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Pandemic and climate change: The search for new models of sustainable development

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Pandemic and climate change: The search for new models of sustainable development
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“Go and explain to developing countries why they should continue living in poverty and not be like Sweden”, “No one has explained Greta that the modern world is complex and different and… people in Africa or in many Asian countries want to live at the same wealth level as in Sweden”. These are two of the several statements Russian president Vladimir Putin made in criticism of Greta Thunberg’s UN speech while he spoke during an energy conference last year. But why is the situation that the Russian president is referring to, so complex? And why is that the world leaders who are failing to tackle climate change are now trying to tell the world that it is not just about climate but also geopolitics? This piece tries to delve into the inevitable dilemma that is emerging in the sphere of climate change mitigation and the geopolitics that has always been the one of the topmost priorities for the nations around the globe.

The Present State

Historically, the industries and the global economy has been reliant on fossil fuels, resulting in the anthropogenic climate changes that we are witnessing today. At present, geopolitics is at the center of the struggle for mitigation of the climate change phenomenon. This has led to a variety of responses from different nations. Some are trying to postpone the responsibility, some are trying to deny, and some are trying to spearhead the fight against the problem. However, the issue of climate change is not one that can be solved by one or a subset of nations working in isolation. It remains to be seen how the results of climate change as well as the struggle for mitigation will impact the ground reality for the populations, as it is widely expected that the effects on different nations will be to different extents. Some are set to be hit harder than others, and some are going to be hit even if they have not done anything to contribute to the problem. In this background, many of the concerns about the technological manipulation of nature, environmental destruction, North-South relations, sustainable development, conflict and resource wars have returned to prominence in recent years in the increasingly intense debate about climate change. In this piece we a look at some of the major themes in the geopolitical landscape today related to climate change and climate change mitigation activities.

Russia and Saudi Arabia are two of the several examples of nations which depend on energy commodities export for most part of their revenue. They are also the best examples of nations with vastly established fossil fuel production and processing infrastructure. Accordingly, they face different geopolitical challenges than others in terms of their climate mitigation policy adoptions. Nations like Russia and Saudi Arabia, as well as Qatar, Iran, Venezuela, and UAE depend on exports of oil and gas to developing and emerging economies like China and India. However, an increasing emphasis in these developing economies for a transition towards renewable energy sources has been creating unrest in the oil, gas as well as coal export dependent nations. In case of Russia, another issue, in form of permafrost thawing has been emerging since the last few years as a big worry threatening its infrastructural facilities in Far East region as well as the Siberian region. Last year Russia witnessed several oil spills due to weakening infrastructure in its facilities. However, this issue is dwarfed due to the fact that infrastructure can be upgraded, but if the demand for oil and gas reduces in the global markets due to a renewable energy transition, then the vast infrastructures will become loss generating assets.

                In Gulf countries, the narratives of collapse and chaos in a post-oil world has taken over most policy makers’ imagination. According to some predictions, over the next 50 years, these countries could be facing a twin issue of increasing strain on societies and economies due to climate change on one hand and increasing shortage of funds on the other, either due to the decreasing exports and demand, or due to simply less production due to waning stores of energy. Moreover, emergence on alternative sources like shale oil in US and oil and gas in Central Asian region can also lead to increased strain in these countries. This has led to new geopolitical conditions becoming possible for the Gulf region which has for long been dependent on a US hegemony in the region for overall security framework. A receding US interest can witness an increasing interest of other powers like China and Russia.  

