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by EOS Intelligence EOS Intelligence No Comments

Europe Fights Back to Curb China’s Dominance

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Given the swiftness of China’s economic development in the past three decades, transitioning from an impoverished and insular country to one of the formidable economic powers of the world, it has taken some time for Europe to accept China’s growing power and influence. Not only does China sit on largest currency reserves worldwide, but it has also become a significant provider of foreign investments, including in EU nations. This has recently strengthened China’s influence over the EU, which has created a sense of caution amidst European policymakers.

How is Europe benefiting from China’s growing investments?

Europe-bound Chinese investments were six times higher than Chinese investments in the USA – in H1 2018, Chinese investments in Europe stood at US$ 12 billion as compared to US$ 2 billion in the USA. For some of the economically struggling EU countries, Chinese investments are critical for developing and upgrading infrastructure, including energy plants, railways, motorways, and airports.

China’s Belt and Road initiative, under which cross-border infrastructure will be developed, will reduce transportation costs across Europe and China, creating an opportunity to facilitate trade expansion, regional integration, and attract foreign investments.

Besides infrastructure development, the investments are likely to create job opportunities and enhance economic competitiveness across Europe.

Then why is China’s growing influence alarming Europe?

Europe now sees a range of threats that China’s rising dominance in the region could bring along. Recently, the European Commission labelled China as economic competitor seeking technological leadership and systemic rival encouraging alternative models of governance. Europe realizes that China pursuits to shape globalization to suit its own interests.

The EU is deeply concerned regarding China exercising divide and rule tactics to strengthen its relationship with individual member countries that are susceptible to pressure, which could eventually harm the European cohesion. Recently, Italy signed the Belt and Road initiative, a landmark move against the counsel of western European nations, such as France and Germany, thus, raising questions on cohesion of EU countries.

The other concern is China’s rising influence over key governments of EU nations, thus, empowering itself with political leverage across the continent. China has already yielded political returns by wearying EU unity, particularly, when it is related to European policy on international law and human rights. In 2017, Hungary broke EU’s consensus by refusing to sign letter on human right violation against China. During the same year, Greece blocked an EU statement, which condemned China’s human rights record, at the UN human rights council.

Besides politics, China has also spread wings across key sectors of economy such as infrastructure, high-end manufacturing (including critical segments such as electronics, semiconductors, automotive, etc.), and consumer services, among others – growing dominance of China across these sectors is another cause of worry for the EU.

Europe also condemns China’s discrimination against foreign businesses, rendering limited market access to European firms and employing a non-transparent bidding processes. European firms operating in China face several trade and investment barriers such as joint venture obligations and discriminatory technical requirements that entail forced data localization and technology transfers. On the other, European markets have been open to foreign investments leading to massive Chinese FDI. However, lack of reciprocity harms European interest and could lead to unfulfilled EU-China trade ties.

The EU also criticizes China’s Belt and Road project for its lack of respect for labor, environment, and human rights standards. Other concerns include non-transparent procurement procedures with majority of contracts being awarded to Chinese companies without issuing public tenders, meagre use of domestic labor and limited contractor participation from host country, and use of construction materials from China – all of which undermine Europe’s interests.

Europe Fights Back to Curb China’s Dominance

How is Europe responding to China’s actions?

Europe is adopting strategies to limit China’s influence and reach across Europe and beyond, in African and Pacific countries.

Development of EU-Asia Connectivity Strategy

The EU’s new initiative, EU-Asia Connectivity Strategy, is an implicit response to China’s Belt and Road initiative, signifying a crucial first step to promoting European priorities and interests in terms of connectivity. The initiative aims to improve connectivity between Europe and Asia through transport, digital, and energy networks, and simultaneously promote environmental and labor standards.

The EU’s initiative emphasizes sustainability, respect for labor rights, and not creating political or financial dependencies for the countries.

Robust FDI screening process

European nations have been increasingly alarmed due to state-owned Chinese companies acquiring too much control of critical technologies and sensitive infrastructure in the continent, while China shields its own economy.

For the same reason, EU parliament is developing an EU-level screening tool to vet foreign investments on grounds of security to protect strategic sectors and Europe’s interests. The regulation will protect key sectors such as energy, transport, communication, data, space, technology, and finance.

While the EU still remains open to FDI, the regulation will protect its essential interests. Nonetheless, stringent investment screening procedures are likely to limit foreign investments in the continent, particularly from China.

Tackling security threat posed by China

In March 2019, the EU Parliament passed resolution asking European institutions and member countries to take action on security threats arising from China’s rapidly rising technological presence in the continent.

The resolution is likely to impact the ongoing debate of whether to eliminate China’s Huawei Technologies from building European 5G networks. The EU is concerned that the Chinese 5G equipment could be used to access unauthorized data or sabotage critical infrastructure and communication systems in the continent.

To minimize dependence on Chinese technology firms (such as Huawei Technologies), EU countries would need to diversify procurement from different vendors or introduce multi-phase procurement processes.

EU countries expanding footprint to counter China’s reach

Since 2011, China has invested US$ 1.3 billion in concessionary loans and gifts across the Pacific region, and has established its supremacy by becoming the second largest donor. China has been trying to build its influence, as the Pacific is bestowed with vast expanse of resource-rich ocean and the regional countries have voting rights at international forums such as the United Nations.

To counter China’s reach and ambitions across the Pacific countries, European nations such as the UK and France plan to open new embassies, increase staffing levels, and engage with leaders in the region. The UK plans to open new high commissions in Vanuatu, Tonga, and Samoa by the end of May 2019 and France is looking to meet and engage with Pacific leaders during the year.

Investment in Africa to limit China’s influence

As a strategy to curb China’s growing influence, the EU plans to deepen ties with Africa by boosting investment, creating jobs, and strengthening economic relations. The plan is to create 10 million jobs in Africa over the next five years. Europe is also aiming to establish free trade agreement between the two continents.

In recent times, China has been blamed of neo-colonial approach towards Africa, which is aimed at emptying the continent of its raw mineral in exchange for inexpensive loans, extensive but inferior infrastructure, among others. Europe aims to curb such influence by attempting to do business ethically. 

EOS Perspective

Unnerved by flurry of Chinese investments in the continent, the EU is looking to regain its control over matters. Europe has adopted a defensive approach against China’s initiatives, reflected through measures taken to protect critical sectors using investment screening system. The EU understands the downsides of enormous Chinese investments/loans, which may seem hugely enticing in the beginning, but could saddle vulnerable countries in debt they cannot repay – for example, a Chinese-built highway in Montenegro is likely to increase the country’s debt to about 80% of its GDP.

Currently, the key issue is the fact that Europe is standing divided on the right strategy to respond to bolder and ambitious China. While countries such as Germany, France, and UK have grown skeptical of China and are revolting against it, Italy, Hungary, Portugal, Greece, among others, are generally China-friendly. Europe has certainly become stern and tougher on China, but cannot pursue its interests without standing united.

The current situation does not demand Europe opposing China outright, but rather ensuring fair business conditions and equal market access through dialogue and cooperation with China.

Nonetheless, the EU has been quite slow to wake up to the various challenges that excessively ambitious China brings to the table. However, if Europe is able to become united now, there is still a chance to build a decent Sino-European partnership that serves interests of both parties.

by EOS Intelligence EOS Intelligence No Comments

China’s Investments in CEE: Sharing Benefits or Building Own Dominance?

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In 2012, China unveiled its plan to invest in Central and Eastern European Countries (CEECs) through transregional platform called the 16+1 Cooperation framework. Since the launch of this framework, China has been proposing various policies of mutual benefit, making efforts to become an important trade and economic partner of the CEECs.  While investments are welcome, several EU leaders and political experts in the region criticize such deals. They point at a threat of China’s growing dominance in the CEECs, as well as at China not keeping its promises made during the launch of this framework and negotiations of various deals.

China promises mutual benefits

The 2008 crisis brought worsened economic conditions to the CEECs, which have since been seeking capital to stimulate investment and facilitate higher economic growth, along with expanding exports beyond traditional European destinations.

Owing to China’s position as one of the largest economic power houses and due to the CEECs’ high trade deficit with China, the countries in this region showed interest in Chinese investments and opened their doors for potential avenues to increase trade with China. China too has looked for diversifying its export destinations and expanding its brands internationally, and CEECs could help it achieve just that. Chinese motivation to focus on CEECs has been fueled by two key factors: availability of skilled and cheaper workforce in CEECs (as compared to EU average) as well as China’s desire to gain stronger strategic influence in business and politics arena in the region as against the EU and Russia.

