, labour shortages will be eased by the expiry of additional unemployment insurance payments plus improved access to childcare when schools return.”

Although the number of unemployed has dropped slightly, it is still vastly higher than the February 2020 number of 5.7 million people, with the current number at 8.4 million people. Economic recovery is stalled in part due to the ongoing Covid-19 pandemic affecting travel, tourism and hospitality. 

The staggering numbers released will most likely have, and are having, a profound impact on the US’ economy. Inflation rates have risen and supply chains have been affected. How long will millions of Americans continue to be affected by the devastating impact of the pandemic and what is the government’s plan to aid their citizens?

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Can Global Tax Loopholes Be Closed Equitably? – On the Radar

We discuss the G7 nations reaching a deal on global tax reform, discoveries of unmarked residential school graves discovered in Canada over the past few weeks and the ‘unprecedented’ heatwave in Western Canada.

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All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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