Moving to the developing world, economies like India, Brazil and even China have at various times expressed an unwillingness to concede mitigation of emissions of greenhouse gases and pointed towards their right to economic and industrial development, world equity and issues. This stance has attracted criticism from the developed world who see this struggle against climate change as a journey in which every nation needs to stand in unity. However, on one hand where concepts like ‘Common but Differentiated Responsibilities’ has emerged in climate action frameworks, countries like India have showed that they are ready to lead in the action for climate change mitigation by implementing policies to work towards a transition to renewable energy. This stance although is also influenced by the fact that India is forced to import most of its fossil fuel needs from other countries which exists as a big burden to its economy. By decreasing its reliance on energy imports, India can look towards following a more independent course in the geopolitical order. As seen in the collapse of Iran-US relations which led to India being forced to abandon its oil imports from Iran, a situation where India is not dependent on oil itself, stands to be a big win. Further, initiatives like the International Solar Alliance have helped India to cultivate India’s image as a responsible global actor, at par with other like the European Union who has been using climate change activism as an element of its foreign policy to retain command over the global climate change policy agenda and thus assert not only regional, but global influence.

               Talking about the global powers, US and China are undoubtedly the two biggest players in the world today when it comes to geopolitics, as well as emissions. In US, about half of electricity is generated through coal power plants as the nation has abundant coal deposits. The last four years under President Trump witnessed US detaching itself from major climate change action frameworks like the Paris Agreement based on the reasoning that any policies which have a chance to curb economy growth will have a disastrous effect on the lives of American citizens as well as national security. On the other hand, China, which has for some time now been the biggest greenhouse gas emitter, has now been working towards becoming the leader in sphere of sustainable energy. Chinese president Xi Jinping at the last year’s United Nations General Assembly made the promise that China will become carbon neutral by 2060. According to scholars of the field, through this stance, China not only wants to enhance its geopolitical position as a main partner to EU for future, but also wants to take away attention from its human rights abuses, and aggressive behavior. This phenomenon needs to be understood in the light of the fact that today almost all mining, production and processing of rare earth elements, which are essential for the production of renewable energy infrastructure like solar panels, takes place in China. Thus, providing not only an upper hand to China as an economic power but also as a great geopolitical power in sustainable energy.

               Not all countries however face the dilemma of effects of slowing economy in case they go for transition to renewable energy or adopt policies that mitigate emissions. The poorest of the countries stand to go bankrupt and loose relevance due to geopolitics of climate action in case the world decides to transition fast to renewable energy. These are the poor countries of Africa which have recently started establishing their oil production and now almost completely depend on it. As mentioned by Russian president Putin, these are the economies which look towards economic development based on their energy stores. They however have massive potential for renewable energy extraction too. But this potential need massive amounts of investment in infrastructure to realize, an element that these economies do not possess. Further, as the oil produced by these satisfy the needs of the developing and emerging economies, most of their buyer nations will see no benefit in trying to aid the African economies to substantially create their supplier’s renewable energy sector.

               Similar is the case of the Central Asia region where the nations depend on extractive industries of oil, coal, and gas. Both climate impact as well as climate change mitigation and adaptation in this region is projected to heighten geopolitical tension.  Not only are the foreign direct investments in the region low at present, but the existing investments do also not prioritize resilient and sustainable development and is related mostly in sector of non-renewable energy resource extraction. The geopolitics of this region is connected in more than one way with the issue of climate change. The region is prone to water and energy shortages. Whereas carbon rich Kazakhstan, Turkmenistan and Uzbekistan extract and use oil, gas and coal for their energy production, other nations in the region- Tajikistan and Kyrgyzstan, which have lower GDP per capita uses clean hydro energy. Thus an inequality exist as the downstream nations are those which are more reliant on fossil fuels and the upstream nations, although not energy rich, possess ample hydroelectric potential. This inequality is estimated by the scholars to create strains in the region which can spill over in the rest of Asia.

The Dilemma

               It might seem like the fossil-fuels based energy export reliant nations are set to lose the most in the coming future as the world starts looking for ways to transition towards clean fuel and energy in the coming years. However, the oil and gas industry might not be ending anytime soon.