In this mutual interest, China and the 16 countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia) signed a framework named 16+1 Cooperation in Warsaw in 2012. At the outset, this framework aimed at deepening the multi-lateral economic ties, intensifying infrastructural and cultural cooperation, and capitalizing on the emerging business opportunities for both China and the CEECs.

The scope of cooperation was set to cover projects in CEECs’ infrastructure through investing in transportation systems by establishing new rail routes connecting the 16 countries with other parts of the world (Asia, Africa, and Middle East). China also intended to focus on capitalizing on green technologies, expanding export and import of goods, bringing new technologies for manufacturing sector, enhancing exchange programs for science, architecture, literature etc., and improving cross-cultural relations with the 16 countries.

Framework institutionalization raises a few eyebrows

In order to execute all the cooperation plans, the institutionalization of this framework in the CEECs became the first task to accomplish. It began with launch of Permanent Secretariat at the Chinese Foreign Ministry in China in 2012, followed by opening of Business Council in Poland (2014), Secretariat of Investment Promotion in Poland (2014), New Silk Road Institute in Czech Republic (2015), Center for Dialogue and Cooperation on Energy Projects in Romania (2016), Regional Center of the China National Tourism Administration in Hungary (2016), Coordination Mechanism on Forestry Cooperation in Slovenia (2016), Association for the Promotion of Agricultural Cooperation in Bulgaria (2017), China-CEE Institute in Hungary (2017), and few more.

Such institutionalization in the form of CEECs national coordinators, establishment of several secretariats, and a number of associations and industry organizations for individual states, became a crucial step towards enhanced political and economic relations of China and CEECs, and paved the way for further projects.

On the other hand, however, it left room for criticism. Some organizations, such as Institute for Security and Development Policy, Sweden, pointed out that establishing these institutions in a scattered rather than centralized way will deeply affect proper coordination and flow of information about all projects and initiatives within the framework.

Other voices of criticism, mostly from EU diplomats, warned about the fact that these institutions will limit accessibility to the information for the public. These institutions tend to work in line with the Chinese culture which differs greatly from cultural norms in European (and thus CEECs) organizations. In CEECs’ political culture (prevalent to various degrees across the European region), institutions are expected to actively and symmetrically communicate information to the public, providing room for public criticism and ensuring transparent procedures.

However, in Chinese political culture, public consultation and individual opinion are not given such importance. This leaves many EU leaders to ponder whether China’s intentions are to actually enhance the Sino-CEECs relations or to grow its dominance over the CEECs and act as it pleases behind the veil of its own culture providing an excuse for limited transparency.

OBOR and 16+1 framework go hand in hand

One of China’s major initiatives (and perhaps the only one so far considered to bring real benefit for both sides) is the One Belt, One Road (OBOR) project, launched in 2013 (we wrote about it in our article OBOR – What’s in Store for Multinational Companies? in July 2017). Under this project, China is ambitiously investing in developing one road connectivity, and this plan includes connecting the 16 CEECs with Asia, Africa, and Middle East. According to National Development and Reform Commission of China, Chinese investment in OBOR is likely to reach anywhere between US$120 billion and US$130 billion and with the external investments, it is expected to be totaling to US$600-800 billion by 2022. The success of OBOR is likely to impact the economies of CEECs though increased trade not only with China but also with other countries in Asian Pacific region.

China’s Investment in CEE Sharing Benefits or Building Own Dominance

The Balkans remain important in China’s plans

As part of OBOR, China has increased investment in infrastructure development in CEECs countries, with the initial focus on a few Balkan projects, especially in Serbia, with which China have always had excellent bilateral relations. The country appears to be the central hub in the Balkans for OBOR, both at an infrastructural and political level.

China started with a couple of agreements for infrastructure development with Serbia. These included China’s first large infrastructure investment in the region – construction of “Mihajlo Pupin”, the second bridge over Danube River in Belgrade in 2014 by China Road and Bridge Corporation (CBRC). The bridge shortened the travel time between Zemun on the south bank and Borca on the north bank of the Danube River from more than an hour to just 10 minutes. It also considerably reduced traffic problem on the first bridge. The project was received well by Serbia and taken as a good sign of China’s efforts to strengthen relations between the two countries.

China and Serbia came together for three more deals under the 16+1 framework, leading to total Chinese investment of nearly US$1.06 billion. These included US$715 million for construction of Kostelac power generation unit and expansion of coal-fired plant complex started in 2013, another US$350 million for re-construction of 34.5 km long segment of Belgrade-Budapest railway line, started in 2014, and undisclosed-value project of construction of Surcin-Obrenovac segment on Serbia’s E763 highway developed by China Communication Construction Company (CCCC) in 2017. All the three projects are likely to be completed by 2020.

Another flagship project, which involved Serbia and Hungary, was the construction of China-Europe land-sea fast intermodal transport route that was initiated in 2014 and became operational in 2017. With these infrastructural developments, China showed it delivered on its promises, and took steps to facilitate an enhanced exchange of goods with the CEECs.

Asymmetrical distribution of opportunities also causes criticism

The fact that all these projects were developed predominantly by Chinese firms, has been a cause for concern for western European leaders who criticized Chinese companies for seizing all opportunities and profits. The critics point out that if China and CEECs are coming together for such projects, the local companies should be able to benefit and be given opportunity to contribute skillset and technologies to local infrastructure development.

On the other hand, according to numerous experts, several countries, including Serbia, lack the technical and financial capacity required for such projects. China’s perspective should also be considered here – as China is already investing in the CEECs in the development of infrastructure, it is only logical (and natural) that it would prefer to engage own firms in order to help their business and take back some revenue from the projects.

China strengthens its foothold through financing initiatives

Chinese investments in CEECs are not only limited to the infrastructure sector, but also include certain financing initiatives in the form of availability of loans and funds. During the launch of 16+1 Cooperation framework, China announced a special credit of US$10 billion to the 16 countries to be used as preferential loans for implementation of common projects. Apart from that, in 2013, China together with CEECs launched a Sino-CEE investment fund of US$435 million, which aims at contributing financially to the sustainable economic development of CEECs.

Further, various banks and financial institutions, such as Bank of China, China Development Bank, China Export-Import Bank, and Industrial and Commercial Bank, have opened their branches in the region. While the official reason for this was to provide financial support and availability of funds to the CEECs, a relevant reason was also for China to expand the reach of these financial institutions’ brands in the European market.

Chinese investments grow in size and breadth

It is clear that China’s interest in CEECs has been growing, as exhibited through the sectoral breadth of investment initiatives and the variety of investment modes. Chinese companies are also pursuing the path of acquisitions and joint ventures with CEECs-based companies, the key example of which was seen in 2016, when Polish waste management firm, NOVAGO, was acquired by China Everbright International (Hong Kong). The deal was signed up at a value of US$144.3 million and was one of the largest acquisitions by a Chinese firm in the environment sector in CEECs.

While it is expected that such acquisitions can certainly bring benefits to the local entities involved in the deal (through capital and technology transfers, and easier access to the Chinese market), some concerns have been raised that an intensive Chinese-dominated M&A activity is not healthy for the local market dynamics.

The extent of these investments and acquisitions resulted in year-on-year increase in China’s outward foreign direct investment (OFDI) stock in the 16 countries. According to data from the Chinese Ministry of Commerce, the OFDI stock in 2010 in CEECs was estimated at US$0.85 billion and it reached US$1.97 billion in 2015, depicting an overall increase of around 130% in five-year period. Overall, Hungary was the leading recipient of FDI in CEE region with US$571.1 million, followed by Romania with US$364.8 million, and Poland with US$352.1 million in 2015.

The increased FDI in these countries is partially also a result of their interest in attracting Chinese investments even before the 16+1 cooperation framework came into picture. Poland, for example, being the largest economy amongst CEECs, started promoting itself with Chinese firms since the EXPO 2010 in Shanghai. For long, Hungary seems to have made a point to maintain good relations with China, even before other CEECs intensified multilateral relations with China. Hungarian government also made efforts to attract FDI, including from China, by proposing deals such as introduction of special incentives for foreign investors from outside EU or residence visa programs for bringing in a certain level of investment in Hungary.

