What constrained firm investments in digital technologies during the pandemic?
While firms during COVID-19 accelerated the adoption of digital technologies, this adoption can operate through different pathways: expansion of digital platforms or investments in new digital technologies. In this blog, we analyze if there are specific barriers limiting some of these pathways, and specifically what barriers may have limited businesses investments in new in digital technologies in response to the pandemic. Did they lack awareness about the potential benefits of digitization? Did they lack complementary managerial capabilities to exploit digital technologies? Were they restricted in their access to finance? Did the uncertainty of future scenarios increase their perception of risk? Specifically, we explore how access to finance is important for investments in digitization by small and medium firms and how heavy debt can lower investments in the presence of high uncertainty. When the outlook becomes uncertain, government support is essential to smooth concerns about the future of business, sustain demand, and reduce volatility. Such interventions can be key to sustain a productivity-driven recovery built on the effective adoption of digital technologies.
In our previous blog we showed that during the pandemic firms turned to digital, but this expansion of digital technology can be done through alternative pathways. Firms can either expand the use of information communication technologies (ICT) that they already own and expand the use of platforms or invest in new technologies. These two alternatives differ in their potential impact on productivity but also in terms of fixed costs and financing needs. New investments require firms to incur significant fixed costs, while expanding the use of pre-owned technology or the use of digital platforms does require limited investments. In the three European countries analyzed (Romania, Poland, and Bulgaria) we find find that investment in new digital technologies is much less common than expansion in the use of digital platforms, and this pattern is driven by the choices of smaller businesses. In fact, while smaller firms are able to expand the use of pre-owned digital technologies and digital platforms just as larger firms do (left panel, Figure 1), they are three times less likely to invest in new digital technologies (right panel, Figure 1). Why is that?
Figure 1. Expansion of usage of existing digital technology vs. new investments by firms’ size
COVID-19 affected firms’ access to external financing, but it also hit their cash flows. The drops in sales hurt firms’ liquidity and constrained the availability of internal resources to finance the reboot and invest in digital (right panel in Figure 2). But firms adapted and exploited alternative coping strategies. For example, the more sales were affected the more firms redirected their production toward new products (product innovation—left panel in Figure 2).
Figure 2. Product innovation vs. investment in digital technologies
The unprecedented circumstances brought on by COVID-19 raised uncertainty to historically unseen levels. Overall, firms that experienced higher uncertainty were less willing to invest in digital technologies compared to firms whose future revenues appeared more secure (left panel, Figure 3). However, uncertainty lowered the willingness to invest in digital and was particularly strong among financially distressed firms falling into arrears (right panel, Figure 3), suggesting that a mix between financial constraints and uncertainty may be a key reason for limiting investments in new digital technologies.
Figure 3. Investment in digital technologies, uncertainty in sales, and fear of falling into arrears
Public support played a key role in influencing firms’ responses to the pandemic and, in particular, their choice to invest in digital technologies. The help firms received from the state counteracted the negative effects of uncertainty on investment. Firms that received assistance not only invested more often in general, but they did so even when future outcomes were more uncertain. This result is cause for some optimism as it suggests that governments can play a crucial role in smoothing the risks that firms bear and in supporting their recovery by, for example, enhancing their likelihood to invest in digital technologies. We will discuss how public support for firms was rolled out and how it helped firms in our future blogs.
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The impact of COVID-19 on industries without smokestacks in South Africa
Abstract
The COVID-19 pandemic has hit several sectors of economies, including those in Africa particularly hard. The affected sectors include industries without smokestacks (IWOSS). The purpose of this brief is to conduct an early assessment of the effect of the pandemic on the economy, and specifically, the IWOSS sectors considered in the country case study, both in terms of the pandemic’s current impact, as well as to present a view on the long-term sectoral impact.
Download the working paper
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The impact of COVID-19 on industries without smokestacks in Senegal
Abstract
In Senegal, the COVID-19 pandemic has caused significant health and economic damage. More specifically, the country’s promising industries without smokestacks (IWOSS) have adversely been impacted, with a dramatic reduction in turnover, investment, and jobs. In addition, the pandemic has significantly reduced fiscal space by both shrinking the government tax base and reducing sovereign debt solvency, and, hence, its international credit ratings. All of these repercussions have contributed to lowering the state’s capacity to undertake investments and implement reforms to boost the IWOSS sectors, and might further result in delaying needed actions to unleash IWOSS potential in Senegal. This brief updates the spring 2021 working paper (Mbaye et al., 2021) on how support to IWOSS in Senegal can create jobs, taking into account the far-reaching effects of the pandemic.
