Egypt plans to sell shares in 32 state-owned businesses, including three banks. Credit: Hisham Allam/IPS
by Hisham Allam (cairo)
Inter Press Service
Cairo, Apr 06 (IPS) – Egypt intends to sell shares in 32 state-owned businesses within a year, including three banks, two military-owned businesses, and numerous businesses in the energy and transportation sectors. This is part of the administration’s efforts to reduce the role of the state in the economy and attract foreign capital.
That also follows the government’s December USD 3 billion deal with the IMF to resume privatization initiatives.
The IMF approved the USD 3 billion loan to strengthen the private sector and reduce the state’s footprint in the economy.
Egypt planned to sell 23 state-owned enterprises in 2018, but the plan was postponed due to the worldwide crisis.
The Russia-Ukraine conflict has put pressure on the Egyptian economy and currency, making the proposal more urgent.
According to Rashad Abdo, head of the Egyptian Forum for Economic Studies, Egypt had already received sovereign loans from many donors, including international institutions, such as the International Monetary Fund and Gulf countries, and these parties either set harsh lending conditions or would be reluctant to lend due to increased risks.
The State Ownership Policy Plan, adopted by President Abdel-Fattah El-Sisi in December, outlines how the government would participate in the economy and how it would increase private sector involvement in public investments. Egypt wants to increase the contribution of the private sector to the nation’s economic activity from 30 percent to 65 percent within the next three years. One-quarter of these enterprises will be listed by the government within six months.
Egypt announced the offering of these companies, intending to sell them to strategic investors, specifically Gulf sovereign funds. Egypt is expected to sell enterprises worth USD 40 billion within three years, including those held by the army.
Attracting foreign investment requires strengthening the investment climate, lowering inflation rates, and expanding anti-corruption efforts, Abdo told IPS.
The State Ownership document states that 32 Egyptian state companies will be listed on the Egypt Exchange (EGX) or sold to strategic investors within a year, beginning with the current quarter and ending in the first quarter of 2024. Stakes in three significant banks, Banco du Caire, United Bank of Egypt, and Arab African International Bank, are among the scheduled transactions. Insurance, electricity, and energy companies, as well as hotels and industrial and agricultural concerns, will also be on the market. Prime Minister Moustafa Madbouly announced that the first stakes would be offered in March and a quarter by June, and more businesses could be added over the next year.
Abdo pointed out that the Monetary Fund affirmed the Egyptian government’s commitment to implementing the State Ownership Document when it agreed to grant it this loan and the Egyptian government saw it as a favorable opportunity to implement the terms of the document set by the Organization for Economic Cooperation and Development.
Mohamed Al-Kilani, professor of economics and member of the Egyptian Society for Political Economy, said the privatization effort seeks to eliminate the dollar gap in Egypt and thus provide indirect compensation in the form of services and benefits from the International Monetary Fund’s debt.
The state would also send a message to foreign investors that it responds to the private sector and is willing to withdraw from certain sectors to benefit the private sector.
“The state is attempting to exploit this proposal to stimulate and revitalize the Egyptian Stock Exchange while taking into account the fair valuation of these companies in comparison to the global market. However, the state was unclear about the details of this offering and whether it is a long-term or short-term investment, and it has not clarified the size of employment or the percentages offered in terms of ownership and management,” Al-Kilani told IPS.
“The state is trying to create new types of foreign investment to attract foreign currency due to the fluctuation in exchange rates and high-interest rates,” Al-Kilani added.
According to external debt data published on the central bank’s website in mid-February, Egypt’s external debt fell by USD 728 million to USD 154.9 billion at the end of last September, but its foreign exchange reserves remain low, prompting renewed demand for state assets. The Russia-Ukraine conflict has further pressured the economy and local currency, prompting the proposal for new urgency.
Despite its relatively modest improvement in the latest data from the central bank at the beginning of February (USD 34.2 billion), it lost about 20 percent of the level of USD 41 billion at the end of February last year.
Last January, the IMF suggested that the volume of the financing gap in Egypt would reach about USD 17 billion over the next 46 months in light of its decline in foreign exchange resources and the high cost of its imports as one of the largest countries in the world to import its food and the first importer of wheat in the world.
Financing is vital for growth. Credit: Unsplash / Towfiqu Barbhuiya
Opinion by Armida Salsiah Alisjahbana (bangkok, thailand)
Inter Press Service
The writer is UN Under-Secretary-General and Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP)
BANGKOK, Thailand, Apr 04 (IPS) – The unprecedented fiscal firepower used to protect the vulnerable from the harsh socio-economic impact of the COVID-19 pandemic and the resulting economic contraction have pushed the average government debt level in the Asia-Pacific region to its highest since 2008.
Public debt distress is expected to worsen amid the global economic slowdown, record high inflation and rising interest rates, and uncertainty induced by the war in Ukraine.
And surging debt service payments are expected to put public debt sustainability of several developing Asia-Pacific economies at risk. Most concerning, debt distress risk is highest for countries with the highest development finance needs, including small island developing States.
Public debt is a powerful development tool in need of a major rethink
Yet, a higher debt level is not necessarily a bad thing, according to this year’s edition of the Economic and Social Survey of Asia and the Pacific. Current policy debates on public debt sustainability do not take into account the long-term positive socio-economic and environmental impact of public investments in laying the foundations of inclusive, resilient and sustainable prosperity.
Indeed, left unaddressed, development deficits and climate risks hurt economic prospects and public debt sustainability itself. Our analysis shows that social spending cuts increase poverty and inequality and undermine economic productivity in the long term.
Conversely, investing in healthcare, education, social protection and climate action is good economics.
Multilateral lenders and credit rating agencies focus excessively on keeping debt sustainable in the short term. Such perceived optimal debt levels are too low and lead to suboptimal development outcomes.
Revisiting current debt sustainability norms has also become necessary with the emergence of major non-traditional bilateral creditors and a drastic fall in concessional development lending to Asian and Pacific countries over the past decade.
It is time for a bold shift in thinking about public debt sustainability. We propose an augmented approach that assesses public debt viability that takes into account a country’s SDG investment needs, government structural development policies aiming to boost economic competitiveness, and national SDG financing strategies.
It is time for creditors, international financial institutions and credit rating agencies to consider the positive long-term economic, social and environmental outcomes of investing in the SDGs, while assessing public debt sustainability.
Our research finds that public debt is found to decline over the long term when the socio-economic and environmental benefits of public investments are incorporated.
Rather than penalizing bold fiscal support for people and the environment, international creditors should consider if such spending would boost economic productivity.
Lenders and credit rating agencies should see debt relief as helping support the fiscal outlook, rather than as a sign of an upcoming debt default.