Trade intensifies, though less than expected

Not only has there been growth in Chinese FDI since the yearly 2010s, but also the trade between China and the CEECs has grown progressively. According to Department of European Affairs at China’s Ministry of Commerce, trade between CEECs and China was estimated at US$43.9 billion in 2010 and grew to US$68.0 billion in 2017, showing a growth at a CAGR of 6.5% during 2010-2017.

While this might seem impressive, it must be noted that at the time of the launch of 16+1 cooperation framework, China promised to increase the trade value to US$100 billion by the end of 2015, which is far from the actual results even by the end of 2017. This again led to the criticism by the western European leaders over China’s ability (and willingness) to deliver on its promises, indicating lack of credibility in Chinese assurances.

On the other hand, the numbers do depict growth in trade between China and CEECs from 2010 to 2017 as compared to the previous years. According to Chinese Ministry of Commerce, China exports to CEECs were US$49.4 billion and imports from CEECs were US$18.5 billion in 2017, with an increase of 13.1% and 24%, respectively, from 2016. China’s exports to CEE concentrate on technology (with high-tech products from telecommunication, service sectors, and e-commerce sectors). CEECs supply agricultural products including fruit, wine, meat, and dairy products to meet the growing demand of the large population of China. Further interest in expanding imports of agricultural and dairy products by China can be expected, and an increased ease of exporting to China is likely to help CEECs to reduce their continued trade deficit in the coming years.

EOS Perspective

The rising investments of China in the CEECs have been under scrutiny since formalizing the 16+1 cooperation framework in 2012. Ever since the launch, China has been taking a range of initiatives that on the one hand worked towards development of the CEECs, but on the other hand gradually built its dominance in various markets and sectors in the region.

It is clear that such steps are taken by China in order to strengthen its political and economic foothold in the region. European leaders continue to remain skeptical over the intentions of China, which might also indicate the EU’s insecurity about China capturing strong hold over CEECs markets and building its dominance, which potentially might be able to overpower the EU’s influence in the region (especially in the Balkans out of which several countries are not EU members).

From the development point of view, initiatives such as OBOR, China-Europe sea-land express way, Belgrade and Budapest railway line, and even the mergers and acquisition deals, certainly bring advantages not only for China but for the CEECs as well, through much needed funding of infrastructure projects as well as through increased trade revenue.

Although it is of paramount importance for European watchdogs to keep an eye on the ongoing trade imbalance and growing Chinese ownership in CEE enterprises, it must be noted that acquisitions of CEECs-based firms by Chinese firms have largely affected the business in a positive way till now, thanks to influx of capital and the possibility to get the base to expand in Asian markets. Under this framework, despite its inherent issues and associated risks, steps taken by China for future development in the form of ongoing projects, especially in the infrastructure sector, have the potential to create more opportunities for the parties involved to strengthen cross-regional trade and hence create a (almost equal) win-win situation for both China and the CEECs.

by EOS Intelligence EOS Intelligence No Comments

Zambia Government’s Pro-tourism Steps to Take the Sector to New Heights

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Zambia, like many other African countries, has struggled with the image of being underdeveloped, poor, and unsafe, a perception which has kept foreign travelers at bay. While these aspects do remain true to some extent, the Zambian government has initiated efforts to rebrand Zambia’s image as an attractive tourist destination. To this effect, the government is working on improving the country’s infrastructure as well as increasing marketing efforts to position Zambia as a premiere tourist destination to the world. With the right investments and policies, Zambia has the potential to become a popular tourist place within Africa, giving stiff competition to its neighbors, such as Zimbabwe, and to Africa’s key tourist destinations, such as Kenya. This goal might be achievable, considering that in addition to having a wide range of national parks and game reserves, Zambia is home to Victoria Falls (shared with Zimbabwe), one of the seven natural wonders of the world and a UNESCO Heritage Site.

Previously neglected tourism industry to receive a new push

While Victoria Falls remains Zambia’s most unique attraction, Zambia seems to have more on its tourist offer. The country boasts of around 23 million hectares of land being dedicated to diverse wildlife, in the form of 20 national parks and 34 game management areas (GMAs).

In addition, it is rich in other natural resources and tourist attractions such as waterfalls, lakes, woodlands, several museums, and rich and diverse culture, which gives tourists a taste of the land through many traditional ceremonies and festivals.

Despite all of this, tourism has never flourished in the country, although this might change now, as the government launched a National Tourism Policy 2015, aiming at positioning Zambia among the top five African tourist destinations of choice by 2030. The initiative is hoped to bring increased revenues from tourism needed by Zambia to improve its economic diversification, as the country has largely been dependent on revenues from copper mining and agriculture, a model only moderately sustainable at best.

The government has undertaken multi-pronged approach to put Zambia’s tourism on the map

Regions prioritization

In order to achieve this, the government is prioritizing two major regions, namely Livingstone (which provides access to Victoria Falls) and the Northern Circuit, situated in the Southern and Northern Provinces of Zambia, respectively. It is for this purpose that the government has opened up investments in the Northern Circuit region that encompasses the David Livingstone memorial in Chitambo, Kasanka National Park, beaches at Banguelu, Kasaba Bay, Lumangwe, and Kabweluma Falls, among other key tourism sites.

Appointment of investments facilitator

Industrial Development Corporation (IDC), a state-owned investment company undertaking the government’s commercial investments has assumed the job of facilitating long-term financing of several projects that will help boost tourism, in addition to acting as a co-investor alongside private investors in the sector.

Establishing of tourism development fund

The government has taken several other measures under the Tourism and Hospitality Act 2015 to provide the needed push to its tourism sector. It has established a tourism development fund, a special fund for the sole purpose of developing and funding the various spheres of the sector. To support this fund, in March 2017, the government introduced Tourism Levy, a tourist tax charged at 1.5% of a tourist’s (both domestic and international) total bill in respect to accommodation and tourist events. As per Zambia’s Ministry of Tourism and Arts (MoTA), the tourism fund collection through this tax equaled US$338,885 (K3.4 million) as of 31 August 2017.

An increased tourism marketing budget to the Zambia Tourism Agency (ZTA) for 2018 has been allocated to promote Zambia as a prime tourist destination. In April 2018, the ZTA hosted the Zambia Travel Expo (ZATEX), a tourism fair, which is one of the most important marketing platforms for Zambia’s tourism products. The fair hosted close to 60 international buyers (including both trade and media) from Southern and East Africa, the UK, Germany, the USA, China, France, India, and several other countries.

Hotels grading and licensing

In addition, the ZTA, which acts as the tourism industry regulator in Zambia, has taken up the task of licensing and grading hotels and other accommodation facilities in order to promote efficient service delivery and maintain a certain minimum standard in the tourism sector.

Under its 2018 National Budget, the government is also working on reducing bureaucracy and the cost of doing business in the tourism sector. To achieve this, the government, along with the Business Regulatory Review Agency, is expected to establish a Single Licensing System, which will act as a one-stop shop for obtaining a tourism license.

Quest to re-launch national airlines

Apart from investments and efforts to enhance efficiency and quality of ground infrastructure (such as accommodation facilities), the government has also announced the launch of national airlines, which were expected to commence operations in 2018 (later pushed to unspecified date in early 2019, hurdled by Zambia’s difficult fiscal position). The airline, a strategic partnership between the Zambian government and Ethiopian Airlines, was to have an estimated first year budget of about US$30 million.

Infrastructure investments

In similar lines to the Tourism and Hospitality Act 2015, Zambia’s 7th National Development Plan (NDP) (2017-2021) also outlines several key strategies and measures to boost tourism sector growth. Under the NDP, the MoTA (along with other sectors and ministries) aims at developing and upgrading several roads, bridges, and air-strips that interlink and ease access to the main wildlife reserves and other tourist destinations across the Northern and Southern Circuits. The NDP allocated US$870 million (K8.7 billion) towards road infrastructure development that is pertinent to growth in the tourism sector, such as the Link Zambia 8000, the C400, and the L400 projects.

In addition to this, the NDP allocated about US$94.7 million (K950.5 million) towards the construction of the Kenneth Kaunda and Copperbelt International airports. These airports, once established, are expected to position Zambia as a regional transport hub and in turn uplift tourism.

Furthermore, the government intends to develop requisite infrastructure with the aim to facilitate an increased length of stay, rehabilitate heritage sites, and strengthen wildlife protection.