Download the working paper
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Education in emergency in Nigeria: Creating gender equitable policies so all girls have an uninterrupted right to learn
Even under what some may describe as normal conditions, girls in Nigeria face a distinctive set of barriers to formal education at all levels. Nearly 2 out of 3 (about 6.34 million) of the country’s 10.19 million out-of-school children in the country are girls. Prior to the outbreak of COVID-19, violence, child, early, and forced marriages (CEFM), lack of schools, inadequate infrastructure, unsafe environments, limitations in teacher training, and systemic gender biases impeded girls’ participation and learning in formal schooling across Nigeria.
With the outbreak of the pandemic and the subsequent closure of schools, the country has not only suffered direct losses from its impact, but also an ever-worsening spate of insecurity and violence across the country, including attacks on school children—especially girls. For instance, at the start of 2020, 935 schools in Northeast Nigeria were closed as a result of attacks and conflict. Indeed, schools are among the worst institutional casualties of complex disasters, as is evident from the COVID-19 pandemic, the Boko Haram insurgency, and several attacks on communities in Nigeria, which have all compounded the problems many girls face in consistently accessing schooling. This calls for improved responses for education during emergencies in Nigeria.
Schools are among the worst institutional casualties of complex disasters, as is evident from the COVID-19 pandemic, the Boko Haram insurgency, and several attacks on communities in Nigeria, which have all compounded the problems many girls face in consistently accessing schooling.
In response to the forced closure of schools, the Oyo state government launched an “education-in-emergency” intervention called “School on Air” to serve as an alternative way of learning for students during the school closures. Students were expected to participate in remote classes by watching recorded subject lessons on the TV or listening to radio broadcasts. However, initial reports have found gender disparities in student participation in remote learning interventions during COVID-19, with household duties preventing girls from having sufficient learning time. Equally important are concerns about how factors such as loss of jobs and family income during COVID-19, teenage pregnancies, child labor, and CEFM might prevent girls from returning to complete their education even after the reopening of schools.
How can policy and practices be designed to ensure that girls and young women are not left behind in times of emergency? This is the question I will take up in my research as an Echidna Global Scholar at Brookings.
Ensuring all Nigerian girls exercise their right to learn, continuously
Having lost my father at age 13, I experienced firsthand how the loss of a family’s primary means of economic support could potentially threaten a girl’s education or lead to an early or forced marriage. I was fortunate that my mother—a formally educated woman herself—was committed to ensuring that my three siblings and I completed our primary-, secondary-, and even university-level education.
Now, having gained formal education and its privileges, I am committed to ensuring that girls across Nigeria are equally able to exercise their same right to learn. No girl’s right or desire for formal education should ever be denied for any reason. For over 15 years, I have worked to advance children’s and especially girls’ education rights, as well as improve public schooling standards. To break cycles of educational and social exclusion for girls—and their children—MAYEIN, an organization I founded in 2012, has campaigned for girls’ education in communities across southwest Nigeria and has established “Girls without Borders,” a network of school-based clubs designed to teach girls their basic rights and provide them with leadership training.
Through my research as an Echidna Global Scholar, I hope to expand my impact and assist both Nigeria’s federal and the Oyo state governments, respectively, in formulating policy solutions for education during emergencies that are gender equitable and just—ensuring that no girl goes without an education, even in times of emergency.
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Measuring internet poverty
For the majority of the world, it is impossible to think of life without the internet. Think about life and work during COVID-19 when internet connectivity and digitalization were among the most necessary aspects of daily life. The internet allows us to stay entertained, informed, and, most importantly, connected. The internet is now a basic necessity like food, clothes, shelter, or electricity.
However, not everyone is connected. Many people either pay too much or don’t receive the bandwidth to use the internet effectively. People who can’t afford a minimum package of connectivity are the poor of the 21st century.
This is why World Data Lab (WDL) has developed a global measurement framework of internet poverty to measure the number of people left behind in the internet revolution. People who can’t afford a basic package of connectivity—set at 1.5 gigabytes (GB) per month at a minimum download speed of 3 megabits per second (Mbps) (equivalent to 6 seconds to load a standard web page)—are internet-poor. This is an analog to the extreme poverty line, currently at $1.90 (2011 PPP), which represents a basket of minimum basic needs (mostly of food, clothes, and shelter).
