However, with the ongoing COVID-19 pandemic disrupting international travel and tourism, these remote countries have suffered greatly from the repercussions of a lack of tourism dollars being injected into their economies. 

According to the Organization for Economic Cooperation and Development, the usual percentage of gross domestic product, or GDP,  from tourism for developing countries is 5%; however, for SIDS, the average share stands at over 20%. This over-reliance on the tourism industry has proven to be a highly fragile aspect of the SIDS economy, as tourism numbers decreased drastically during the pandemic, and so did the revenue. 

The Maldives is an illustrative example of this phenomenon. According to the World Bank, the tourism industry accounts for about 25% of the small Indian Ocean country’s GDP. Combining this factor with the steep decline in tourism due to the pandemic — from around 1.7 million visitors in 2019 to approximately 560,000 in 2020, or about a 66% decline — the country’s GDP contracted an estimated 28% by the end of 2020. 

“As an economy heavily dependent on international tourism, the restrictions on global travel and other protective measures against the Covid-19 pandemic have had a significant impact on the Maldives,” President Ibrahim Mohamed Solih told CNBC in a March 2021 interview. 

The Maldives had to close its borders to foreign tourists from March to July of last year. Not only did this trigger the firing of thousands of workers, as tourism revenue quickly declined , but it also directly affected the cash flow of foreign currency that helped the Maldivian Government pay for imports.

According to the Michigan State University, around 60% of the Maldives’ foreign exchange receipts are acquired through foreign tourism spending. These funds are used to buy imports such as petroleum, building materials and around 90% of the country’s food supplies.

According to a recent United Nations Development Program report on the Maldives’ state during the pandemic cited that these imports were drastically affected by the decline in tourism and foreign money being exchanged and used in the country. The same report highlights how the country went from importing around $45 million worth of petroleum in January 2020 to only about less than $10 million by May of the same year. 

This drastic fall in imports, economic activity, employment and overall quality of life in the Maldives highlights how fragile the tourism industry can be if a country is overly reliant on it. As the industry depends on several foreign factors that SIDS, like the Maldives, have virtually no control over, they have found this pandemic to be a “wake up” call to start looking into economic and industry diversification efforts. 

In the Maldives, this led the government to develop diversification plans for investing more in education and youth programs, as well as investment in foreign markets and better worker preparation for Maldivian citizens to incorporate them into the workforce outside of tourism. 

Luckily for the Maldives, its government has managed to keep a steady path towards recovery. The Maldivian authorities managed to cut down on their government spending and swap their monetary arrangements with foreign government banks like the Reserve Bank of India for a value of $400 million. Although tourist numbers are still below average – with around 200,000 foreign visitors arriving at the small nation between January and February 2021, which only accounts for 42% of last year’s numbers during the same period – the country expects to have about 1,000,000 tourist arrivals in 2021, which would lead to an approximate 17% rise in GDP by the end of the year. 

Nonetheless, this ideal scenario that the Maldives has managed to achieve is not the de facto outcome for every SIDS county. Other small island nations around the world have not been as fortunate to have a big enough monetary reserve and quick tourism recovery, such as the Maldives. 

This is the case of Fiji. This Pacific island country depends heavily on the tourism industry, accounting for 40% of its GDP and being directly responsible for employing 150,000 people, or 17% of the population of 880 thousand people. 

According to the Reserve Bank of Fiji, the country’s GDP shrunk by about 21.7% by the end of 2020, highlighting the worst contraction in the nation’s history. This is mostly because the number of tourists who visited the country in 2020 was 75% lower than in 2019. Fijian Prime Minister Frank Bainimarama said that this also led to 115,000 Fijians, or one-third of the Fijian workforce to be laid off from jobs or have hour cuts due to the failing tourism industry. 

“You can’t suddenly work from home when you earn your paycheck as a scuba instructor, or as a handicraft maker who usually sells to tourists,” said Bainimarama in a press conference in July 2020. “With borders shut around the world, Fijian tourism has come to a halt. Many jobs have still not returned; some may never.”

However, he has a different approach regarding future recovery for his country’s economy. Based on a survey and report by the IFC, diversification might still be in the picture, with efforts to improve education and workforce training programs in sight. However, plans like these are yet to be made official. Ultimately, Bainimarama still sees the tourism industry as Fiji’s main, and arguably, only choice for total recovery. 