Ensuring viability of wildlife tourism

The authorities have also realized the importance of rehabilitation and restocking of the country’s wildlife parks, where wildlife population has declined to levels that make it non-viable for safaris and photographic tourism. To achieve this, the government is looking into establishing strict anti-poaching rules and is exploring various public-private partnership models to aid conservation and develop national parks.

Development of non-traditional modes of tourism

To boost further awareness about Zambia’s tourism, the government aims to develop and promote ethno-tourism through events such as the Pamodzi Carnival, which showcase Zambia’s rich art and culture. Developing non-traditional modes of tourism, such as green tourism (covering eco- and agro-tourism), sports tourism, etc., is also on the agenda.

Boosting domestic private and business tourism

The government is also undertaking efforts to boost domestic tourism, by engaging and marketing to the Zambian middle class population. This will help open another revenue avenue for tourism, as local populations are likely to be easier to encourage and fuel the sector growth while Zambia’s international brand is still being developed.

Similarly, the government is also encouraging business tourism by turning several large cities, such as Livingstone and Lusaka, into premiere conference destinations. There is a huge untapped potential in the conference category that will help attract a host of domestic as well as bit of international business-based tourism to the region. In April 2017, the Zambia Institute of Chartered Accountancy (ZICA) bought 102 hectares of land in Livingstone to set up a 5,000-seat convention center, 10 presidential VIP villas, and an international-standard golf course at a cost of US$350 million. This will be the first international convention center of this scale in Zambia.

Zambia is also the host country of the African Union Heads of State and Government Summit 2022. The Ministry of Housing and Infrastructure Development is undertaking the construction of a 2,500-capacity international conference center in Lusaka, which will be the venue for the summit. The government has garnered support from the Chinese government to help construct the center.

 

Zambia Government’s Pro-Tourism Steps to Take the Sector to New Heights

The initiatives start to show modest results

In-bound international tourism on the rise

All these efforts have yielded visible results in the last couple of years and are expected to boost tourism in the future as well. This can be seen in the number of international tourists entering Zambia. While the number of international tourists visiting Zambia remained largely stagnant between 2011 and 2015 (registering a CAGR of only about 0.3%), the government’s initiatives brought an increased influx of tourists, estimated to have reached 1,057,000 by the end of 2018, in comparison with 931,782 in 2015 (registering a CAGR of about 4.3% during the period). International tourist figures are further expected to reach 1,585,000 by 2028, maintaining a CAGR of about 4.1%.

A nudge to the industry job creation

A similar trend is also visible in job creation in the tourism sector (both direct and indirect). In 2016, about 306,000 people worked in the tourism sector (including indirect jobs supported by the industry). Employment in the sector increased by about 2.5% in 2017 and was expected to further rise by 3.4% in 2018 to reach 324,500 jobs. The number of jobs created by the tourism sector is expected to increase to 448,000 by 2028, registering a CAGR of 3.3% during 2018-2028.

Early signs of increased contribution to the GDP

The total contribution of the travel and tourism sector (encompassing both direct and indirect contribution) to Zambia’s GDP was about US$1.79 billion in 2017, rising from US$1.4 billion in 2016. The sector’s contribution to the GDP is further estimated to rise to reach about US$1.87 in 2018 and is expected to reach US$2.9 billion by 2028 (accounting for 7.1% of total GDP).

Sprouting opportunities for investors

The government’s efforts and increasing tourist numbers also result in significant opportunity for investors to enter this sector. A large number of global hotel brands, such as Carlson Rezidor Hotel Group (Radisson), Marriott, Accor Hotels, South Africa’s Southern Sun, Protea Hotels and Sun International, as well as Taj Hotels, have already established presence in the country.

However, further scope for growth in the accommodation sector remains, especially in the 3-5 star category hotels that have 50-500 beds. As per African Hotel Report 2015, Zambia ranked as the 2nd best destination for Hotel Developers in Africa in 2015. During the same year, Zambia had a supply of 122 branded bedrooms per million population. This was well below the average in the Southern African region of about 350 branded bedrooms per million population.

Further scope exists in the development of conference facilities, tourist transport services, global cuisine restaurants, communication facilities, and other supporting infrastructure.

Investment opportunities are also present in the development of gaming venues, considering that gambling is legal in Zambia. This could help build a unique tourism offer that would combine city life and wildlife activities.

Investors are likely to find several reasons to consider investment in the country. Zambia offers easy access to a pool of English-speaking work force at competitive costs. The country has one of the lowest power tariff rates in Africa. Even after a 75% increase in power rates in 2017 (now ranging between US$0.05 and US$0.07), they are still much lower than rates in other countries in the region (where they range between US$0.06 and US$0.11 per kWh). Zambia is also well endowed with abundant water resources, which is essential to the tourism industry (as per World Bank, Zambia’s internal freshwater resource per capita was estimated at about 5,134m3, much higher than in its neighboring countries – Kenya (450m3), Zimbabwe (796m3), Botswana (1,107m3), Namibia (2,598m3), and Mozambique (3,686m3)).

Tourist safety and complex legislation hamper growth of the industry

While Zambia seems to have all the right ingredients to become a popular travel destination, there are several challenges that exist.

The key challenge is tourist safety. Zambia’s reputation has for long been affected by cases of tourists being targeted in financial scams or other types of crimes such as theft, murder, rape, etc. Continuous and consistent efforts to minimize such risks are essential to change the situation, which, apart from greater police involvement and law enforcement, should also include marketing campaigns voicing the benefits of tourism in the country to the local population.

Another challenge that the government must deal with is the level of bureaucracy and excessive number of laws governing various aspects of the tourism operations. Currently, some 10 pieces of legislation that affect tourism business are in force, most of which need to be simplified and harmonized, and in doing this, the government should use input from the local industry players.

The excessiveness in regulations is also paired with magnitude of charges and levies added on many activities, resulting in higher retail pricing. These include 16% VAT, 10% service charge on accommodation, food and beverage, and conferencing, 1.5% tourism levy, and 0.5% skills levy in addition to other levies, such as business levy, fire, health permit, food handling, etc. This leads to Zambian hotels being more expensive than hotels in neighboring countries. A prime example of this is found in Victoria Falls – Zambian tourism offer in Victoria Falls remains largely uncompetitive with regards to price in comparison to the offer on the Zimbabwe side of this major attraction.

EOS Perspective

With the ongoing government support along with growing interest in African wildlife holidays, Zambia has all the ingredients to emerge as a popular tourist destination in the future. China could be one of the key target markets for Zambia, as a large number of financially-capable Chinese tourists have shown keen interest in travelling deep into Africa. Zambia should also bet on business travel and conferences (both domestic and international) to form another lucrative revenue streams.

While efforts to boost tourism are being made in the right direction, with somewhat visible results, revamping such a long-neglected industry will take more than that. Ensuring the safety of the travelers is an objective that should remain on top of the government’s priorities list.

Further, it appears that some forms of tourism have been marginalized in the government’s focus areas, but should probably receive more attention in the long-term plans. Despite the fact that Zambia has about 35% of South African Development Community’s (SADC) water resources, little emphasis has been put on marine tourism development in the form of boat cruises (on lakes), fishing, etc. Similarly, considering the country’s rich wildlife and natural reserves, education tourism seems like an obvious segment to offer a great potential.

It appears that the required will and leadership from the government are in place to change the industry. However, Zambia’s current fiscal struggles (as it is coping with rapidly increasing debt and implementing austerity measures) might limit the resources needed to realize the plans and ambitions. This might lead to lost opportunities (much needed in this agriculture and copper mining reliant economy), as Zambia has the potential of becoming a popular travel destination, giving stiff competition to its neighboring popular travel destinations, Zimbabwe and Kenya.

by EOS Intelligence EOS Intelligence No Comments

Bharatmala – A Game Changer for Indian Logistics?

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Due to its poor logistics infrastructure, bureaucratic bottlenecks, and heavy reliance on roads, India has long suffered from high logistics costs. This has significantly impacted its global trade competitiveness. To address these challenges, the Modi government, in 2015, launched Bharatmala Pariyojana, a flagship project that aims to transform India’s logistics infrastructure. We are taking a look at the key aspects of Bharatmala to assess whether the project has a chance to be the game changer for Indian logistics industry.

India has been long known for its inefficient logistics and freight management. The current freight modal mix is highly skewed towards roadways, which account for over 60% of the total goods transported. This signals under-utilization of cost-effective transport modes such as railways and waterways. India has therefore one of the highest logistics cost, standing at around 14% of its GDP against the average of 6-8% in many other countries.