Globally, internet access is rising. Every second, five to six people join the group of internet users (broadly seven are added and one person dies). Today, an estimated 4.5 billion people are connected compared to only half a billion people 20 years ago. As the price of internet access declined sharply, more people started to use it—similar to the rise of mobile phones 20 years ago.
To reduce internet poverty, incomes need to rise, or internet prices must decline. The price of the internet also declines if the quality and quantity improve. Remember when the last iPhone was presented, the previous version became cheaper even though it was performing just as well.
Internet prices for every country are now available from Cable and the International Telecommunication Union (ITU). The cost of the average mobile internet package is $0.50 per day. However, quality varies across countries. Using our model of how prices vary with quality, we obtained the price of a standardized quality of internet use in each country. Setting a standard of 1.5 GB per month with 3 Mbps would allow an individual to browse web pages, check emails, and conduct some basic online shopping for 40 minutes a day. It is our equivalent of the “basic needs” of accessing the internet—enough to do the minimum, but not enough to watch videos or conduct other tasks such as accessing databases that demand higher bandwidth. How many people can afford such a basic internet package?
We assume affordability if it would represent 10 percent or less of a person’s spending. This is in line with recent World Bank estimates for West Africa where only around 20-25 percent of the population can afford mobile internet.
Figure 1. Internet poverty framework
Source: World Data Lab
Based on this definition, World Data Lab estimates that there are around 1.1 billion people living in internet poverty today. This is a lower-bound estimate as it assumes that everyone in a country actually has access to the internet if they are willing to pay, in the same way that poverty headcounts assume that everyone has access to food if they have the money to pay for it.
Focusing on internet affordability, we find that almost anyone living in a rich country can afford to use the internet—even if the price might be rather high. By contrast, the price plays a crucial role in poor countries. At least in the short term, people in developing regions depend on an affordable pricing scheme for them to be able to access the internet.
In particular, our results show that poor countries with cheap internet (below $15 per month), are able to connect a much larger proportion of the population than poor countries with expensive internet. Only 13 percent of the population in poor countries with cheap internet live in internet poverty. Conversely, poor countries with expensive internet have 67 percent of their population in internet poverty. Of the 4 billion people who live in countries with average per capita spending of below $11 per day, 3.4 billion have access to cheap internet by our definition. Only 7.5 percent, around 588 million people, live in poor countries with expensive internet. This group of people must be the focus for eliminating internet poverty.
While there are large differences in incomes around the world, there are also substantial differences in the price for a minimum package of internet. These price differences are independent of per capita incomes. In the U.S., people pay almost double for the same internet package as in the Philippines. Malawi has about the same per capita income as Mozambique but pays on average three times as much for a basic internet package. Among emerging economies, India stands out as a poor country with low internet prices—thus an internet poverty rate of around 8 percent. By contrast, Malawi, Venezuela, and Madagascar have the highest prices in the world even though they are among the poorest countries in the world, suggesting issues with economic growth and internet supply (see Figure 2).
Figure 2. Internet affordability in 2021
Source: World Data Lab estimates
As we have seen over the last year, internet connectivity should be a staple in everyone’s life. While the COVID-19 shock will make it difficult to end extreme poverty by 2030, it is still possible to end internet poverty. If every country encouraged competition and innovation so that prices would decline to the levels of India, then internet poverty would already today decline by more than half.
The changing map of economics
The International Economic Association’s triennial World Congress has long been one of the most important global gatherings of economists, owing to its success in bringing together researchers and policymakers from the poorest to the wealthiest corners of the world. The 19th edition of the event earlier this month, albeit held via Zoom instead of in person, was no exception.
One recurring theme of this year’s Congress was that the global economy and capitalism are at a crossroads. While the COVID-19 crisis was the immediate impetus for this view, other major shifts—from climate change and the rise of digital technology to the changing nature of labor markets—have been increasingly salient. The pandemic has merely accelerated these shifts or thrown them into sharper relief.
COVID-19 has forced us into one kind of “learning by doing,” an idea that the Nobel laureate economist Kenneth J. Arrow, who emphasized that much learning “is the product of experience,” developed in the abstract a long time ago. We have learned to give lectures and hold conferences by Zoom, and to make complex decisions in meetings conducted via Webex. People have suddenly realized that they had been spending more time than necessary in the office, and that they can do much of their work from home. And we have learned to shop at home, too, via digital platforms.
Economists and society as a whole must confront profound intellectual and moral challenges in order to come to grips with the changing world.