Developing countries should also strive to balance investing in the SDGs with ensuring debt sustainability. Governments should not feel deterred from borrowing for essential, high-impact sustainable development spending; rather, funds should be used efficiently and effectively.
Public coffers should also be boosted by resource mobilization strategies designed to generate social and/or environmental benefits, such as through progressive taxation.
Effective public debt management reduces fiscal risks and borrowing costs, with several examples of good public debt management practices in the Asia-Pacific region. At the same time, countries with high debt distress levels may need pre-emptive, swift and adequate sovereign debt restructuring, while efforts towards common international debt resolution mechanisms and restructuring frameworks needs to be accelerated.
We are in the fourth year of the Decade of Action to accelerate progress towards the SDGs with not much to show in gains. It is time for Asia and the Pacific to rise to the challenge of mobilizing the financial resources to realise the dream of resilient and sustainable prosperity for all.
UNITED NATIONS, Apr 03 (IPS) – As signs of a new Cold War are fast emerging at the United Nations, the US continues its war of words with the People’s Republic of China (PRC).
The rivalry, which extends from Russia and Taiwan to Iran and Myanmar – where the UN’s two permanent members are on opposite sides of ongoing political or military conflicts– has now triggered a battle on semantics.
Is China, described as the world’s second largest economy ranking next to the US, really a “developing nation”?
The US House of Representative unanimously passed a bill March 27 directing the Secretary of State Antony Blinken to strip the PRC of its “developing country” status in international organizations
Titled “PRC Is Not a Developing Country Act” — the bill cleared the House in an overwhelming 415-0 vote. The legislation reads: “It should be the policy of the United States—
(1) to oppose the labeling or treatment of the People’s Republic of China as a developing country in any treaty or other international agreement to which the United States is a party;
(2) to oppose the labeling or treatment of the People’s Republic of China as a developing country in each international organization of which the United States is a member; and
(3) to pursue the labeling or treatment of the People’s Republic of China as an upper middle-income country, high income country, or developed country in each international organization of which the United States is a member”.
At the United Nations, China is closely allied with the 137-member Group of 77 (G77), the largest single coalition of “developing countries” (a group created in 1964 with 77 members).
Since China is not a formal member of the G77, the group describes itself either as “The G77 and China” or “The G77 plus China.”
Ambassador Anwarul K. Chowdhury, a former Permanent Representative of Bangladesh to the UN and a former UN Under-Secretary-General, told IPS the defining of a developing country is a complex challenge.
“There is no established framework or charter for defining a “developing country,” he noted
According to well-respected economist Jeffrey Sachs, the current divide between the developed and developing world is largely a phenomenon of the 20th century. Some economists emphasize that the binary labeling of countries is “neither descriptive nor explanatory”.
For the UN system, the G77, which provides the collective negotiating platform of the countries of the South, is in reality synonymous with nations which are identified as “developing countries, least developed countries (LDCs), landlocked developing countries and small island developing states” (SIDS).
“They are all sub-groupings of developing countries and belong to the G-77, he pointed out.
Outlining the group’s history, he said, the G-77 was established in 1964 by seventy-seven developing countries, signatories of the “Joint Declaration” issued at the end of the first session of the UN Conference on Trade and Development (UNCTAD) in Geneva.
Although members of the G-77 have increased to 134 countries, the original name was retained due to its historic significance. Developing countries tend to have some characteristics in common, often due to their histories or geographies, said Ambassador Chowdhury, Chairman of the Administrative and Budgetary Committee (Fifth Committee) of the UN General Assembly in 1997-98 and Chair of the Group of 27, working group of G-77, in 1982-83.
In October 1997, he said, China joined the G-77 while keeping its special identity by proposing the nomenclature as “G-77 and China”. China aligns its positions on the global economic and social issues with G-77 positions for negotiating purposes.
Being the largest negotiating group in the United Nations, and in view of the mutuality of their common concerns, G-77 is not expected to agree to separate China from the current collaborative arrangements.
“And more so, if the pressure comes from the US delegation, in view of the recent resolution of the House of Representatives of the US Congress, to take away the categorization of China as a developing country”, declared Ambassador Chowdhury.
In a World Bank Data Blog, Tariq Khokhar, Global Data Editor & Senior Data Scientist and Umar Serajuddin, Manager, Development Data Group, at the World Bank, point out that the IMF, in the “World Economic Outlook (WEO)” currently classify 37 countries as “Advanced Economies” and all others are considered “Emerging Market and Developing Economies” according to the WEO Statistical Annex.”
The institution notes that “this classification is not based on strict criteria, economic or otherwise” and that it’s done in order to “facilitate analysis by providing a reasonably meaningful method of organizing data.”
The United Nations has no formal definition of developing countries, but still uses the term for monitoring purposes and classifies as many as 159 countries as developing, the authors argue.
The UN maintains a list of “Least Developed Countries” which are defined by accounting for GNI per capita as well as measures of human capital and economic vulnerability.
“While we can’t find the first instance of “developing world” being used, what it colloquially refers to — the group of countries that fare relatively and similarly poorly in social and economic measures — hasn’t been consistently or precisely defined, and this “definition” hasn’t been updated.”
“The World Bank has for many years referred to “low and middle income countries” as “developing countries” for convenience in publications, but even if this definition was reasonable in the past, it’s worth asking if it has remained so and if a more granular definition is warranted.”
In its legislation, the US House of Representatives says “not later than 180 days after the date of the enactment of this Act, the Secretary of State shall submit to the appropriate committees of Congress a report identifying all current treaty negotiations in which—
(a) Any international organization of which the United States and the People’s Republic of China are both current member states, the Secretary, in coordination with the heads of other Federal agencies and departments as needed, shall pursue—
(1) changing the status of the People’s Republic of China from developing country to upper middle income country, high income country, or developed country if a mechanism exists in such organization to make such a change in status;
(2) proposing the development of a mechanism described in paragraph (1) to change the status of the People’s Republic of China in such organization from developing country to developed country; or
(3) regardless of efforts made pursuant to paragraphs (1) and (2), working to ensure that the People’s Republic of China does not receive preferential treatment or assistance within the organization as a result of it having the status of a developing country.
(b) The President may waive the application of subsection (a) with respect to any international organization if the President notifies the appropriate committees of Congress, not later than 10 days before the date on which the waiver shall take effect, that such a waiver is in the national interests of the United States.
Speaking during the debate, Representative Young Kim (Republican of California) said: “The People’s Republic of China is the world’s second largest economy, accounting for 18.6 percent of the global economy.”