High logistics costs are caused primarily by poor transport infrastructure and bureaucratic bottlenecks. As per The Associated Chambers of Commerce & Industry of India (ASSOCHAM) estimates, India could save US$50 billion just by reducing its logistics costs down to 9% of its GDP. To achieve this, there is an imminent need for an integrated logistics and transport policy that can bring down the overall logistics cost by addressing the present infrastructure and legislative challenges. The Modi administration has realized this and therefore strong impetus has been given to improve the nation’s logistics infrastructure.

India has one of the highest logistics cost, standing at around 14% of its GDP against the average of 6-8% in many other countries.

To improve India’s logistics and trade competitiveness, the government, in 2015, launched its ambitious Bharatmala Pariyojana, an umbrella of programs that aim to bridge the current infrastructure deficiencies through corridor-based development across the nation. This in turn is expected to result in faster movement of goods and in a boost of national as well as international trade while reducing logistics costs.

The project aims to construct a network of 66,100 km of highways at an estimated cost of INR7 trillion (~US$101.7 billion). Under the first phase of the project, a total of 34,800 km of roads with an investment of INR5.4 trillion (~US$78.5 billion) are to be constructed by 2022. The funding for the scheme will be raised through various sources: INR1.4 trillion (~US$20.3 billion) will come from the earmarked Central Road Fund (CRF), INR2.1 trillion (~US$30.5 billion) is expected to be raised as debt from market borrowings, INR1 trillion (~US$14.5 billion) from private investments, and the rest from expected asset monetization of National Highway (NH) and toll collections.

Bharatmala - The Game Changer for Indian Logistics

Under the first phase of the project, 44 new economic corridors will be developed to improve connectivity across corridors and remote areas of the country to ensure faster movement of freight. The project will kick start from western states of Gujarat and Rajasthan, and move towards Punjab, Jammu and Kashmir, Himachal Pradesh, Uttarakhand in the north, and towards Bihar, West Bengal, Sikkim, and Assam in the east, right up to Indo-Myanmar border in Arunachal Pradesh, Manipur, and Mizoram.

Further, 35 multi-modal logistics parks are also planned to be developed that will serve as centers for freight aggregation and distribution, storage and warehousing, and other value-added services. These logistics parks will cater to key production and consumption centers accounting for 45% of India’s road freight. As a result, the consolidation of freight is expected to improve efficiencies and reduce logistics costs by approximately 25%.

EOS Perspective

There is no doubt that, if implemented as per the plan, Bharatmala project has the potential to transform the entire logistics landscape in India. However, given the country’s past project record, there are major hurdles that need to be addressed.

First and foremost, in order to catch up with the ambitious project targets for 2022, the government needs to construct 40 km of roads per day, up from the current average of 23 km. Achieving this looks very challenging, especially when The Road and Highways Ministry has so far lowered the total road projects awards to 20,000 km for FY2018/19 from 25,000 km in FY2017/18.

In addition, timely land acquisitions, lack of clear land titles, regulatory clearances, and dependence on local authorities are some other roadblocks that will hinder project implementation.

Lastly, there is a growing sense of political volatility amid the upcoming general elections in 2019. Given the recent form of setbacks that the ruling party has faced in state elections, there are growing concerns over its victory. A change in government could seriously impact Bharatmala and ancillary projects, since the new government may have different agenda as their priority.

In order to catch up with the ambitious project targets for 2022, the government needs to construct 40 km of roads per day, up from the current average of 23 km.

In 2014, when Narendra Modi’s administration took charge, highway projects over INR1 trillion (~US$14.5 billion) were stuck either for funds or various regulatory clearances. The government has made noteworthy progress since then by expediting many of these projects.

By leveraging technologies and removing bureaucratic bottlenecks, the government seems to be committed to strengthen the sector. A quick look into last two union budgets clearly indicates that the government’s thrust has been on enhancing infrastructure in India and massive budgetary provisions have been made to improve logistics infrastructure. In recent weeks, a big push has been given to complete about 320 important highway projects ahead of the elections next year.

If re-elected, the Modi administration is expected to keep the current infrastructure momentum going. This might not only improve India’s logistics competitiveness, but also make other government initiatives such as Make in India more compelling for private investors. The project might also give a strong push to the economy by generating millions of direct jobs in sectors such as construction, logistics, and transportation, as well as indirect employment opportunities in manufacturing and other ancillary industries. It can boost manufacturing as well as trade, since there will be a surge in demand for goods such as steel, cement, construction equipment, commercial vehicles, etc.

There is no doubt that once completed, Bharatmala has the potential to transform the entire Indian logistics sector. However, at present, for Bharatmala project and the logistics sector, a lot hinges on the outcome of the upcoming elections.

by EOS Intelligence EOS Intelligence No Comments

Commercial Drones Poised to Be the Next Disruptive Technology?

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While drones have been around for decades, the commercial use of this technology is a fairly new concept for various businesses. The rise of commercial drones in the recent years triggered high hopes for incorporating such technology in a range of sectors. However, a lot of preparatory work is required for the market to evolve and for the technology to be incorporated in businesses’ operations.

Initially reserved for military use, unmanned autonomous vehicles or drones are now being considered for the commercial marketplace. In recent years, commercial drones have witnessed significant product innovations and are now being utilized in various industries. Equipped with cameras, commercial drones are used for mapping, delivery, inspection, and surveillance. Valued at US$ 609 million in 2014, the market is forecasted to reach US$ 4.8 billion by 2020. These machines now have the potential to transform the traditional business models by including a range of opportunities across various industries including infrastructure, agriculture, insurance, security, etc.

Growth

Infrastructure

An increased usage of commercial drones has been witnessed in the infrastructure industry. Commercial drones are cheaper than manned aircraft and have the ability to gather data more precise and faster than human surveyors. This helps the construction workers to track the work progress with a higher degree of accuracy. Further, drone monitoring of construction sites enables workers to keep a check on material storage and handling, thereby preventing wastage of materials. While the use of commercial drones in the infrastructure industry will not have any effect on employment, it is likely to reduce overtime costs by keeping a track of the construction progress and eliminating rework or fixes.

Agriculture

In agriculture, farmers use commercial drones to reduce their dependence on extra resources required to produce crops. Drones have the ability to survey fields, spray pesticides, and also collect data required in reviewing crops, with data collection being their most promising utility. This saves farmer’s time and money required to evaluate acres of land manually and also helps in getting timely information about the status of their fields to improve crop health. Commercial drones, thus, help overcome a huge challenge in farming, i.e., limited efficiency in monitoring huge areas of land. The use of commercial drones in agriculture is likely to lead to farming becoming data-driven, leading to better productivity and yield.

Transport

Commercial drones are also increasingly used in the transport industry, particularly for the delivery of goods in the e-commerce sector. Retailers such as Amazon and Walmart have been focusing on setting up the infrastructure required for delivering products to customers. Drone delivery is now considered central to Amazon’s long term shipping plan, and is likely to modify the company’s cost structure. The introduction of Amazon Prime Air, Amazon’s drone delivery system, is likely to lower the cost of a same-day small package delivery to US$ 1. In addition, convenience store chain, 7 Eleven, and fast food chain, Domino’s Pizza, recently partnered with Flirtey, a drone delivery company, to initiate the delivery of food to customers. The companies believe that drone deliveries will help them cut down their delivery cost and save traffic time to offer efficient delivery services.

Insurance

The insurance sector is also an early adopter of the drone technology. Commercial drones are being used to record details about a location or building to gather useful information for risks assessment and claims processing. With the ability to view difficult angles, take high resolution photos and videos, and easy portability, commercial drones can enter places such as burned out homes or chemical spills more easily than insurance adjusters, thus, saving insurance adjusters from entering potentially dangerous areas. Drones can also speed up the surveying process and save costs by covering large areas of the property in a short span of time, thereby employing lower number of adjusters. In addition, drones are useful in monitoring areas prone to natural disasters, making it easier for national government working with insurance companies to prepare for catastrophe and prevent damage and casualties. For instance, in January 2016, Aviva PLC, an insurance company, deployed drones to survey flood damage in the UK. The drones were used to provide a macro view of the area and guide the company’s staff on the ground. While it is too early to say whether commercial drones will be able to replace insurance adjusters, they are already used to speed up the inspection process and offer more detailed property data.