As a result, demand for office and retail space will fall, even after the pandemic. And because more people will have the freedom to work remotely, property prices will gradually rise where they were previously low and fall where they were high, leading to greater leveling.
On the other hand, salary disparities will increase, because the labor market will tend to be more of a common pool with heightened competition for talent. Most important, globalization, after some initial stumbles, will accelerate, with rapid growth in cross-country outsourcing. This is likely to have a significant effect on labor markets, national politics, and the nature of conflict.
Understanding this new world will require major breakthroughs in economic thinking. Economics normally proceeds by contesting the explicit assumptions and axioms on which theory is built. But all scientific disciplines also have hidden assumptions that are so deeply embedded that we do not state them explicitly and often forget they exist. In their celebrated research in the 1950s that provided a formal structure for understanding Adam Smith’s idea of the “invisible hand,” for example, Arrow and fellow Nobel laureate Gérard Debreu showed the many assumptions that were needed for Smith’s conjecture to be valid.
There were other assumptions that were taken for granted—simply part of the woodwork of economics—including the symmetry of knowledge among buyers and sellers. One of the biggest breakthroughs of modern economics was the insight that knowledge is often asymmetric, and that this asymmetry can shatter the invisible hand. This breakthrough earned Joseph E. Stiglitz, George Akerlof, and Michael Spence the 2001 Nobel prize in economics, and led to new forms of regulation that made the modern economy possible. We owe many of our regulations concerning quality control and product standards to this breakthrough, which showed definitively that the market’s invisible hand cannot ensure standards when information is asymmetric.
It remains to be seen what form the economics profession’s new intellectual discoveries will take and what regulations we will need to apply them. What is clear is that the strain humanity has imposed on the environment means growth as we currently know it cannot be sustained. But that does not mean we have to learn to live with lower growth. In fact, I believe future growth will be faster than we have seen thus far.
The lower-growth camp’s mistake stems from a common misunderstanding of GDP or national income. A higher GDP is often taken to indicate more wasteful consumption and consumerism of the kind we are indulging in now. But that need not—and now must not—be the case.
The consumption of more art, music, and learning, as well as better health and greater longevity, are all components of GDP, and are, or can be, environmentally friendly. Reforming our regulatory system can foster rapid GDP growth—but with the content of GDP changing dramatically, and with a disproportionate amount of human labor directed to creative activities. The nature of reform for the new world is a big topic, but policymakers will need to focus on curricula that nurture creativity, because routine work will increasingly be automated; shift consumption away from environmentally wasteful goods; and redistribute wealth radically to lessen inequalities.
My recent research on group morality, however, highlights a caveat that we must address. When discussing matters like climate change and current global inequities, we urge people to be other-regarding. In other words, they should not be concerned solely about their own well-being but also consider the welfare of the current poor and future generations who will be affected by our decisions.
But as moral philosophers have long known, group morality is a problematic concept. I have recently tried to address the “Samaritan’s Curse,” whereby a future generation can end up being hurt when all individuals today take its well-being into consideration. This problem, like the prisoner’s dilemma but in the moral domain, can potentially defeat our best intentions.
So, the road ahead will not be easy. Economists and society as a whole must confront profound intellectual and moral challenges in order to come to grips with the changing world. But humans have done it before. One can only hope that our intelligence and resolve enable us to do it again.
Reconciling economic growth and youth employment creation in Senegal
In recent years, high youth unemployment has become one of the most pressing challenges facing African policymakers. Unlike in industrialized and emerging economies, export-led manufacturing is playing a much smaller role in the structural transformation of Africa’s economies. Senegal is no exception to this trend. While agriculture has lost more than 10 percentage points of its labor share between 2004 and 2019, manufacturing has increased its share by only 1 percentage point, against 7.6 percentage points for trade.
Yet, recent macroeconomic trends do not reveal a stagnant economy lacking opportunity, but one that is growing rapidly and increasingly providing opportunities for its young people. After averaging 3 percent growth per year from 2009-2013, Senegal’s economy grew by 6.6 percent per year from 2014 to 2019. Moreover, youth unemployment dropped from 14 percent to 6 percent between 2007 and 2016. Again, unlike the experience in much of Asia, manufacturing does not appear to be driving these trends.