“Their economy is second only to that of the United States. The United States is treated as a developed country, so should PRC,” Kim said. “And is also treated as a high-income country in treaties and international organizations, so China should also be treated as a developed country.”
“However, the PRC is classified as a developing country, and they’re using this status to game the system and hurt countries that are truly in need,” she added.
Elaborating further, Ambassador Chowdhury said the World Bank, as a part of the Bretton Woods institutions, classifies the world’s economies into four groups, based on gross national income per capita: high, upper-middle, lower-middle, and low income countries.
In 2015, the World Bank declared that the “developing/developed world categorization” had become less relevant and that they will phase out the use of that descriptor.
Instead, their reports will present data aggregations for regions and income groups.
The World Trade Organisation (WTO) accepts any country’s claim of itself being “developing”.
He said certain countries that have become “developed” in the last 20 years by almost all economic metrics, still wants to be classified as “developing country”, as it entitles them to a preferential treatment at the WTO – countries such as Brunei, Kuwait, Qatar, Singapore, and the United Arab Emirates.
The term “Global South“, used by some as an alternative term to developing countries, began to be mentioned more widely since about 2004.
The Global South refers to these countries’ interconnected histories of colonialism, neo-imperialism, and differential economic and social change through which large inequalities in living standards, life expectancy, and access to resources are maintained.
“Most of humanity resides in the Global South,” declared Ambassador Chowdhury.
Opinion by Ameenah Gurib-Fakim (port louis, mauritius)
Inter Press Service
PORT LOUIS, Mauritius, Mar 30 (IPS) – Dr. Ameenah Gurib-Fakim is Former President of the Republic of MauritiusOn 12th March 2023, The Republic of Mauritius celebrates 55 years of post-independence history. It would be an understatement to just say that there has been a lot of water under the bridge on our journey to self-determination!.. Indeed, we have made massive progress since we lowered the Union Jack and unfurled our own flag. It was and remains a moment of great pride whenever I see our flag in any international event, I participate in.
We are a small vulnerable island, deprived of natural resources and at the time of independence, we were flanked with a monoculture economy, high unemployment, low education and low income were amongst the major challenges. We had been relegated to being a basket case. Even by Nobel prize winners concluded that because of our isolation from the then major capitals; climate challenges etc. we were doomed at a time when our per capita income hovered around 200USD.
We were more a recipe for disaster than that of a success story. Still over time, with leadership and vision, we proved to the world that another outcome was feasible, but more importantly, that profound transformation was possible, and we succeeded within one single generation.
We became the shining star especially South of the Sahara and our experience brings useful insights into the dynamics and pitfalls of an economic transformation journey. Nonetheless, this transformation has been conducted in such a manner that the economic landscape, society and institutions were modernised simultaneously, albeit at various speeds, taking into consideration the political, human, institutional and economic realities and constraints of the time. The approach was largely inclusive because the major asset then and now remains our diverse, talented population.
Our story had been based on the following foundational stones: political leadership, strong institutions, ethnic diversity, a class of versatile indigenous entrepreneur and a well-structured private sector engaged in dialogues on policy matters. Coupled with this, the balance has been between economic and social objectives, with a strong focus on the human capital, through free education since 1976, free health care, and a minimum basic social safety net for the most vulnerable.
Still the strength of our institutions were a key guarantee for investment, entrepreneurship and innovation. While acknowledging that significant progress has been achieved in the last 50+ years, the global dynamics call for more and more reforms if our country wants to avoid the middle-income trap and join the club of high-income countries within the realm of a changing climate. There are already indications of worrying signals: the average growth rate has been stabilizing at less than 5%, necessary to enable incremental changes, but insufficient to steam up the engine to the next level. Beyond the redesigning and re-engineering of the economic landscape, some implementable reforms will have to be addressed.
The main weaknesses are found in our education system. While we have a 99% enrolment rate at the primary level, but what comes next is disappointing. Let’s take the hypothetical 100 children entering our primary school, 80 will manage to pass their primary school exam to enter secondary school; only 60 will manage to succeed after the first 3 years, 40 will pass the Grade 5 (O-level) exams and with only 20-30 will reach the end of the secondary school cycle. This is in total contradiction to the requirements of a high-income country; one that ambitions to attract High Tech investment. The curriculum needs to move away from being too academic and with little openings for technical and vocational training.
Also, labour market reforms need to ensure flexibility. A diversified economic base only makes sense if it is possible for people to move across sectors. Currently, the stiffness of labour market and employment schemes that go with it, makes it difficult for people to move around. The basic principle must remain the protection of the people as opposed to jobs.
Finally, Mauritius must step up efforts to plug into regional and global value chains. We must continue to build on the regional market and must upgrade our participation in the global value chains, by capturing activities with higher value addition. Our regional market penetration remains weak. In the last decade it has been estimated that Mauritius export to the SADC region amounted to only 1.3% while its imports from the SADC region amounted to 2.5%. Similarly, we still have too big a bias towards our traditional markets to export low value added products.
Competition over concepts rather than over processes will be increasingly necessary to have a meaningful role. To achieve this, increased investment in quality education, innovation, research and development and technology, the appropriate ecosystem for start-ups, is crucial. We are at a crossroad in our economic transformation. The latter can remain a continuous process as we have had a good track record so far. The challenge for our country now lies in combining sustained domestic reforms with efforts required to keep up with international trends to become a global player. This demands that we align all our talents, competence and resources.
Next door to us, a giant is waking up – The African continent and the AfCFTA presents a huge opportunity, for, inter alia, our manufacturing sector, provided we engage with her, like in any relationship, seriously, and not just pay lip service. We have to keep reminding ourselves that the world we embraced in 1968, is now fast mutating. We were born in a bipolar world and now living in an increasingly multipolar world. Our foreign policy must remain agile as it is going to be a rocky road especially as we will have to count the presence of new emerging African middle-income countries that are increasingly catching up with their economic trajectory.
We will only succeed if we manage to navigate through competition, build trust and strengthen our institutions, acknowledge our diversity as strength, ensure meritocracy and by turning challenges into potential opportunities as ONE people and ONE Nation, in Peace, Justice and Liberty.
PORTLAND, USA, Mar 27 (IPS) – Yes, lower the retirement ages! That is the key message that workers worldwide are conveying to their governments.
Rather than increasing retirement ages as many governments are now proposing, men and women worldwide want to stop working well before they reach old age, which is approximately 60 years.
After toiling for years in factories, offices, shops, backrooms, vehicles, fields, etc., most workers around the world want to stop working before they reach old age. That desire translates into exiting the labor force and receiving a government pension at approximately age 55 years.