“When it comes to COVID, SIDS need resources, not regulations better suited to larger level markets,”  Bainimarama said. “Let’s find opportunity in this crisis, by recognizing how the international community can better support employers and employees who rely on the stewards of small island economies, like tourism, and target support accordingly.”

His primary approach is to increase resources for the country’s development and its tourism industry, rather than veer towards more globalized forms of growth such as the Maldives plans to do with foreign investments. With this current strategy, the Reserve Bank of Fiji estimates that the Fijian economy might return to  pre-pandemic levels until 2023 with a GDP increase of around 14% in 2021, as long as tourism starts to increase steadily to 2019 levels. 

The IFC survey report also highlights that regardless of some financial intervention from the Fijian government, around 74% of businesses surveyed expected to close within five months. This emphasizes how the government’s strategy, although reliable in the long term, has not provided much relief to the Fijian people. Moreover, the report also shows that if no diversification efforts are promptly implemented, the Fijian economy will remain vulnerable to other external factors such as climate change or other financial crashes.

Overall, these two countries pose two fairly different approaches towards economic recovery. While the Maldives has taken a more immediate diversification approach, Fiji — although potentially aiming to diversify, bets more on revitalizing- its tourism sector to regain economic normality. 

In this comparative analysis, it is important to highlight that although Fiji has 360,000 more people than the Maldives, both countries have comparable GDPs of around $5.5 billion each. This gives the Maldives the comparative advantage in GDP per capita, having around $10,600 per person, while Fiji has $6,200. 

This GDP to population ratio is one of the factors that has allowed the Maldives to have a smoother path to recovery, aided by the fact that they have taken more active monetary and fiscal policies to stabilize the economy. 

However, the long-term recovery effects are yet to be seen entering the second quarter and the summer. This will be one of the main challenges for all the SIDS worldwide as they scramble to return to their pre-pandemic tourism levels.

Although a major part of the success of each country’s recovery will ultimately depend on the state of Covid restrictions within it as well as within its main tourism providing countries, the influence of fiscal and monetary policy as well as leadership in creating a sustainable strategy for recovery cannot be ignored. 

Tourism is a very fragile industry, and through these two examples, it is clear that there can be different approaches to addressing its fragility. With very different kinds of SIDS around the world, from the very rich like Singapore to the small and humble like Tuvalu, each country will have to develop their own personalized approach to recovery. 

Nonetheless, the fact that diversification is one of the main goals for SIDS still remains, as they look to make their economy more resilient to possible threats such as global warming and tourism crashes like the one that the pandemic originated. 

The post The True Cost of COVID-19 on Tourism for Small Island Developing States appeared first on Glimpse from the Globe.

With relatively painless set up and easy-to-use interfaces, peer-to-peer payment networks become increasingly popular. After all, services like Zelle, Venmo and its parent company PayPal all enable the instant transfer of funds from one account to another. Money that once took days to move from one account to another now disburses in a matter of minutes. 

However, like many bi-products of the digital age, government regulation has not kept up with the high speed expansion of online payment networks. As a result, digital payment platforms create massive vulnerabilities in global financial systems. In some instances, P2P payment networks enable terrorism financing. In the United States in particular, consumers sacrifice financial security in favor of instantaneous economic transactions. In order to fully understand the destabilizing power of peer-to-peer payment networks, it’s important to first understand its relationship to classic money laundering techniques. 

The idea behind money laundering is relatively simple. Criminals and kleptocrats alike must find ways to disguise ill-begotten funds in order to use them openly on the market without arousing suspicion about their origin. Traditional money laundering schemes like the Black Market Peso Exchange allowed drug cartels in Columbia to launder over $5 billion worth of profits from drug sales in the United States every year. In order to convert drug profits from U.S. dollars to pesos the cartel concocted an intricate scheme involving drug money couriers, money launderers, electronics exporters and importers as well as money brokers. All of these actors worked together to enable drug cartel members to openly spend drug profits without any ramifications.