Instead, a growing body of literature identifies some sectors that are similar to manufacturing in many regards, and that could be nurtured to support economic growth and generate employment. These industries, termed “industries without smokestacks” or IWOSS, are characterized by (i) being tradeable, (ii) generating high value-added per worker, (iii) having a greater potential for technological change and productivity growth, and (iv) showing evidence of scale and/or agglomeration economies. Our recent report analyzes the potential of IWOSS sectors to, if properly leveraged, dramatically boost good-quality job creation in Senegal.
Overall, at 4.5 percent per annum, IWOSS sectors in Senegal experienced a substantially higher growth rate between 2001 and 2017 than did non-IWOSS sectors (2.7 percent) and manufacturing (3.4 percent) over the same period. On the labor market side, the employment elasticity for IWOSS sectors tourism and agro-processing are 0.96 and 0.88, which are higher than manufacturing (0.54). Horticulture’s is even higher, at 0.97. A higher employment elasticity means that as these IWOSS sectors grow, they will tend to create more jobs than manufacturing.
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IWOSS in Senegal has shown higher employment growth for women
Importantly, employment elasticities are, in general, much higher for women than for men, for both IWOSS sectors and non-IWOSS sectors alike (Table 1). Indeed, while male employment in IWOSS grew by 3.9 percent per over the 2001-2017 period, women experienced an even higher employment growth rate in IWOSS (5.1 percent) over the same time frame.
Table 1. Employment-output elasticity for Senegal
Total
Male
Female
Overall economy
0.55
0.43
0.76
Total IWOSS
0.77
0.65
0.97
Agro-processing
0.88
0.73
1.15
Horticulture
0.97
0.9
1.16
Tourism
0.96
0.81
1.14
ICT
0.19
0.13
0.29
Transport
0.24
0.14
0.41
Financial and business services
0.99
0.9
1.13
Trade: formal
1.17
1.04
1.41
Other IWOSS services
0.46
0.35
0.65
Manufacturing
0.54
0.42
0.78
Other non-IWOSS
0.48
0.35
0.70
Agriculture
0.3
0.16
0.5
Mining
0.10
0.06
0.13
Utilities
0.19
0.14
0.31
Construction
0.56
0.44
0.68
Trade: informal
1.14
1.0
1.37
Government
0.4
0.29
0.6
Other non-IWOSS services
0.52
0.43
0.70
Source: ANSD (2019), Direction de l’horticulture, ilostat (2020), authors’ calculations.
Despite the promise shown by IWOSS for women, the employment growth rate for youth (aged 15-24) remains much more limited than for older people. Both for IWOSS and for non-IWOSS, the youth employment growth rate is lower (2.3 percent for IWOSS and 0.0 percent for non-IWOSS) than that of adults (25+ age bracket), whose employment growth rates are 6.2 percent for IWOSS and 4.6 for non-IWOSS.
Despite this promise, constraints are holding IWOSS sectors back
While certain IWOSS in Senegal certainly have the potential for job creation, a number of obstacles stand in the way of the growth of those sectors. Removing these hurdles to IWOSS growth might considerably change the growth trajectory of Senegal in the near future, by, in our estimates, doubling annual growth rates from their baseline level.
Horticulture
Having access to credit in Senegal is a lengthy process and has several limitations relative to obtaining credit from commercial banks. Interest rates are high, and barriers to access to credit are not homogenous across sexes. More specifically, women have a harder time accessing loans as all the parameters relative to having worthy collateral are, most of the time, linked to the borrower’s employment status. Moreover, the horticulture sector lacks qualified and skilled laborers that would enable its operators to be competitive in the international markets by producing high-quality products in the timeframe imposed by international buyers. Finally, the impact of climate change on livelihoods cannot be ignored: The natural resources required to have good yields are getting scarcer and the technological investments necessary to allow producers to adapt to those climatic changes are not made. As a result, products are not properly conserved nor transformed thus leading to huge yield losses. To counter these issues, it would be important to make infrastructural investments to minimize yield losses and increase opportunities for conservation and transformation, provide capacity-building opportunities, and develop and popularize climate change adaptation measures.
Tourism
The biggest issues in the tourism sector are related to climate change, as Senegal has capitalized on “watercourse tourism” where most tourist activities are centered around water. Therefore, rising sea levels threaten most of those activities. Additionally, most investments around tourism are concentrated in big cities like Dakar. The remote rural areas, which also hold breathtaking tourist attractions, lack adequate infrastructure that would attract private investment. Thus, policymakers should make important infrastructural investments in rural areas as a means to attract private investments, and identify and implement climate change mitigation measures that would enable a sustainable exploitation of resources.