Government officials, economic advisors, business leaders and many others calling for raising retirement ages will no doubt consider lower retirement ages to be preposterous, verging on financial blasphemy and leading to an economy’s doom. Some have argued that lowering retirement ages places an unaffordable and unfair burden on taxpayers.
On the contrary, rather than leading to an economy’s ruination, a retirement age of 55 years may usher in a “retirement renaissance” resulting in untold benefits to societies worldwide.
The renaissance will enhance and extend the quality of life for those in retirement. It is also expected to decrease unemployment rates, lead to increased motivation among younger employees to continue working until retirement, provide businesses with energetic, healthy, well-trained youthful workers as well as foster cross generational interactions, recreation, hobbies and cultural activities.
In addition, the renaissance may contribute to raising low fertility levels by making childcare more readily available. Today two-thirds of the world’s population lives in a country where the fertility rate is below the replacement level of about 2.1 births per woman.
The retirement renaissance will permit retired men and women with adult children to assist with childcare and related activities. With grandparents available for childcare, young working mothers and fathers can be expected to be more favorably disposed to having additional children.
The protests, demonstrations and objections in Asia, Europe, North America and elsewhere reflect the public’s resistance to working until, as they claim, broken-down and close to near death. Large majorities of workers have clearly conveyed their opposition to their respective government proposals requiring people to work well into old age before they are entitled to receive their promised retirement pensions.
The various projected insolvencies of government pension systems, often cited as justification for raising retirement ages to record breaking high levels, are often dismissed by workers and their supporters as irrelevant. The insolvencies, workers contend, are simply financial excuses concocted by government officials and their wealthy supporters, who object to paying their fair share of taxes, to justify their goal of raising retirement ages and cutting pension benefits.
In addition to higher taxes on the wealthy and large corporations, workers argue that governments have plenty of financial resources at their disposal to permit lowering retirement ages and financing pension programs. Some contend that countries could substantially reduce their defense spending and redirect the substantial savings to retirement pension programs.
Admittedly, it is certainly the case that on average people are living longer than in the recent past and the proportions of elderly are increasing. However, those increases in longevity have not been shared equally across populations.
In general, those with high incomes have experienced longevity gains, while low earners have seen little gain in longevity. Moreover, workers contend that living longer should not translate into working longer and receiving reduced retirement pension benefits.
Both men and women spend decades working at jobs that they don’t particularly enjoy and for bosses they loathe. Many would argue that it only seems fair and reasonable to have several decades available to workers permitting them to do what they desire before they eventually face death. People are largely opposed to working until they are tired, bed ridden and unable to enjoy the remaining years of their life.
It is also the case that women on average live several years longer than men. At age 65, for example, at the global level women live close to three years longer than men. Even larger differences in life expectancy at age 65 between women and men are observed in other countries, such as France and Japan at nearly four and five years, respectively (Figure 1).
Source: United Nations.
Taking into account those well documented sex differences in longevity, the retirement age for women could be several years greater than that for men, perhaps 57 and 54 years, respectively. Such a difference between women and men would help to ensure gender equality in the number of retirement years.
In addition, neither men nor women should be forced to work beyond the recommended lower official retirement ages for men and women. Of course, exceptions should be permitted and lower official retirement ages should not bar individuals from working in old age if they choose to do so.
Some heads of state, elected officials, government bureaucrats, investors, business owners, academics, the wealthy, entertainers as well as many others are choosing for personal reasons it appears to work beyond official retirement ages. Some current heads of state, for example, are well beyond the official retirement ages of their respective countries with few of their constituents objecting (Figure 2).
Source: Author’s compilation.
With the world population reaching a record-breaking 8,000,000,000 people, the number of young women and men available to work is the largest ever. Whereas the proportion of the world’s population between ages 18 to 59 was 52 percent in 1950 and numbered 1.3 billion, that proportion increased to 56 percent in 2022 and numbered 4.5 billion.
There’s no denying the fact that the world’s population is older than in the past. Over the past 70 years, the proportion of the world’s population aged 60 years and older has nearly doubled, from 8 percent in 1950 to 14 percent in 2022. However, the increase in the proportion elderly is offset by the decrease in proportion of children below age 18 years from 40 percent in 1950 to 30 percent in 2022 (Figure 3).
Source: United Nations.
Also, some believe that rapidly improving technologies, including robots,androids and artificial intelligence, can complement and broaden a country’s labor supply. Those technologies are expected to offset reductions in the size of the labor force as people retire at around 55 years of age.
Many governments have enacted or are seriously considering raising retirement ages. Increases in today’s retirement ages are viewed by workers as nothing more than pension benefits cuts.
Proposals for raising retirement ages are viewed by workers as relying on faulty actuarial analyses of bankruptcy, dire warnings of pension insolvency and catchy phrases such as “Vivre plus longtemps, travailler plus longtemps” (“live longer, work longer”).
Moreover, conservative government officials in general are resistant to raising taxes on the wealthy and large corporations. However, many of those officials are favorably disposed to raising retirement ages, which would result in reductions in pension benefits. Also, some government officials have rejected calls to return retirement ages back to 60 years.
In sum, in addition to meeting the wishes of billions of working men and women who want to retire well before reaching old age, lower official retirement ages of approximately 57 years for women and 54 years for men may usher in a “retirement renaissance” that could result in untold benefits to societies worldwide.
Joseph Chamie is a consulting demographer, a former director of the United Nations Population Division and author of numerous publications on population issues, including his recent book, “Population Levels, Trends, and Differentials”.
It’s a struggle for artisanal miners working in South Africa to be legalised due to onerous requirements. Credit: NAAM
by Fawzia Moodley (johannesburg)
Inter Press Service
JOHANNESBURG, Mar 24 (IPS) – Greed, poverty, irresponsible legal mining giants which exploited and then abandoned South Africa’s mines, together with the government’s failure to enforce regulations on the mining giants to rehabilitate mines before closing them, have created fertile ground for a thriving illegal artisanal mining sector called Zama Zama, many of them run by criminal syndicates.
South Africa’s economy has largely been mining based, and under apartheid, white-owned mining companies exploiting lucrative gold, diamond, coal, and chrome grew rich, using cheap local and migrant labour from neighbouring countries.
Post-apartheid, the ANC government has tried to bring black ownership and small-scale miners into the mining sector and, more recently, attempted to decriminalise artisanal miners who use rudimentary tools and are largely involved in surface mining.
According to submissions made by the Legal Resources Centre (LRC), the Benchmarks Foundation, and the International Labour Research and Information Group (ILRIG), policy weaknesses, lack of enforcement, bureaucratic bungling, and red tape have ensured that the status quo from apartheid remains largely intact.