               For instance, Nord Stream 2, a planned pipeline through the Baltic Sea, which is expected to transport natural gas over from Siberia to consumers in Europe is being looked upon as a secure and reliable as well as cleaner source of energy for the coming decades. It indeed will replace the coal powered sectors in Europe and help reducing carbon emissions, however, this is also expected to provide Russia a sort of geopolitical push that it has not witnessed in many years now in terms of its relations with Europe, especially since the conflict with Ukraine in 2014. Although, this has changed in recent times as tensions arose with Georgia and the political chaos around Alexei Navalny’s poisoning, who was being seen as a political competitor to President Putin by some in Russia.  However, this is not to say that Russia has not been working towards climate change mitigation agenda. In November last year, Russian President Putin signed a decree ordering the Russian government to work towards meeting the 2015 Paris agreement to fight climate change, but stressed that any action must be balanced with the need to ensure strong economic development.   This in geopolitical terms can be seen as an attempt to align Russia with the change in presidency in US, where the new president  Joe Biden is supposed to be an avid supporter for climate activism and is expected to work towards making US carbon neutral with a long-term plan, in stark contrast to the previous president Donald Trump.

               Another geopolitical battle is emerging in the Arctic, where several nations like the US, China and Russia are no vying for dominance. In Arctic, with melting snow, shipping is all set to witness an increase. According to some estimates, if shipping along the Arctic becomes fully accessible, Bering Sea can become an area of contention for US and Russia, as well as China, thus reducing the importance of other choke points and the nations controlling them, like Egypt and Southeast Asia. This phenomenon also exists in line with the argument that if oil ceases to be a central driver of the global economy, many regions like Gulf are set to see their long-standing relations with the western nations like US change.

               Climate change related migration, which can result out of several reasons like submergence of islands, droughts due to varying rainfall patterns, stronger hurricanes or storms, or massive flooding of rivers due to higher rate of melting of glaciers that feed them with water, is also becoming a geopolitical contention that the nations are staring at today. The world has witnessed in 2015 refugee crisis in Europe, the extent of chaos, heightened populism, and nationalism, as well as lack of trust in multilateralism and established institutions that can be caused. Even though in this case, the result was not due to underlying climate change related challenges directly, similar effects due to influx of refugees and similar migration patterns can be expected from the regions of changing patterns of rainfall. This leads us to think where the current situation leaves us today for the future.   

What does the Future Hold?

               For many economies, initial investment cost for renewable energy systems is usually high, resulting unaffordability for many, especially in developing countries. Some others on the other hand, like Malaysia, with some of the highest level of subsidies on fossil fuels result in renewable energy market to remain economically weak and uncompetitive. Similarly, for Australia’s economy, which has for long been reliant on  fossil fuel industries to ensure the economic prosperity across the country, it is now becoming an issue of contention which it will need to resolve in order to ensure not its own, but also its neighborhood’s sustainability lying in the Indo-Pacific region as low lying islands which are at the risk of submergence due to climate change related effects.  

               In today’s world, not only can conflicts related to renewable energy infrastructure lead to stress as seen in case of Central Asian region, but also strain over issues like transfer of technology between developed and developing countries can turn into bigger forms of geopolitical conflicts. It also remains to be seen if the resources like rare-earth metals, which are needed for expansion of cleaner energy platforms will be available according to need of a nation or be made available to the highest buyer and turned into a business. The global order as it stands today between the oil producers and the oil consumers is also set to change as the climate change mitigation policies are adopted resulting from increasingly severe negative effects emerging from the anthropogenic climate change.           

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A Labour Government Should not Frighten the Horses

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The UK general election is likely to mean changes, but Gulf citizens need not be too worried.

By James Drummond

If the tension was killing you, now you know. If it wasn’t, then be aware that a general election in the United Kingdom will be held on July 4 – less than six weeks away.

For the hapless Rishi Sunak, it looks like a case of “If it were done when ’tis done, then ’twere well it were done quickly.” Polls indicate that after 14 years of conservatism, real or imagined, voters are likely to elect a new Labour government.