Agro-industry
Policymakers must take steps to reduce the barriers to entry to IWOSS sectors, especially lack of adequate infrastructure. Eight percent of the companies interviewed in the World Bank’s 2014 Senegal Enterprise Survey name electricity as the main constraint to conducting their business activities, and 48.2 percent characterize it as a significant constraint. Furthermore, in an effort to increase profit margins, it is crucial to have access to foreign markets with accessible import and export procedures. In Senegal, exporting a regular container of products requires up to six documents and up to $1,225 in fees. Importing the same container requires five documents and a $1,740 fee. Reforms for entry and export of goods are essential for this sector’s further growth.
Cash will soon be obsolete. Will America be ready?
By Erik CarterWhen was the last time you made a payment with dollar bills?Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions. But digital payments, made with the swipe of a card or a few taps on a cellphone, are fast becoming the norm.To keep their money relevant, many central banks are experimenting with digital versions of their currencies. These currencies are virtual, like Bitcoin; but unlike Bitcoin, which is a private enterprise, they are issued by the state and function much like traditional currencies. The idea is for central banks to introduce these digital currencies in limited circulation — to exist alongside cash as just another monetary option — and then to broaden their circulation over time, as they gain in popularity and cash fades away.China, Japan and Sweden have begun trials of central bank digital currency. The Bank of England and the European Central Bank are preparing their own trials. The Bahamas has already rolled out the world’s first official digital currency.The U.S. Federal Reserve, by contrast, has largely stayed on the sidelines. This could be a lost opportunity. The United States should develop a digital dollar, not because of what other countries are doing, but because the benefits of a digital currency far outweigh the costs.One benefit is security. Cash is vulnerable to loss and theft, a problem for both individuals and businesses, whereas digital currencies are relatively secure. Electronic hacking does pose a risk, but one that can be managed with new technologies. (As it happens, offshoots of Bitcoin’s technology could prove helpful in increasing security.)Digital currencies also benefit the poor and the “unbanked.” It is hard to get a credit card if you don’t have much money, and banks charge fees for low-balance accounts that can make them prohibitively expensive. But a digital dollar would give everyone, including the poor, access to a digital payment system and a portal for basic banking services. Each individual or household could have a fee-free, noninterest-bearing account with the Federal Reserve, linked to a cellphone app for making payments. (About 97 percent of American adults have a cellphone or a smartphone.)To see how this might help, consider the payments that the U.S. government made to households as part of the coronavirus stimulus packages. Millions of low-income households without bank accounts or direct deposit information on file with the Internal Revenue Service experienced complications or delays in getting those payments. Checks and debit cards mailed to many of them were delayed or lost, and scammers found ways to intercept payments. Central-bank accounts could have reduced fraud and made administering stimulus payments easier, faster and more secure.A central-bank digital currency can also be a useful policy tool. Typically, if the Federal Reserve wants to stimulate consumption and investment, it can cut interest rates and make cheap credit available. But if the economy is cratering and the Fed has already cut the short-term interest rate it controls to near zero, its options are limited. If cash were replaced with a digital dollar, however, the Fed could impose a negative interest rate by gradually shrinking the electronic balances in everyone’s digital currency accounts, creating an incentive for consumers to spend and for companies to invest.A digital dollar would also hinder illegal activities that rely on anonymous cash transactions, such as drug dealing, money laundering and terrorism financing. It would bring “off the books” economic activity out of the shadows and into the formal economy, increasing tax revenues. Small businesses would benefit from lower transaction costs, since people would use credit cards less often, and they would avoid the hassles of handling cash.To be sure, there are potential risks to central-bank digital currencies, and any responsible plan should prepare for them. For example, a digital dollar would pose a danger to the banking system. What if households were to move their money out of regular bank accounts and into central-bank accounts, perceiving them as safer, even if they pay no interest? The central bank could find itself in the undesirable position of having to allocate credit, deciding which sectors and businesses deserve loans.But this risk can be managed. Commercial banks could vet customers and maintain the central-bank digital currency accounts along with their own interest-bearing deposit accounts. The digital currency accounts might not directly help banks earn profits, but they would attract customers who could then be offered savings or loan products. (To help protect commercial banks, limits can also be placed on the amount of money stored in central-bank accounts, as the Bahamas has done.) A central-bank digital currency could be designed for use across different payment platforms, promoting private sector competition and encouraging innovations that make electronic payments cheaper, quicker and more secure.Another concern is the loss of privacy that central-bank digital currencies entail. Even with protections in place to ensure confidentiality, no central bank would forgo the ability to audit and trace transactions. A digital dollar could threaten what remains of anonymity and privacy in commercial transactions — a reminder that adopting a digital dollar is not just an economic but also a social decision.The end of cash is on the horizon, and it will have far-reaching effects on the economy, finance and society more broadly. With proper preparation and open discussion, we should embrace the advent of a digital dollar.Eswar Prasad (@EswarSPrasad) is a professor of trade policy at Cornell University, a senior fellow at the Brookings Institution and the author of the forthcoming book “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.”The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.