The LRC contends that retrenchments due to mechanisation or closure of unprofitable mines have increased illegal mining. The lack of enforcement of laws relating to the rehabilitation of closed mines has created space for criminal Zama Zama and artisanal miners who are perforce illegal to operate in disused or abandoned mines.
Artisanal miners in the North West province of South Africa at work. Credit: NAAM
With the publishing of the Policy on Artisanal and Small-Scale Mining in March 2022, artisanal miners all over the country are forming cooperatives in a bid to be legalised. But it is an uphill battle to get permits.
The LRC also warns of further conflict and xenophobia because the law precludes foreign Zama Zama from getting permits. However, Minister of Mineral Resources and Energy Gwede Mantashe says: “It must be clear that once an individual illegally enters our country and engages in illegal economic activity, such an individual cannot be sanitised through being issued with a small-scale mining license.”
Robert Krause, an environmental researcher, says that the roots of the problem lie in “the mining houses shirking their environmental rehabilitation responsibilities as well as failure to invest in a post-mining economy for workers and the surrounding community.”
There are nearly 6000 ownerless and derelict mines, many of them “abandoned by mining capital before the present regulatory dispensation under the National Environmental Management Act and the Financial Provisioning regulations.”
Krause says there is “a persisting pattern of large mining houses selling off their mines towards closure to companies they know full well will not be in a position to carry out their rehabilitation duties.”
Legal loopholes and lax regulation by the regulator enable this.
“The companies that end up with liabilities frequently go insolvent, and the financial provision for closure is often treated as just another claim.”
He says, “Mine abandonment fuels illegal or artisanal operations, as low-grade ore is left behind, convenient entrances remain open, and people in need of work are thrown out of the economy.”
When the profitable reserves are depleted, there’s an employment crisis. Then, the option for survival, mainly where closure is not done properly, is to become a Zama Zama.
Krause says the artisanal miners need material support and capacitation from mining companies and the state, “instead they are still often treated like criminals while violent criminal syndicates flourish.”
According to an Oxpeckers environment journalism probe a few years ago, “a fortune has been set aside for mine rehabilitation in South Africa. But large mines are not being properly closed, and the money cannot be touched.”
Oxpeckers say that although the money cannot be used for rehabilitation while a mine is still operational, the DMRE can use it if it is abandoned.
“The department is yet to provide an instance in which this money has been used, however. Instead, most mines are not deemed legally closed, and the money cannot be touched.”
But Mantashe says: “It is estimated that it would cost over R49 billion to rehabilitate these mines. The Department of Mineral Resources and Energy (DMRE) receives R140 million per annum for the rehabilitation of mines. With this allocation, we can only rehabilitate at least three mines and seal off 40 shafts per year.”
The minister revealed in September 2022 that 135 shafts in the Eastern, Central, and Western Basins in Gauteng (province) were sealed over three years. The DMRE intended to seal off another 20 in the current financial year, prioritising the Krugersdorp area where Zama Zama gang raped a film crew in July last year.
Mantashe says that the rehabilitation of mines is a long terms project: “We must appreciate that it would take a long time to completely rehabilitate all these mines at this rate due to budget constraints and security threats to officials executing this programme.”
Advocates for the legalisation of artisanal miners say the government needs to provide resources to fund environmental assessments and facilitate a local buyers’ market via a national buying entity to sell their mined products.
“People in South Africa need to finally see the benefits of the mineral resources of South Africa, as in the past colonial and Apartheid practices coupled with large-scale mining have deprived the majority of this benefit,” the LRC group says.
Clearly, this is a pipe dream, as the struggle by artisanal miners to get permits to become legal has underlined.
The irony is that their legalisation will not only allow them to earn a living but also pay taxes and end their constant harassment by criminal elements and the police alike.
Black Sea Grain Initiative has been renewed – for now. Credit: Ihor Oinua/Unsplash
by Alexander Kozul-Wright (geneva)
Inter Press Service
GENEVA, Mar 22 (IPS) – Given the complex interplay between geopolitics and financial markets, Russia’s invasion of Ukraine in February 2022 sent shockwaves across the global economy. Admittedly, the implications both within and between countries have varied. However, there were some common denominators, including higher commodity prices.
Price disruptions were particularly severe for ‘soft’ agricultural commodities. During peacetime, Russia and Ukraine produced a large amount of the world’s grain, supplying 28 percent of globally traded wheat and 75 percent of sunflower products. Before the war, they were also among the world’s top providers of barley and corn.
After the start of hostilities, exports of grain were severely disrupted. For four months, Russian military vessels blocked Ukrainian ports. Supply constraints triggered market volatility and price rises. Wheat, for instance, reached a record high in March 2022. This left millions of people, particularly in developing countries, at the frontline of a food crisis.
Then, in July 2022, two agreements were signed: one was a memorandum of understanding between the UN and Moscow to facilitate global access for Russia’s food and fertilizer exports; the second was the Black Sea Grain Initiative (BSGI), signed by Russia and Ukraine, facilitating the safe export of grain and other foodstuffs from Ukrainian ports via the Black Sea.
Brokered by the UN and Turkey, the BSGI opened a protected maritime corridor through Ukraine. The agreement assuaged concerns about global grain supplies and led to price declines. Over 900 ships of grain and other foodstuffs have left Ukraine’s major ports since last summer.
Prior to the conflict, between 5-6 million tons of grain were exported from Ukraine’s seaports every month, according to the International Grains Council. By the end-2022, Ukraine had once again reached its historical exporting capacity (at just under 5 million tons). Production responses elsewhere also helped to increase global supplies.
Still, Ukrainian exports to developing countries remain below pre-war levels. And while unblocking the trade corridor did help to address food insecurity in 2022, export backlogs were significant. Today, grain prices (while they have come down in recent months) remain elevated.
Against this backdrop, negotiations between UN officials and Russian Federation representatives – headed by Deputy Foreign Minister Sergei Vershinin – kicked off in Geneva last Monday on a possible extension of the BSGI. Subsequent to a four-month renewal last year, the deal was set to expire on March 18th.
Earlier this month, UN Secretary-General Antonio Guterres highlighted the deal’s importance. He stressed that “it contributed to lowering global food costs and offered critical relief to people…, particularly in low-income countries.” Ukraine’s president, Volodymyr Zelensky, also called for the initiative to be extended.
For their part, Russian officials argued that ‘hidden’ sanctions – targeting fertilizer firms and the country’s main agricultural bank – have undermined commodity exports. By way of background, exemptions were carved out for some Russian food and fertilizer products after Western sanctions first targeted the Kremlin in February 2022.