The scheme starts with on-the-ground cartel agents in cities like Miami that have millions of dollars’ worth of profits from illegal drug sales lying around. The agents then purchase millions of dollars’ worth of consumer electronics like laptops and computers under the guides that the products would be exported for sale abroad. The agent would pay for the products in U.S. dollars and then transport the exports to Columbia. The cartel converts their illicit U.S. dollars into pesos via offloading electronic products. The Columbian electronics importers pay the cartel for the products in pesos and in doing so avoid excessive currency conversion fees. The cartel manages to cleanse its profits of a criminal past and can now freely spend pesos on the free market. Electronic importers are just one example of industries used to launder U.S. dollars into Columbian pesos. The cartel also dealt with cigarettes, liquor, and dishwasher importers. 

The Black Market Peso Exchange represents just one of many run-of-the-mill money laundering schemes. Money laundering remains necessary for the continuation of criminal activity everywhere and so methods constantly evolve to stay ahead of law enforcement. Unlike money laundering of the old world order, today’s digital economy allows criminals to move money legally via thousands of small cash transfers rather than huge lump sums. Peer-to-peer payment providers enable widespread money laundering due to their relatively lax account creation requirements and lightning fast payment transfers. 

Although companies like PayPal explicitly forbid the use of its services for illegal financial transactions, in reality, the company has few means of enforcing such rules. This enforcement failure allows terrorist groups to move money in and out of countries in order to finance attacks. Consider the case of Mohamed Elshinawy, an American citizen who in 2015 was convicted of assisting ISIS coordinate a terrorist attack in the United States. Although the FBI arrested Elshinawy before the attack came to fruition, his ability to procure funding from ISIS via eBay and its payment partner PayPal speaks to the vulnerabilities of online payment methods. 

According to the FBI report, Elshinawy pretended to sell computer printers on eBay and, in return, received funds from ISIS for “operational purposes” via PayPal. Law enforcement intercepted Elshinawy before he could execute an attack, however, his experience points to glaring flaws in the digital financial system primarily the ways in which it promotes anonymity and reduces accountability. Elshinawy’s experience using PayPal is not a unique and similar terrorism financing schemes have been uncovered in places like Indonesia in 2017. 

Despite acknowledging the growing threat posed by digital asset exchange platforms in the documents like the“National Strategy for Combating Terrorist and Other-Illicit Financing” the government has done little to stop the expansion of digital payment platforms. Social norms broaden P2P range and visibility as consumers increasingly turn to apps like Venmo and PayPal for every day transactions. It then becomes more difficult for law enforcement and financial regulators to identify and uncover illegal activities. 

In short, if terrorism financing is the needle in a haystack, P2P platforms quadruple the size of the haystack. Even more alarming is the fact that there are no signs of digital payment trends slowing down. In 2020 alone the use of Venmo has increased by 52% compared to the same time last year. The coronavirus pandemic will only increase consumer dependency on digital payments as individuals and businesses seek contactless payment methods. 

The post Unorthodox Economics: Using PayPal to Finance Terrorism Worldwide appeared first on Glimpse from the Globe.

Despite negative environmental implications, many Southeast Asian countries have built their entire economies on the textile industry, catering mostly to fast fashion. Valued at $2.4 trillion and employing over 75 million people, Southeast Asia’s textile industry must adapt in order to weather the pandemic and reduce its impact on climate change. Implementing innovative and sustainable methods of production is critical to the future of Southeast Asian economies and the planet.  

To evade the costs of fair wages and high taxes, companies relocate production to countries such as Bangladesh and Vietnam, where environmental and labor regulations are more relaxed. Companies that constantly seek cheap labor and lax regulations have disastrous consequences for the environment, but have also laid the economic foundations for developing countries in Southeast Asia. Textiles make up 80% of Bangladesh’s total exports. Textile production hubs in Taiwan have also developed into higher value sectors, as these countries open up to foreign trade and adopt new technologies. The industry in Indonesia employs as many as 4 million workers. 

While fast fashion has industrialized many Southeast Asian countries, it has also promoted exploitation of a vulnerable workforce and the degradation of the environment. The 2013 collapse of the Rana Plaza factory in Bangladesh and the pollution of freshwater sources are only two out of a myriad reasons for why the industry must change. The Rana Plaza factory was constructed using substandard materials and disregard for building codes, which eventually killed over 1,000 garment workers. The bleaching and dyeing processes in textile production contaminate water with toxic chemicals, endangering aquatic life and poisoning sources of drinking water. 