Addressing Africa’s extreme water insecurity
Access to clean, affordable, and safe drinking water is both a fundamental human right recognized by the United Nations and Goal 6 of the United Nation’s Sustainable Development Goals. However, access to this essential resource in Africa is not yet universal, with 1 in 3 Africans facing water scarcity and approximately 400 million people in sub-Saharan Africa lacking access to a basic drinking water. Access to water remains a pervasive development issue across the continent, as a 2019 report by the World Resources Institute (WRI) revealed: Indeed, addressing climate change and poor management of water resources and services is paramount to tackling Africa’s water stress.
Aqueduct, an online geographic information system (GIS) tool produced by the WRI to map global water-related risks, reveals Africa’s extensive exposure to water-related risks (Figure 1). Their model accounts for a variety of metrics, such as vulnerability to floods and droughts, water stress, and seasonal variability. “Extremely high water risk,” demarcated in dark red, covers large swaths of arid northern Africa, southern Africa, and eastern Africa. However, water risk throughout the continent is quite heterogeneous, as light patches, such as those along the Nile River, are interspersed with the areas suffering from critically high water risk. The equatorial and tropical regions around the Democratic Republic of the Congo also enjoy significant surface area with noticeably less water risk than their continental neighbors.
Figure 1. Africa faces some of the highest water risk in the world
Source: “Climate Change Is Hurting Africa’s Water Sector, but Investing in Water Can Pay Off,” World Resources Institute, 2019.
The authors maintain that understanding the continent’s water risk factors is an essential prerequisite to instituting changes to the poor management of its water resources and services, alongside bolstering climate resilience. As such, the authors highlight several areas within the water sector that require investment to improve climate resilience and better public service delivery.
Africa’s agricultural sector, the authors claim, is poised to face significant exposure to water-related climate risks in the future. As 90 percent of sub-Saharan Africa’s rural population depends on agriculture as their primary source of income and more than 95 percent of the region’s farming is reliant on rainfall, the consequences of unpredictable rainfall, rising temperatures, extreme drought, and lower crop yields expose one of Africa’s poorest communities to increasingly intense climate- and water-related hazards. Considering these hazards, WRI proposes that intergovernmental risk-pooling mechanisms, such as the African Union’s African Risk Capacity (ARC), could be increasingly important sovereign insurance mechanisms to mitigate climate disasters, as they provide faster payouts than humanitarian aid.
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The effort will be expensive: According to the authors, securing universal safe drinking water, sanitation, and hygiene in sub-Saharan Africa requires $35 billion per annum in capital costs. While efficient “smart design” of water management systems can promote greater climate resilience for water and sanitation services, the WRI attributes securing adequate revenue to maintain new infrastructure as the biggest challenge facing African policymakers and engineers in the water sector.
Investing in climate-resilient green infrastructure provides a myriad of benefits throughout the economy, namely, generating jobs, alleviating poverty, and diminishing the impact of climate change on Africa’s most vulnerable and marginalized communities. African governments, according to the WRI, should actively factor in these water risks to develop infrastructure systems that protect people, save money in the long run, and preserve the delicate ecosystems that their economies and the livelihood of their citizens depend upon.
For more on climate change in Africa, read “Figure of the week: Climate change and African agriculture,” “Climate adaptation and the great reset for Africa,” and “Africa can play a leading role in the fight against climate change.”
What lessons can Africa learn from India’s COVID-19 crisis?
India is unlikely to be the last country encountering catastrophic outbreaks as the COVID-19 pandemic persists and evolves. The lessons from India’s experience are especially relevant to other developing countries, like those in Africa, that will not benefit from the shield of mass vaccination in the near term. The overarching lesson is that COVID-19 is a “complacency virus”; its surveillance and suppression must be continually adapted.