What does this mean for us here in the Gulf?

The six Gulf states are certainly exposed to Britain. The extent of GCC holdings in the UK is enormous, ranging from Qatari ownership of the Shard building in London, stakes in the Sainsburys supermarket chain and Barclays bank, to Sheikh Mohammed bin Rashid’s Godolphin stables in Suffolk.

Manchester City and Newcastle United football clubs are owned by Emirati and Saudi interests, respectively. Kuwait’s wealth is managed by the Kuwait Investment Office near St Pauls Cathedral.

Labour has been careful to detail very few policies (or hostages to fortune, as its strategists may see it), but last week, David Lammy, the likely new foreign secretary, outlined a further campaign against dirty money.

Britain is a “corruption services centre”, while London is a “hotbed of kleptocracy”, Mr Lammy said. He said that he wanted to reward whistleblowers and clamp down on “enablers” of financial crime.

Given the paucity of public announcements, Lammy’s speech is significant, because it implies that the incoming government is likely to act. Fighting financial crime is relatively uncontroversial and attracts cross-party support – although in the UK’s case with limited success.

British politicians have made similarly grandiose statements before. But after Russia’s invasion of Ukraine, London has moved particularly against Russian dirty money, and sanctioned individuals. It finally introduced an obligation mandating the disclosure of beneficial owners of property.

Overseas trusts are also now required to disclose their ultimate beneficial owners, and there is now greater transparency when registering entities at Companies House.

This seems to have had only limited effect, however. Last week Andrew Mitchell, the deputy foreign secretary, cited estimates that 40 percent of the world’s dirty money still passes through London.

Spotlight on Corruption, a non-governmental organisation, wrote in October last year that “major reform is needed to how lawyers and accountants, the property sector and company formation agents are regulated for money laundering.” Lammy may choose to take further action against these and other professionals.

Other so-called enablers include retired politicians, some of them in the House of Lords, who work as advisors to unsavoury actors. Labour could move to tighten disclosure, although several of its senior former members are likely to lobby against further transparency.

It is also possible that Labour will go further in taxing expatriates. In its limited public commitments, the party has promised to clamp down on “tax dodgers”.

Those with property in the UK already pay tax on rental income they receive, and worldwide assets are subject to Britain’s inheritance tax. Some Gulf Arab families with UK property have been caught by inheritance tax.

A government led by Sir Keir Starmer, the Labour leader, could go further, as the US does, in taxing worldwide income of its citizens, more than 200,000 of whom live in the UAE alone. The argument is that if you have the privilege of carrying the passport, you have an obligation to pay tax.

Another question surrounds nationalisation. Labour is committed to re-nationalising the railways for one, although the infrastructure is already under central government control.

But another target may – may – be England’s water supply network, which was privatised in 1989. Shareholders in various of the rump companies include the Qatar Investment Authority and Adia of the UAE.

The water companies have been the subject of a vociferous campaign, for allegedly paying their shareholders high dividends while neglecting maintenance and investment. It is possible that an incoming Labour government will nationalise the industry.

All that said, the primacy of the rule of law and respect for property rights remain strong in Britain.

Barratt, a mass housebuilder, reported earlier this week that London remains the top choice among world cities for UAE investors looking to buy overseas. The holdings of Gulf states and rights of Gulf citizens in the UK remain secure, even with a Labour government.

James Drummond is Editor-in-Chief of the AGBi

Courtesy: The AGBI.Com


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Kuwait’s Political Crisis Adds to Economic Uncertainty

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Kuwait’s latest standoff is deeply concerning for both the near and long term, writes Andrew Cunningham

The decision by Kuwaiti emir Sheikh Mishal Al-Ahmad to dissolve the country’s recently elected parliament just days before its inaugural session on May 14 presents overseas investors and Kuwaiti citizens with more uncertainty.

The situation raises concerns about the country’s economic prospects over both the short and long term.