Challenges

EOS Perspective

The drone technology has started to a find its home in the commercial sector. Various industries have initiated the adoption of drones with a view to increase efficiency, lower operational costs, speed up several links within the supply chain, and obtain valuable information. In the near future, the commercial drones industry is likely to gain more traction, particularly by large scale industries such as agriculture and infrastructure. This, coupled with the ongoing technological innovations such as better sensor technology, seamless software function, better integration, etc., is likely to boost the commercial demand for such machines.

Having said that, the industry will need to overcome certain regulatory challenges to go beyond the currently nascent stage of development. While on the one hand, the development of the regulatory framework has sparked hopes for industries willing to adopt the drone technology, on the other hand, the stringent rules regarding the usage of such technology are likely to cool down the industries’ enthusiasm to some extent. However, though the initial set of rules is restrictive in nature, it is believed, that the regulations might change once the industries exhibit drones operations in a safely manner. For instance, the rule regarding the weight limit might start accepting waivers in certain categories, thereby prompting the regulators to alter the ruling. While it is clear that in its stage of infancy, the commercial drones industry is expected to face regulatory uncertainty, in the long run, with a possible evolving regulatory regime, the business potential of the commercial drones could be game-changing.

by EOS Intelligence EOS Intelligence No Comments

Thailand – Is Just 100% Universal Healthcare Access Good Enough?

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Thailand has a well-developed healthcare system, as compared with most of the Asian countries. Majority of the health-related Millennium Development Goals (MDG) have been achieved, though a rapidly ageing population and the burden of non-communicable diseases remains a challenge for the public healthcare system. A better disease prevention mechanism, health promotion, and adequate primary care are some of the priorities of the Thai government in the healthcare sector.


This article is part of a series focusing on universal healthcare plans across selected Southeast Asian countries. The series also includes a look into the plans in The Philippines, Cambodia, VietnamIndonesia, and Thailand.


Thailand achieved Universal Healthcare Access (UHA) status in 2002 with the launch of health insurance benefits for 30% of the population that was outside the health insurance ambit till then.

Thailand boasts of world class medical facilities (especially in the private healthcare sector), and is among the world’s largest medical tourism markets. The government is looking to further develop Thailand into an “International Health Center for Excellence” under its second strategic five-year plan (2012-2016).

The plan focuses on four major areas: medical services, integrative wellness centers, development of Thai herbs, and traditional and alternative Thai medicines.

With almost 100% population already covered by UHA, and a reasonably developed healthcare infrastructure in place, the government’s focus is likely to be on improving the quality of healthcare services. This will create opportunities for the companies operating in the healthcare industry.

 

INFRASTRUCTURE
Key Stakeholders
  • The Ministry of Public Health (MoPH) is responsible for public healthcare services and for governing and regulating the healthcare industry, including healthcare-related NGOs, medical professionals, hospitals, and clinics. In a series of Decentralization Action Plan (1999, 2008, and 2012), responsibility for some of health facilities was delegated to local authorities at provincials (municipal and general hospitals) and sub-district level (health centres); However, the Thai healthcare system still remains highly centralized (and more dependent on public healthcare services).

Healthcare Service Delivery
  • Public healthcare service delivery system includes:

    • Primary Care: Community health posts and primary healthcare centres (village level) and health centres (sub-district level)
    • Secondary Care: Municipal health centres and community hospitals
    • Tertiary Care: Provincial and regional hospitals, and medical schools
  • At provincial and regional level, some of the hospitals are under the administration of other government bodies, such as the Army, Police, and Ministry of Education (MoE). All community hospitals and health centres in rural areas are operated by the MoPH. The healthcare infrastructure consist of the following:

    • Community Care Centers: ~50,000
    • Health Centers: ~10,000
    • Community Hospitals and Municipal Health Centers: ~ 1,000
    • Provincial Level Hospitals: ~ 200
    • Regional Level Hospitals: ~ 80
KEY CHALLENGES
Unequal Distribution of Services

  • Despite a well-developed healthcare infrastructure and almost 100% population coverage, inequalities still exist in terms of accessibility and quality of care

  • There is a variance in the geographical distribution of health workers and other resources; urban centres such as Bangkok have access to better quality healthcare as compared with the rural populace, which faces a shortage of clinical resources

Duplication of Efforts

  • Thailand’s healthcare sector consists of several stakeholders, including ministries, government agencies, and the local governments involved in management and financing of healthcare facilities. This has resulted in duplication of administrative systems (including payment, reporting, and monitoring), eventually leading to inefficiencies

 

DESIGN
Beneficiary Classification
  • In Thailand, the UHA covers the population not covered by

    • Civil Servant Medical Benefit Scheme (CSMBS) for government employees, pensioners, and their dependents
    • Compulsory Social Security Scheme (CSSS) for private employees or temporary public employees
    • Private Health Insurance (for individuals and private firms)
    • Once registered, people joining the UHA scheme receive a gold card to access services in their health district, and, if necessary, be referred for specialist treatment elsewhere
Healthcare Insurance Financing
  • Source of finances for different social health schemes is as follows:

    • UHA – general tax revenue
    • CSMBS – general tax
    • CSSS – premium (as a % of salary)
Payment System
  • The payment system varies according to the insurance scheme

    • UHA – The payment system is capitation-based for most of the services; and rest of the services, such as dental care are on fee-for-service basis; funding allocated to the contracting facilities for Primary Care are on a population basis
    • CSMBS – Outpatient services are on fee-for-service basis; inpatient services are on Diagnosis-related group (DRG) system (to classify hospital cases into groups to determine cost)
    • CSSS – the payment system is capitation-based for most of the services; and rest of the services, such as dental care are on fee-for-service basis
Benefits
  • The coverage is comprehensive in case of UHA and CSMBS and includes both inpatient and outpatient treatment. However, there are few conditions, such as:

    • UHA – Treatment available in contracted hospitals only; facilities, such as private bed and special nurses are not available
    • CSMBS – Private hospitals available in case of emergency care only; special nursing services not available
    • CSSS – Coverage is coverage is comprehensive except that it doesn’t include annual physical check-ups, and work-related illness and injuries
Co-payment (Reimbursement) System
  • At present no co-payment regime is applicable for UHA, however, 30-Baht co-payment (per service) is applicable to patients who receive prescriptions and are willing to pay. For the population covered by CSMBS and CSSS, co-payment system is applicable in case of emergency care.

Reimbursement System for Drugs
  • For UHA, CSMBS, and CSSS the drug benefit package is based on the National List of Essential Drugs (NELD), and the drugs can be reimbursed without any co-payment. Drugs used under CSMBS’ out-patient fee-for-service system, and not listed in NELD, are reimbursed.

KEY CHALLENGES
Absence of Unified Scheme

  • Theoretically, UHA is for the entire Thai population; however, two other health financing schemes for the government and formal sector private employees operate in parallel wherein the benefits differ from one another. E.g. variance in expenditure per patient, access to healthcare facilities, co-payment regime, and access to special care. It is a challenge for the government to achieve equality in the quality and range of services, which arise due to social health insurance specific policies

Funding Constraints

  • Due to changing disease profile (e.g. prevalence of chronic diseases and an aging population), Thailand is witnessing increasing cost of healthcare thereby putting burden on UHA, which is entirely funded through taxation. The government needs to look at the cost saving options e.g. payment system for healthcare facilities and procurement of drugs and equipment, to ensure the long term viability of UHA

 

Opportunities for Healthcare Companies

Healthcare Service Providers

  • Thailand has a better (as compared with most of the countries in Asia) developed healthcare system with a majority of the healthcare services being delivered by the public network. At present, it appears limited scope for the private providers, as they also are mostly concentrated in the urban centres while there is a greater need (at least at primary and secondary level) in non-urban areas

  • However, private providers can look for collaboration opportunities in areas/aspect that add value to pre-existing service set-up. For example in the field of mobile healthcare, telemedicine etc.

Medical Device Manufacturers

  • There is significant growth potential for the medical device companies, as the country’s universal healthcare system continues to support healthcare initiatives. Demand for medical devices is further anchored by the government’s efforts to develop the country into an Asian medical hub

  • Public hospitals continue to be the main user of medical equipment. Opening of new health facilities would also create demand for equipment and devices

Pharmaceuticals Companies

  • The government encourages the use of drugs listed in the National List of Essential Medicines, all of which are fully reimbursed by the three major public health insurance schemes

  • However, the government may review health expenditure pattern and reimbursement policies amid changing demographic profile (i.e. more senior citizens) leading to increased focus on cost-effective healthcare services. This may create better opportunities for generics and low-cost drugs

A Final Word

Thailand’s UHA scheme has largely been a success, and a model for other countries to follow. The scheme provides coverage to a large informal sector, which is a challenging task in itself. The benefit package, which includes curative as well as preventive services, is comprehensive.