The Indian second-wave outbreak is considered by the World Health Organization to have stemmed from the evolution of the highly transmissible B.1.617 or delta variant of the coronavirus, but catalyzed by a series of religious and political mass gathering events and reduced public health and social measures.
The delta variant was first reported in October 2020 and declared the fourth “variant of concern” by the WHO on May 11, 2021. In India, the spread of delta has dominated even that of the alpha B.1.1.7 variant (first identified in Kent, England), which itself was found to be 40-50 percent more transmissible than the original COVID-19 strain from Wuhan. Current estimates are that Delta could be a further 60 percent more transmissible than Alpha.
Public-health policymakers, having become accustomed to less aggressive variants, appear to have been caught off guard by the delta variant. In fact, on February 21, 2021, Indian officials announced they had “defeated COVID-19.” A subsequent reduction in adherence to public health and safety measures was accompanied by an outright reduction in the stringency of COVID-19 protective measures in India, with the lockdown stringency index (a measure of public health and social measures) declining in March 2021 to its lowest value since the start of the pandemic. From mid-March to April a series of potential superspreader mass gatherings were permitted, including the attendance of an estimated 9.1 million pilgrims at the Kumbh Mela religious festival, and political campaigning for state elections in West Bengal, Assam, Kerala, and Tamil Nadu.
The result, as we are now aware, has been the catastrophic and deadly spread of a second wave of COVID-19 across India and elsewhere in the world. The lessons for African countries are twofold.
Lesson 1: Virus surveillance is key to stopping the pandemic
First, as the COVID-19 pandemic matures, so must virus surveillance. The evolution of new variants has emerged as one of the most important risk factors for outbreaks. Genomic sequencing helps build an early warning system for identifying the emergence of variants of concern, as well as the spread of these variants between countries. Doing so better informs public-health policymaking.
Already, the United Kingdom—a leader in COVID-19 genomic sequencing—has reviewed and adjusted reopening schedules on the basis of risk analysis that incorporates the emergence and spread of the delta variant. Genomic sequencing data in South Africa helped determine a change in vaccination strategy in response to the emergence of the beta (B.1.351) variant, which appeared more resistant to certain vaccines.
Unfortunately, Africa’s sequencing capacity remains extremely limited with almost half of African countries unable to share any genomic sequencing data on COVID-19 variants. African countries, accordingly, have an overclouded early-warning system with little visibility over emerging risks or the circulation of variants of concern. The WHO now encourages countries to “strengthen surveillance and sequencing capacities and apply a systematic approach to provide a representative indication of the extent of transmission of [COVID-19] variants based on the local context, and to detect unusual events.”
African countries have had considerable success in regional approaches to fighting COVID-19—including the Pan-African Medical Supplies Platform, harmonized “safe trade” protocols, and the work of the Africa Centers for Disease Control and Prevention. A regional approach to variant surveillance through regional sequencing hubs is now needed to pool resources and technical capacities. Development partners can assist in building this regional capacity through initiatives such as the U.K.’s New Variant Assessment Platform.
Lesson 2: Avoid complacency
The second lesson for Africa is simply to avoid complacency. Most African countries seem to have, so far, been spared the depth of crises experienced in other regions in the fight against COVID-19. As the Indian case shows, situations can deteriorate rapidly. In many of the African countries in which case sequencing data is available, the delta variant is on the rise. Policymakers must remain on top of evolving knowledge and preparations against COVID-19.
This can involve learning from outbreaks elsewhere and adapting capacity bottlenecks accordingly, as has been the case in Kenya, in which oxygen concentration machinery was imported to Nairobi’s Metropolitan Hospital following the experience of COVID-19 related oxygen shortages in India.
The evidence suggests that, overall, African countries are continuing to face the COVID-19 crisis with vigilance and caution. The stringency of the lockdown measures imposed by African countries has remained roughly constant since November 2020, notwithstanding some country idiosyncrasy. This is perhaps not particularly surprising; until mass vaccination is extended to developing countries, including those in Africa, they face little choice but invasive lockdown measures for supressing COVID-19, and, indirectly, their economies.
Unfortunately, mass vaccination remains distant upon the African horizon. Expediting it continues to be the ultimate prize for African policymakers and their development partners. Until then however, carefully following the lessons from India and other countries will continue to help African countries to manage their COVID-19 responses and make fully informed public health and economic make decisions.
Figure 6. Stringency of Africa’s lockdowns over time, scale of 1 to 100 (white to red), January 2020 to June 2021
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