In Geneva, delegates stressed that over-compliance and market avoidance by private companies had resulted in Russian commodity exports being under-traded. They noted that sanctions on its payments, logistics, and insurance systems created a barrier for Moscow to sell its grains and fertilisers in international markets.
In response, they requested that national jurisdictions enhance exemption clarifications for food and fertilizers products. “I think it’s a fair request,” says Jayati Ghosh, professor of economics at the University of Massachusetts, Amherst. “Hidden sanctions are impeding Russian financial transactions and undermining allegedly exempted exports.”
When the BSGI was last renewed in November, Russia threatened to renege on the deal unless hidden sanctions were addressed. While they eventually agreed to an extension, Moscow has since insisted that its own agricultural exports (notably ammonia) be included in the BSGI as a condition for its renewal.
Under the deal’s latest iteration, Russia’s pre-condition went notably unaddressed. Moscow, in turn, agreed to extend the deal for just two months. Ukraine, meanwhile, issued conflicting statements on the matter. Over the weekend, Deputy Prime Minister Oleksandr Kubrakov tweeted that the agreement had been extended for four months.
So far, the UN has not specified the length of the renewal, but “this could be the last time an extension is agreed,” according to Ghosh. “Russia is probably going to use this latest agreement as a threat. Rejecting a third extension in the spring may force the international community to listen to their concerns”.
Tbilisi, Georgia’s capital, has been attracting hundreds of thousands of Russians since the war in Ukraine started in February 2022. The city is a favored destination where Russians can still travel visa-free.
by IPS Correspondent (tbilisi)
Inter Press Service
TBILISI, Mar 21 (IPS) – Since the war in Ukraine started in February last year, at least 1.5 million Russian citizens have crossed the Russia-Georgia border, official data states. However, as of today, it needs to be clarified how many of them stayed in the country, but walking the streets of the Georgian capital Tbilisi, the presence of Russian nationals can be seen almost everywhere.
Right after the war started and even more when Russia announced a partial mobilization in September 2022, hundreds of thousands of Russian citizens – primarily men – traveled to countries where they could travel visa-free, including Serbia, Montenegro, Albania, Turkey, and Georgia. Among those destinations, Georgia is among the most enticing because of its mild climate, wine, food, and nightlife-heavy capital. At the moment, Russian citizens can spend twelve renewable months in Georgia, and many of them are planning to stay in the long term, as the war seems would still last long.
The arrival of thousands of Russians has significantly impacted Georgian society. The country is known for its hospitality, but many Georgians are concerned about the effect such a large influx could have on their country’s social fabric. There have been reports of tension between Russians and locals and concerns about potential cultural clashes. While walking in Tbilisi, the Russian language can be easily heard in most bars, cafes, and restaurants, day and night. In contrast, there is a solid pro-Ukrainian sentiment and a not-so-hidden antagonism toward Russians. Every twenty meters or so, it is possible to spot on the streets of Tbilisi a Ukrainian flag hanging from a balcony, at the entrance of a restaurant or bar, or drawn on a wall.
As the Russians poured into Georgia, many Georgians have come to fear that the emigres somehow could serve as a pretext for Putin to target their country in the future, just as it did happen to Ukraine in 2014 and 2022. For this reason, the recent influx of Russians—mainly men who fear being conscripted into arms—has created a tense social climate in Georgia and an increased distrust towards Russians.
Suspicion towards Russian emigration is also motivated by historical events indicating the two countries as potential enemies. Indeed, Russia currently occupies 20 percent of Georgia; in 2008, a five-day conflict (“South Ossetia conflict”) broke out between the two countries over the breakaway regions of South Ossetia and Abkhazia. Georgia lost control of both areas, and Russia later recognized them as independent states. As a consequence, Tbilisi cut off diplomatic relations with Moscow, after which Switzerland took up the role of mediator country.
Today, stickers reading “Russia currently occupies 20 percent of Georgian territory” are prominently displayed at the entrance to many restaurants, bars, coworking spaces, and local shops. Many Georgians believe that the Russians who have fled their country are not opponents of the Moscow government but do not want to risk their lives at the front in Ukraine. Irakli, a baker from central Tbilisi, told IPS: “If they don’t like Putin, and they don’t share his war, then they should fight and oppose him in Russia, not run away here to Georgia.”
Many Georgians fear that the recent wave of Russians fleeing to their country is less ideological than the first one that occurred right after the beginning of the war in February 2022. There is a widespread belief that, while the first wave mainly included activists, intellectuals, and anti-Putin individuals, the current wave might consist of people who fear being conscripted to fight in Ukraine but do not oppose the Russian government’s policies—including its decision to invade Ukraine.
Because of these concerns, a survey conducted by the Caucasus Research Resource Centers in February-March 2022 revealed that 66 percent of Georgians favor re-introducing a visa regime for Russians. That visa regime was abolished for Russians in 2012, but now many Georgians think it should be revisited. However, the same survey revealed that 49 percent of respondents approved the Georgian national government’s rejection of imposing sanctions on Russia. On the one hand, this data could be interpreted as a tightening of ties with the Kremlin. More simply, it should be read as a policy aimed at not worsening diplomatic relations, as Georgia could fear some retaliation—even military—from Moscow.
Furthermore, Georgia depends on remittances from its citizens working in Russia, and, in the past, its tourism industry has prospered from Russian visitors. Most Georgian politicians agree that the country is pursuing a ‘pragmatic and careful stance toward Russia’ by not imposing sanctions and keeping the current visa-free regime. For example, Eka Sepashvili, a member of parliament who left the governing Georgian Dream party, remains aligned with it on this policy.
Adverse effects aside, Russian migration to Georgia has undoubtedly stimulated the local economy. Many among those migrants are information technology (IT) remote workers, sometimes even hired by Western companies. Therefore, their salaries are way higher than the Georgian average (300-500 US dollars per month), and their living in Georgia guarantees an essential boost to local consumption.
According to the World Bank, the 2022 Georgian economic growth was 10 percent. The surge in money transfers from Russia, the recovery in domestic demand, and the rebound of tourism after the pandemic have been the main reasons for the positive performance. The World Bank further forecasted a 4 percent and 5 percent economic growth for 2023 and 2024, respectively.
Furthermore, a recent Transparency International (TI) report shows 17,000 Russian companies are registered in Georgia. More than half of them were registered after the start of the war in Ukraine. Only in March-September of 2022, up to 9,500 Russian companies were registered, which, according to the report, is ten times more than the entire figure for 2021. According to TI, this trend indicates that many Russian nationals plan to stay in Georgia long term. Not coincidentally, in April-September 2022, remittances from Russia to Georgia amounted to 1,135 million US dollars—a fivefold increase.