The country has demonstrated efficiency in UHA implementation with satisfactory outcomes in terms of meeting healthcare needs of the society, and in attempts towards offering equitable health. A relatively better developed healthcare network and relevant administrative experience helped in achieving the desired results.

Leaving behind the past successes, UHA would be required to gear-up for the challenges ahead. For instance, the country needs to plan for changing disease profile i.e. an increased burden from Non-communicable Diseases (NCDs). This may have cost implications for UHA (and opportunities for the healthcare industry participants) in terms of accommodating suitable interventions and planning for adequate preventive measures at primary, secondary, and tertiary care level. It is expected that the country will witness more activity with respect to qualitative improvement in healthcare services, as compared with geographical expansion of services.

A comparative with other countries in the region should provide a better perspective on the actual potential of Thailand as a prospective destination for devices and drugs companies alike.

by EOS Intelligence EOS Intelligence No Comments

Indonesia – Public and Private Participation in Universal Healthcare

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Under its National Health Strategic Plan (NHSP), Indonesia is continuously focusing on improving the quality and accessibility of its public healthcare system. NHSP (2010-2014) aims to enhance health status through involvement of private sector and civil society. It also focuses on the prevention and cure of health problems faced by the community through availability of comprehensive and equitable health services and health resources, supported by good governance.


This article is part of a series focusing on universal healthcare plans across selected Southeast Asian countries. The series also includes a look into the plans in The Philippines, Cambodia, Vietnam, Indonesia, and Thailand.


The Indonesian government is planning to cover every Indonesian under Universal Health Insurance (UHI) by 2019 under a new scheme called Jaminan Kesehatan Nasional (JKN). As of January 2014, about 120 million Indonesians (government servants, police and army personnel, and poor) were automatically included under this scheme. The government has already allocated about 20 trillion rupiah (US$1.6 billion) to cover health insurance premiums for the poor in 2014.

Indonesia UHC

One of the features of the Indonesian UHI is the participation of the private sector wherein a number of hospitals and clinics have signed-up under the JKN.

When implemented fully, UHI is expected to create significant demand for companies operating in the industry, as the scope of the services is bound to increase. However, uncertainties exist regarding the smooth transition of the social health insurance mechanism from the current (prior to 2014) multiple-scheme-based system to a single system. The foundation design and the support infrastructure would determine the long term success of UHI.

 

INFRASTRUCTURE
Key Stakeholders
  • Indonesia has a decentralized administrative system since early 2000s wherein each of the 33 provinces is divided into districts and each district is further divided into sub-districts. District Governments are the direct authority in prioritizing the sectors (including health) for development

Healthcare Service Delivery
  • Public healthcare service delivery is based on a hierarchical referral system, which includes primary health clinics (PHC), district and provincial hospitals (secondary care) and specialty hospitals (tertiary care). Secondary health care is further classified as (Kabupaten (rural) and Kotamadya (urban)

  • Depending on the range and quality of healthcare services, hospitals are classified in to four categories

    • Level D – District-level hospital headed by a General Practitioner (GP) and provides some basic inpatient care. These are just one step above the primary health center
    • Level C – District-level hospital, which provides four basic specialties (surgery, internal medicine, pediatrics, and OBGYN services) and three supporting specialties (anesthesia, radiology, and pathology)
    • Level B – Provincial level hospital providing more specialist services as compared with level C hospitals. Specialist medical clinics, including pulmonary clinics and eye clinics, and medical supporting care are also included
    • Level A – These are described as ‘Centers of Excellence’ with sophisticated equipment with state-of-the-art facilities. This level includes specialist hospitals, such as Maternal and Child Hospital, Cancer Hospital, Coronary Hospital
KEY CHALLENGES
Capacity Constraints

  • Indonesia faces capacity constraint in terms of the number of hospitals as well as resources (qualified doctors, nurses and other staff). Public healthcare system is characterized with high occupancy rate at hospitals, and the situation is likely to worsen as more people come under the coverage of the government-sponsored health insurance scheme

  • Though a three-tier referral system exists, there is a lack of integration resulting in the by-passing of the lower-tier facilities and overcrowding at the secondary and tertiary level

Uneven Concentration of Healthcare Personnel

  • Indonesia has 25 health workers per 10,000 people (against WHOs minimum benchmark of 23); however, most of them are concentrated in urban centers, leaving rest of the country (especially the rural area) without sufficient number of health personnel

  • Healthcare professionals need to be compensated adequately to create a pool of resources large enough to meet the demand of a healthcare system catering to about 250 million people

 

DESIGN
Beneficiary Classification

Prior to the implementation of UHI in January 2014, certain sections of the population were already covered under different schemes, such as:

  • Askes (for civil servants and pensioners)
  • Jamkesmas (poor and near poor)
  • Jamsostek (private formal sector workers)
  • Jamkesda (district-level schemes for near-poor)
Healthcare Insurance Financing
  • Expenditure on public healthcare services under UHI is provided through taxation revenues and member contribution

  • Formal sector employees (both public and private) will pay 5% of the salary as premium wherein the employer will makes 4% contribution. Informal workers, the self-employed and investors, will pay monthly premiums of between Rp 25,500 (US$2.15) and Rp 59,500 (US$5.1) each

  • The government would be paying for the premiums of the rest of the groups (mentioned in ‘Beneficiary Classification’)

Payment System
  • For primary health care, the payment system is to be based on monthly capitation (based on registered users), and the Diagnosis-related group (DRG) system (to classify hospital cases into groups to determine cost) would be applicable for hospitals

  • Amount under DRG system will be fixed on the basis of negotiations with the hospital associations in various regions

Benefits
  • The UHI covers comprehensive benefits, including the treatment of commonly occurring illness, such as influenza as well as expensive medical treatment, such as heart surgery, dialysis, and cancer therapies

Co-payment (Reimbursement) System
  • At present no co-payment regime has been planned at the point of care. Healthcare services are to be fully reimbursed to the healthcare facilities on behalf of the patients

Reimbursement System for Drugs
  • Drugs specified under the formulary list are covered under the social sector health insurance plan. As mentioned above, the drugs used for the treatment are covered by the zero-co-payment system

KEY CHALLENGES
Concern about Quality

  • There are apprehensions that the quality of health services may suffer under the current provisions of the universal healthcare schemes

    • According to the Indonesian Medical Association, the government is paying substantially low amount for the poor, which may not be able to cover expensive treatment, such as cancer therapies. Hospital may struggle to cover costs due to lower reimbursement rates, which may discourage private hospitals from participating in the UHI. This would lead to overburdened state-run hospitals (and hence erosion of quality)

Ensuring Comprehensive Coverage

  • A large population comprising informal sector is yet to be covered under UHI. It would be a challenge for the government to motivate this section of population to be a part of the scheme. Contribution from the informal sector in the form of premium is crucial, as the Indonesian UHI would primarily draw its finances its expenses through it (along with the contribution from the formal sector employees)

Addressing the Grey Areas

  • There is lack of clarity about the role of private insurance after the implementation of UHI, as several private employers who have obtained private insurance for their employees may end-up paying double premium

Opportunities for Healthcare Companies

Healthcare Service Providers

  • The current set-up does not provide enough incentives for the private sector healthcare providers; however, the UHI policy envisages a space for private players. Also, the government has indicated about increasing the premium paid for the poor gradually, therefore private clinics and hospitals have significant opportunities to increase their business as well as to fill the resource gap in the Indonesian healthcare system

Medical Device Manufacturers

  • Irrespective of the implementation of the UHI, there was significant growth potential for the medical device companies due to years of under investment in the hospital equipment and devices such as MRI, Tomography scanners, mammography etc. A wider UHI coverage would require purchase of such equipment, to cater to the increasing demand

  • It is expected that new health facilities would come up in the regions where the newly insured population resides i.e. outside Java and other large cities. This would boost the demand for equipment and devices

Pharmaceuticals Companies

  • UHI is expected to create additional demand for medicines, as the population that was previously unable to purchase medicines comes under the coverage. Demand for generic medicines is expected to increase, as the government focuses on procuring low-cost medicines to keep the cost of UHI down

A Final Word

Considerable ground needs to be covered before Indonesia realizes the goal of 100% healthcare access coverage. The current state of the healthcare infrastructure as well as the healthcare benefits that have been designed (for the population under coverage as of January 2014) pose challenge in creating a working (and efficient) UHI system.