Fast fashion’s model of production revolves around the notion of “stack-them-high, sell-them-cheap,” pumping out more garments as trends quickly die out. Clothing companies like Zara take only two weeks to transform sketches into garments. The disposable nature of fashion allows approximately 350,000 tons of clothing to crowd landfills in the UK alone, costing the economy over $1 billion. Research by environmental scientists has revealed that one garbage truck worth of clothing is incinerated or sent to landfills every second. The growing global middle class and GDP per capita has doubled fast fashion consumption within the last 15 years. Yet, garments are only worn for half as long. 

In addition to consumer waste, the textile industry’s manufacturing bases are remarkably destructive. The United Nations Framework Convention on Climate Change estimates that the industry is responsible for 10% of global greenhouse gas emissions, which they expect to increase to 25% in 2050. The production of one cotton shirt requires 2,700 litres of water, exceeding an individual’s water consumption over a two year span. The pesticides used to treat cotton fields pose a serious health threat to farmers, degrade soil quality and contaminate water. 150 million trees were demolished in 2018 to farm cellulose- and protein-based fibers used in textile production. Viscose fiber, in particular, is the major source of Indonesia’s deforestation. Fast fashion giants like H&M rely on this cheap and durable fiber, with its sourcing contributing to severe untreated water waste and excess levels of toxic carbon disulfide. The combination of polluted air and water and deforestation is lethal as the climate rapidly warms. 

Storefront closures and dwindling consumer confidence have plummeted fast fashion sales. In the wake of COVID-19, H&M reported a 46% sales decline in March. Bangladesh’s textile industry estimates a $10 billion loss in 2020 as Western retailers continue to cancel mass orders. Overall, ongoing textile manufacturing and a steep drop in consumer demand has led to extraordinary levels of textile waste. Experts worry that, as the economy gradually emerges from the pandemic, excess consumption will ensue, with consumers likely prioritizing affordability over sustainability. Attracting investments back into the Southeast Asian manufacturing bases will likely suspend crucial labor and environmental regulations. 

Pursuing sustainability requires raising consumer awareness and reshaping models of production. Although many name-and-shame campaigns have exposed brands like Nike for exploitative child labor, most consumers tend to neglect this issue due to lack of proximity. Heightened consumer awareness can pressure fast fashion brands to adopt sustainable practices. The slow fashion movement, coined by Kate Fletcher of the Centre for Sustainable Fashion, sets an excellent standard for modern consumerism by focusing on the craftsmanship of clothes, opting for more sustainably made garments. 

Shifting the mindsets of consumers is a challenge, but brands marketing new and sustainable practices can attract more demand. Perhaps the latest ‘trend’ can be sustainably made clothing. Normalizing second-hand clothing is necessary to reduce garment waste, as well as dispelling the misconception that purchasing second-hand is unhygienic or tacky. Brands like Rent the Runway have capitalized on the concept of leasing clothing instead of buying and trashing. 

The recent rampage of natural disasters in 2020 has hopefully enlightened consumers to the dangers of large coroporation’s greenhouse gas emissions. Unfortunately, costliness hinders measures to limit greenhouse gas emissions. To combat this, governments can offer brands certain tax incentives that push brands to provide fairer wages and adopt sustainable methods. Governments can also penalize companies who exceed carbon emission limits. The Asia Pacific Rayon (APR) factory in Indonesia is a great example of sustainably sourcing viscose fibers. Recognizing that viscous sourcing contributes to deforestation, APR has committed to sourcing this wood fiber from sustainably-run plantations. 

Moreover, technological innovation in the textile industry can reduce the quantity of garments produced. Computer processes can now calculate the demand of items, significantly shrinking overproduction. Companies must also adopt the circular economy’s four pillared business model: phasing out toxic chemicals and microfibre release, increasing clothing usage, revamping recycling, and effectively using resources and renewable input. Once companies implement these practices, they should market their sustainability commitments, drawing consumers to more ethical labels.  

Millions of lives depend on the fashion fashion industry’s economic base, yet billions of lives depend on the earth’s survival. Legislation coupled with consumer responsibility will transform the textile industry for the better. If the textile industry wishes to stay in business, the next big trend ought to be sustainably-made clothing. 

The post Sustainable Production Proves Vital in the Future of Asia’s Textile Industry appeared first on Glimpse from the Globe.