Artem, a Russian engineer in his forties, arrived in Tbilisi in October 2022 after Putin announced the partial mobilization. He works remotely, so he can afford to continue living in Georgia as long as his salary allows. He stays in a guest house that is usually intended for tourists. The structure has six single rooms and two with more beds to share. In recent months, 95 percent of the tenants have been Russians who have started living here for medium-to-long periods.
Since it is the low tourist season, the landlord has agreed to rent to Russians. Still, with the arrival of the high season in May, he may return to prefer the more profitable short-term rentals.
“For now, I am staying here, but with the arrival of spring, I will probably have to look for a new place,” Artem told IPS.
Despite having a higher salary than the local average, Artem cannot afford many accommodations since prices have skyrocketed. Talking to him and other current tenants of the guest house – all Russian men – it isn’t easy to find someone who would say he doesn’t like Putin. They say they are against the war and worried about the current situation. Still, they go no further, perhaps for fear of sharing their ideas or probably because their opposition to the Moscow government is, in fact, minimal, as many Georgians believe.
Georgi, a Georgian tour guide, tells us that, according to him, Russian migrants are divided into two large groups: men—especially IT workers—who are mainly afraid of being called up but are not great opponents of Putin and those who oppose him fervently. The latter are activists, journalists, intellectuals, and members of the LGBT community—people who risked their lives in Russia—even before the start of the war in Ukraine.
The distrust towards Russians emerged even more during the first days of March when many Georgians complained that Russian citizens living in Georgia had not taken to the streets with them to protest against the so-called “foreign agents’ law.”
The law, which lawmakers dropped on March 11 after days of mass protests in Tbilisi, would have required individuals, civil society organizations, and media outlets that receive 20 percent of their funding from abroad to register as an “agent of foreign influence” with the Georgian Justice Ministry.
The law was largely criticized by civil society groups, opposition politicians, human rights organizations, and even US and EU institutions. They argued the law was an attempt to suppress dissent and restrict freedom of expression in the country, and they compared it to similar legislation in Russia that Moscow has used to crack down on NGOs and independent journalism.
The government of Georgia has been defending the law, saying it was necessary to prevent foreign interference in the country’s political affairs. The term “foreign agent” has highly negative connotations in Georgia and is often associated with espionage and foreign interference. Therefore, supporters of the law argue that foreign governments or organizations may influence “agents” receiving funding from foreign sources and that it is important to ensure that they are transparent about their funding sources. On the other hand, critics of the law argue that by forcing entities and individuals to register as “foreign agents,” the government is trying to delegitimize them in the eyes of the public and stigmatize them as tools of foreign powers.
Alisa, a Russian woman who arrived in Tbilisi in April 2022 and who clearly defines herself as anti-Putin, told IPS that she was contacted on social media by a local resident with whom she had interacted. That person pressed for her to take to the streets to protest against the “foreign agents” law. The Georgian person told Alisa that it was not fair that Russians living in Georgia stand by and watch the protests without joining them and that if they wanted to enjoy the freedoms that are lacking in Russia, then they should actively participate in all aspects of the civic life of an ordinary Georgian citizen, including protesting against that law.
“I didn’t join the protests, not because I disagreed with the demonstrators. Indeed, it was a glorious moment for democracy and the demand for freedom. However, some Georgians should understand that for some Russian citizens, exposing themselves in a protest that is also indirectly against Russia can threaten their lives,” Alisa told IPS.
As Georgia continues to navigate its relationship with Russia and the West, the influx of Russians will undoubtedly play a role in shaping the country’s future. As of today, it is still not clear whether the Georgian government will change its policy toward Russian migrants. The country seems trapped in a dilemma that crosses economic, social, political, and geopolitical aspects. The need to ensure the continuation of economic growth in the short and medium terms suggests keeping the doors open to Russians.
On the other hand, this influx is causing ever-higher prices, which in the long run will probably end up harming the living conditions of the more economically vulnerable locals, facilitating urban gentrification and, potentially, higher social tensions. Finally, from a political and geopolitical perspective, the government in Tbilisi will have to deal with a growing push from the population to get closer to the West and Europe – as seen with the recent protests against the “foreign agents” law – in the face of an inevitable growing link with Russia, precisely given the strong presence of Russians in the country.
As Georgia continues to navigate its relationship with Russia and the West, the influx of Russians will undoubtedly play a role in shaping the country’s future. As of today, it is still not clear whether the Georgian government will change its policy toward Russian migrants. The country seems trapped in a dilemma that crosses economic, social, political, and geopolitical aspects.
The need to ensure the continuation of economic growth in the short and medium terms suggests keeping the doors open to Russians. On the other hand, this influx is causing ever-higher prices, which in the long run will probably end up harming the living conditions of the more economically vulnerable locals, facilitating urban gentrification and, potentially, higher social tensions. Finally, from a political and geopolitical perspective, the government in Tbilisi will have to deal with a growing push from the population to get closer to the West and Europe in the face of an inevitable growing link with Russia, precisely given the strong presence of Russians in the country.
WASHINGTON DC, Mar 21 (IPS) – It’s one of the great injustices of this era that countries contributing negligible amounts to global carbon emissions are now feeling the most harrowing impacts of climate change.
Pakistan, which makes up less than 1 percent of the world’s carbon footprint, had a third of its territory under water in last year’s floods. Parts of Kenya, Ethiopia and Somalia are experiencing the worst drought in 70 years of record-keeping, threatening millions with famine, even though the entire continent of Africa contributes less than 4 percent of global carbon emissions.
The World Bank and the donor countries that control it can do more to step up and tackle this generational challenge. To make the World Bank and other multilateral lending institutions fit for purpose in the 21st century, leaders need to figure out how to raise and leverage the massive amounts of capital that are going to be necessary in the coming years to help countries adapt to and mitigate a changing climate.
For years, climate financing took a back seat to the bank’s twin goals of reducing extreme poverty and promoting shared prosperity. Today, it is integral to achieving those goals. Helping the poorest of the poor will increasingly mean ensuring access to drought-resistant seeds and access to water as lakes dry up. In middle-income countries, promoting shared prosperity will increasingly mean expanding access to reliable, affordable clean energy.
The World Bank has played an active role in making progress in those areas. It has begun to help countries incorporate climate change into their overall economic development plans and should continue this necessary work.
Climate-related funding has already grown in importance at the bank; in fact, some of the poorest countries are already worried that it will cut into funding for basics like education and health care. That’s why additional funding is needed to assure them that taking global action on climate won’t come at the expense of their development.
About 36 percent of the money the World Bank lent last year was classified as climate related, although questions have been raised about how classifications are made. That comes to nearly $32 billion — a big jump from previous years, but still far short of what is needed.