Disputes and stand-offs between Kuwait’s emirs and its boisterous parliament are nothing new. Parliament has been dissolved, and the constitution suspended, numerous times over the past 40 years. The country has held four elections in the past four years.

Squabbling between the two sides is rooted in political disagreements and this most recent outbreak is no different.

A major factor behind the latest dissolution is believed to have been parliament’s objection to Sheikh Mishal’s choice of crown prince. Although the crown prince is nominated by the emir, the appointment has to be ratified by the parliament.

But these political, and sometimes personal, disputes have real consequences for Kuwait’s economy and financial system and, ultimately, for the long-term welfare of its citizens.

Kuwait is a prosperous country. If we take a snapshot today, we see it producing nearly 2.5 million barrels of oil per day (bpd), and there are plans under way to increase production capacity to 4 million bpd by 2035.

State foreign reserves are around $930 billion, according to National Bank of Kuwait, the country’s largest bank. With a population of a little over 4 million, its GDP per capita is one of the highest in the world.

Squabbling between the two sides is rooted in political disagreements and this most recent outbreak is no different.

A major factor behind the latest dissolution is believed to have been parliament’s objection to Sheikh Mishal’s choice of crown prince. Although the crown prince is nominated by the emir, the appointment has to be ratified by the parliament.

But these political, and sometimes personal, disputes have real consequences for Kuwait’s economy and financial system and, ultimately, for the long-term welfare of its citizens.

Kuwait is a prosperous country. If we take a snapshot today, we see it producing nearly 2.5 million barrels of oil per day (bpd), and there are plans under way to increase production capacity to 4 million bpd by 2035.

State foreign reserves are around $930 billion, according to National Bank of Kuwait, the country’s largest bank. With a population of a little over 4 million, its GDP per capita is one of the highest in the world.

In March this year, rating agency Fitch described Kuwait’s fiscal and external balance sheets as among the strongest of any of the governments it rates.

But when we look at long-term trends, the picture is more complex and less secure.

Kuwaiti government spending remains overwhelmingly dependent on oil and gas revenues. The government has made almost no progress, over many decades, in diversifying the economy away from oil, or in reducing the huge burden of government salaries and welfare payments.

Oil and gas revenues currently account for nearly 70 percent of total income and, according to IMF projections, will continue to do so for the rest of the decade.

These revenues have served the country well in the past, despite the volatility of oil prices, but such overwhelming dependence looks foolhardy when consumers worldwide are striving to reduce consumption of oil and gas and investors and energy firms have pivoted towards renewables.

Nearly all of the Kuwaiti government’s non-oil and gas revenue arises from overseas investments and from dividends from state-owned companies. Tax revenues account for less than 1 percent of total government income.

Looking beyond the fiscal imperative to diversify the economy is the need to provide employment opportunities for Kuwaiti citizens.

No less than 84 percent of the Kuwaiti workforce was employed by the government at the end of 2022. It is hardly surprising that nearly half of government expenditure is allocated to the salaries of public employees.

Pressure for social spending will increase in the years ahead. A World Bank report, published last year, showed that levels of obesity and Type 2 diabetes were higher in Kuwait than in any of the other GCC countries and nearly double the average in OECD countries.

Partly as a result of this, the World Bank estimated that Kuwait’s old age dependency ratio – the number of people over 65 years old in relation to those of working age – will be nearly double that of its neighbours by 2040.

Kuwait is also a country that is being significantly affected, even today, by climate change. Temperatures during the summer can exceed 50 degrees, making Kuwait one of the hottest places on earth.

These are difficult and complex challenges, both economic and social, but they are hardly unique to Kuwait. That they are, in some cases, more acute in Kuwait than elsewhere is due to decades’ long procrastination and political paralysis.

The government’s General Reserve Fund, which held most of its liquid assets, was entirely depleted in September 2020, according to Kuwait’s own ministry of finance. With AA ratings, the obvious solution was to borrow money – Kuwait’s debt-to-GDP ratio is less than 5 percent. Yet the parliament has still not passed a so-called ‘Liquidity Law‘ that would allow modest issuance of foreign currency debt.

The parliament also held up the introduction of Value Added Tax (VAT), making Kuwait one of two of the six GCC countries not to fulfil a joint commitment to implement a minimum VAT of 5 percent.

Over the past four years, all three of the big international credit rating agencies have downgraded the government of Kuwait.

In their rating reports, all agencies cited a dysfunctional and slow-moving political environment that was reducing the country’s financial flexibility and delaying much needed economic and financial reform.

Politics matters.

It is unrealistic to think that after decades of enmity the ruling family and the parliament will soon form a harmonious working relationship.

But they do need to find some common ground that will enable them to start addressing fundamental economic and social issues while the country still has large financial reserves and strong credit ratings.

Time is running out.

Andrew Cunningham writes and consults on risk and governance in Middle East and sharia-compliant banking systems


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ICD and JSC Ziraat Bank Collaborate to Boost Uzbekistan’s Private Sector

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At the 3rd Tashkent Investment Forum, the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan took a significant step forward in their partnership to empower small and medium-sized enterprises (SMEs) and foster economic growth in Uzbekistan. The forum, held in the capital city of Uzbekistan, brought together key stakeholders from the public and private sectors to discuss investment opportunities and economic development strategies for the region. The collaboration between the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan is aimed at boosting the private sector in Uzbekistan.

During the forum, ICD and JSC Ziraat Bank Uzbekistan formalized an expression of intent to collaborate on various initiatives aimed at supporting SMEs. One of the key elements of this collaboration is the provision of a Line of Financing (LoF) facility by ICD to JSC Ziraat Bank Uzbekistan. This LoF facility will enable the bank to fund private sector projects as an agent of ICD, thereby providing SMEs with access to the necessary capital to initiate and grow their businesses.

The partnership between ICD and JSC Ziraat Bank Uzbekistan is expected to have a significant impact on the SME landscape in Uzbekistan. By equipping entrepreneurs with the resources they need to succeed, this collaboration will not only support the growth of individual businesses but also contribute to the overall economic development of the country. SMEs play a crucial role in driving economic growth, creating jobs, and fostering innovation, and this partnership will help strengthen the SME ecosystem in Uzbekistan.

JSC Ziraat Bank Uzbekistan, as a strategic partner for ICD, brings a wealth of experience and expertise to the table. As a prominent commercial bank with foreign capital, JSC Ziraat Bank Uzbekistan has a strong track record of supporting SMEs and promoting economic development. The bank’s partnership with ICD further underscores its commitment to advancing the private sector in Uzbekistan and its dedication to supporting the country’s economic growth.

ICD, for its part, is a leading multilateral development financial institution that focuses on supporting the economic development of its member countries through the provision of finance and advisory services to private sector enterprises. By partnering with JSC Ziraat Bank Uzbekistan, ICD is furthering its mission of promoting economic development and fostering entrepreneurship in Uzbekistan and across the Islamic world.

The LoF facility provided by ICD to JSC Ziraat Bank Uzbekistan is just one example of the many initiatives that the two entities are undertaking to support SMEs in Uzbekistan. In addition to providing financial support, the partnership between ICD and JSC Ziraat Bank Uzbekistan will also include capacity-building initiatives and technical assistance programs to help SMEs succeed in today’s competitive business environment.

Overall, the partnership between ICD and JSC Ziraat Bank Uzbekistan represents a significant step forward in supporting SMEs and fostering economic growth in Uzbekistan. By working together, these two institutions are helping to create a more vibrant and dynamic private sector in Uzbekistan, which will ultimately benefit the country’s economy and its people. The collaboration between the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan is expected to have a far-reaching impact on the private sector in Uzbekistan.


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