In 2009, donor countries promised to mobilize $100 billion a year by 2020 to help lower income countries with mitigation and adaptation. They only mustered $83 billion, $36.9 billion of which came from multilateral development banks and climate funds, in 2020.
Those unfulfilled promises haven’t gone unnoticed. According to Ephraim Mwepya Shitima, chair of the African Group of Negotiators on climate change, many developing countries, including those in Africa, have put forth ambitious plans to curb emissions in the future, but have been “hampered by the pledged financial support, which are falling short of expectations.”
Although Covid, inflation and the energy crisis related to the war in Ukraine have strained government budgets everywhere, it would be shortsighted to ignore the significance and potential of investing in climate financing.
According to Devesh Kapur, a professor at Johns Hopkins and co-author of a history of the World Bank, raising an additional $100 billion in lending capacity for the World Bank could require donors to put up about $20 billion in cash. The cost to the United States, which holds 16 percent of shares, would be $3.2 billion, an amount that could be paid out over five years.
Getting new money in the door is important, but it’s not enough. The bank also should adopt new strategies and new rules that will allow it to funnel money more quickly to where it is needed the most and will be used most effectively.
For instance, some small island states have per capita incomes that are too high for concessional loans according to World Bank rules, despite their acute vulnerability to climate change. Those rules should be revisited, in some cases, to make sure that climate financing is prioritizing the areas that will make the biggest difference.
The bank should also provide more grants and below-market financing related to climate, as Senator Ed Markey of Massachusetts has called for. The World Bank and multilateral development banks provided only 15 percent of their adaptation finance and less than 5 percent of mitigation finance through grants — a fraction he called “shockingly low.”
By comparison, Green Climate Fund, a multilateral climate fund, issued grants 41 percent of the time for adaptation and mitigation projects.The transformation that is required at the World Bank will not be easy.
But the departure of its former president, David Malpass, who says he will resign in June, might help build confidence in the bank’s climate work. Mr. Malpass, who was nominated by the Trump administration in 2019, has been the subject of controversy since his bewildering public refusal last year to acknowledge the role of human activity in extreme weather resulting from climate change.
Ajay Banga, the former chief executive of Mastercard, is President Biden’s nominee to lead the bank, and is likely to be confirmed next month. The leadership change presents an opportunity to clarify the bank’s role and lay out an ambitious vision for its future. Mr. Banga, who has recently visited several African countries, has said that he sees the bank’s goals of addressing poverty, shared growth and climate as “intertwined.”
Treasury Secretary Janet Yellen, who has been at the forefront of calls to overhaul the bank and to elevate the issue of climate, also noted the need for more concessional financing in a recent speech at the Center for Strategic and International Studies.
The bank was designed to lend to individual countries to spur economic growth within their own borders, but that model doesn’t work to address global problems like climate change, she said, because the benefits “stretch far beyond the borders of the country where a given project takes place.”
If the benefits of investing in climate change adaptation and mitigation are shared, so should the costs.
The Center for Global Development works to reduce global poverty and improve lives through innovative economic research that drives better policy and practice by the world’s top decision makers.
BP’s recent journey points to the need for instruments that influence profits specifically, and notably reconsideration of the controversial price control tool: a climate-driven price cap on oil. Credit: Bigstock
Opinion by Philippe Benoit (washington dc)
Inter Press Service
WASHINGTON DC, Mar 13 (IPS) – BP, the oil company that previously brought us “Beyond Petroleum” and more recently robust corporate climate goals, has announced a return in emphasis to its traditional business of producing oil. Drawn by the inescapable appeal of oil’s latest high profits, has BP rebranded itself as “Back to Petroleum?”
This type of shift highlights the importance of stronger market incentives for reducing emissions so that companies interested in decarbonizing see their financial interest align with that course. BP’s recent journey points to the need for instruments that influence profits specifically, and notably reconsideration of the controversial price control tool: a climate-driven price cap on oil.
These record profits — driven in part by high gas prices resulting from Russia’s invasion of Ukraine — also point to a major vulnerability for any market-driven climate effort. With the lure of these type of returns from the traditional petroleum business, it is difficult to see or sustain financial motivation to shift away.
Indeed, as BP made clear in announcing its ambitious 2022 climate targets: “bp is committed to delivering attractive returns to shareholders” — and petroleum, with its upside, is uniquely placed to deliver the potential of a high return. So long as there are big profits to be made from oil, these companies will continue to be drawn to their petroleum activities, notwithstanding any stated desire to shift to renewables.
However, this also points to what needs to be a focus of an effective climate policy for oil: reducing its profitability. Over the years, think tanks, academics and others have put forward carbon pricing as the most efficient emissions reduction instrument, but this discourse has failed to deliver significant results in practice, especially when it comes to oil companies.
As emissions continue to rise and the carbon budget shrinks, the time has come to explore other solutions. One tool that merits consideration — more precisely, reconsideration — is a cap on oil prices.
This “climate oil price cap” would be designed to increase the relative profitability and so financial appeal of renewables by limiting the upside on oil activities specifically (something a customary windfall profits tax set at the corporate level wouldn’t accomplish). It would thereby support and encourage BP and other oil companies to transform themselves from a traditional petroleum company into an “integrated energy company” (BP’s own term), one that can generate significant profits from renewables and other low-carbon products relative to its petroleum activities.
Oil price controls are, of course, not new and have a checkered history (e.g., President Nixon’s effort in the US 50 years ago). But the climate emergency presents a new threat that merits re-examining this instrument. Importantly, a price cap could also help energy-importing developing countries, as well as vulnerable households there and elsewhere, avoid the harmful impact of the high oil prices experienced in 2022 (another potential advantage over a windfall profits tax ).
Any effort needs to consider the lessons from the failed efforts of the past. For example, the cap should be set at a sufficient level to attract the desired supply – including to energy-importing developing countries — even as it precludes the type of record profits the oil industry saw last year. It should also build on the experience with the current Russian price cap.
While, admittedly today there isn’t sufficient support for aggressive climate policies, the prospect for strong action will likely increase over time as heat waves, flooding and other extreme weather events wreak havoc exacerbated by climate change. This in turn can be expected to increase the willingness of politicians and policymakers to be more ambitious down the road in taking climate action.
In anticipation of this changing landscape, creative options beyond traditional carbon pricing mechanisms should be explored and put before these decision-makers by think tanks, academics and others.
In this regard, the combination of BP’s recent record profits and shift in corporate policy points to the appropriateness of considering a price cap on oil as a possible tool to fight climate change by improving the relative profitability of low-carbon investments.
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