Success of UHI primarily hinges on the inclusion of informal sector population. Introducing an informal sector-specific mechanism for the premium contribution, attractive enough to ensure participation, would be the key in this direction. More clarity about the role of private insurance will help towards creating a system capable enough to cater to 250 million plus population.

Size of the Indonesian healthcare market already presents ample opportunities for pharmaceutical as well medical device manufacturers. 100% coverage under UHI will further boost the prospects of these firms. The expected expansion of healthcare infrastructure beyond the developed regions (cities) is likely to create demand for equipment as well as medicines.

Existing capacity constraints in the public healthcare system may augur well for the private health care service providers. As of now, given the geographical challenges and regional disparity in healthcare services, the goal of 100% coverage under UHI looks a distant dream without the participation of private sector. Therefore a workable payment system needs to be devised to ensure greater participation of the private sector players.

by EOS Intelligence EOS Intelligence No Comments

2014 FIFA World Cup Brazil – A Squandered Opportunity

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After 7 years of preparations, Brazil hosted the most expensive FIFA World Cup in 2014 at a cost that totaled billions of dollars. What is the associated outcome of spending huge sums on World Cup preparation? Did the investment leave any positive legacy for the country? What is the economic impact of hosting the World Cup on Brazil?

Investment and Associated Outcome

Investment in projects considered essential to hosting World Cup in 2014 varied across a range of sectors and had different impact on each of them. Around US$12.9 billion were invested in numerous projects focused on urban mobility, airports, stadiums, tourism, ports, telecommunication, and security between 2007 and 2013.

World Cup-related Investment By Sector, Brazil

Urban Mobility

Brazil has been struggling with overcrowded urban transportation systems for years. The insufficient public systems, paired with Brazilians’ growing financial capabilities, resulted in an increase in personal vehicles use, which in turn triggered chaotic and congested traffic conditions across Brazil’s major cities. 2014 World Cup investments planned in relation to urban mobility were expected to leave positive legacy for the country and to improve transportation systems in metropolitan cities easing traffic problems. But, several delays (caused by corruption, financing problems, etc.) were observed in execution of the planned urban mobility projects during 2007-2012, long before the event. Furthermore, as the World Cup neared, the government’s focus transferred to stadium construction works, as six out of the proposed twelve stadiums for 2014 World Cup still remained incomplete a year before the tournament. According to Responsibility Matrix 2013, investments dedicated to urban mobility projects were cut down to US$4 billion from US$6.6 billion anticipated in 2010. Some 21 of 53 projects planned in 2010 were discarded from the Matrix in 2013. Transformative advancements in transit infrastructure were expected to be the most beneficial outcome from hosting the mega sporting event. But with time, the priorities for government changed, and many of the ambitious projects never took off, as was the case with the proposed project for building high speed train linking Rio and Sao Paulo that was never executed.

Moreover, as the required urban mobility projects remained unfinished during the tournament, government declared holidays in schools and businesses on game days to ease traffic congestion. In June 2014, Sao Paulo State Federation of Commerce, a representative of 155 trade and business unions, estimated that the cost of lost productivity and overtime pay for businesses that remained inoperative during games would be around US$5 billion.

Furthermore, experts allege that these urban mobility projects were approved hastily without giving much thought to long-term benefits, which represents an intangible opportunity cost. For instance, some of the host cities, such as Sao Paulo, Manaus, Salvador, and Porto Alegre, were not allotted any investments in transport infrastructure. In most host cities, the mobility projects were limited to Bus Rapid Transit lines and there were no plans to invest in light rail, metro, or ferry lines.

Airports

An estimated investment of US$3.9 billion was designated to airports, out of which US$2.9 billion were contributed by private sources. These investments led to a noticeable improvement in airport infrastructure and facilities. An assessment report, published in July 2014, by President Dilma Rousseff and the Minister of Civil Aviation Moreira Franco indicated that around 16.7 million passengers used airport services in Brazil during the tournament. In addition, annual passenger capacity at airports increased by 52% over 2013 capacity level, reaching 67 million passengers per year. Between 2007 and 2014, aircraft yards were increased by 1,360 m², passenger terminals were increased by 350,000 m² and 54 new boarding gates as well as 10,300 parking slots were built. Modernized infrastructure and increased capacity will remain as positive legacy for the country.

Stadiums

Between 2007 and 2014, Brazil constructed five new stadiums, renovated five stadiums, and demolished and rebuilt two stadiums for 2014 World Cup. The estimated cost of construction and renovation of the proposed twelve stadiums for hosting 2014 World Cup game increased to US$3.5 billion, up from US$1.2 billion projected in 2007. Public opinion was outraged at these inflated costs, especially that they were paired with un-kept promises once given by the government representatives. After winning the bid to host the World Cup in October 2007, the former Sports Minister Orlando Silva promised, “There won’t be one cent of public money used to build stadiums”. However, according to Responsibility Matrix 2013, the contribution by private sources for building and refurbishing stadiums stood only at US$61.3 million, so majority of the costs were borne by federal investments and state and municipal governments. Another issue associated with the construction of large stadiums is its effect on urban real estate. Each newly built facility is spread across around 15 to 20 acres of urban land, making the space unavailable for any other, perhaps more productive, purposes. It is likely to also continue to negatively affect the real estate prices, especially, as urban land is scarce in Brazil.

Post 2014 World Cup, some cities, which received large stadiums built specifically for the tournament at capacities far exceeding local, every-day needs, are struggling to make these facilities economically viable. In particular, the stadiums built in Manaus, Natal, Cuiaba, and Brasilia appear to be under the fear of turning into ‘white elephants’. These cities have football teams playing in Brazil’s third-fourth division championships, which are not expected to attract the audience at volumes close to the stadiums’ capacities. Moreover, if government fails to find private sponsors for these stadiums, hefty maintenance costs will have to be paid from public funds. The newly built US$325 million stadium in Manaus alone is expected to demand US$3 million for annual maintenance.

Security

In June 2013, mass protests were held across the country during Confederation Cup, a warm-up tournament organized by FIFA to test stadiums, transportation, and security before 2014 World Cup, to express frustration over exorbitant spending by government on World Cup while Brazil still struggled with below par standards of healthcare and education. The protests turned violent with police crackdown and arrests. Following the event, Brazil’s government became alert and tightened up the security measures for the 2014 World Cup to ensure safety of the visitors. 177,000 security personnel were deployed during the tournament and US$900 million were invested in security structures, equipment, and training. Such high spending on security might not have been required if the government had addressed the problems of the country’s citizens in time, or at least had exhibited more understanding attitude to these sensitive in nature social problems.

Ports

Around US$322 million were invested in ports. With more than 90% of trade in Brazil routed through ports in 2012, ports are an important medium for international trade in the country. However, the funds allotment for improvement of ports under the header of World Cup-related investment remained limited as the sector was not assumed to directly impact the event. Between 2007 and 2013, funds were mainly used for modernization of port terminals at Salvador, Fortaleza, and Natal.

Telecommunication

During 2007-2013, around US$200 million were invested in improvement and expansion of telecommunication infrastructure in association with World Cup in Brazil. In order to connect the host stadiums and other official venues of the tournament, a 15,000 km long optical fiber network was installed that enabled to handle 166 terabytes of data during the World Cup. Furthermore, 15,012 mobile antennas were installed across the host cities. A report released post 2014 World Cup by SindiTelebrasil, a national union of telephone companies in Brazil, indicated that the telecommunication networks in the country were successful in handling large traffic volumes during the event. For instance, during the World Cup final match, held on July 13, 2014, between Germany and Argentina, the telecommunication networks managed high traffic volume of around to 2.6 million photos, which is equivalent 1,430 gigabytes of data.

Tourism

Post 2014 World Cup, President Dilma Rousseff announced that one million foreign tourists visited the country and three million Brazilian tourists travelled around the country during the event. Around 3.4 million people bought tickets to attend matches at the stadiums. Fan Fests attracted another five million people. By mid-June 2014, a total of 340,000 daily hotel bookings were recorded.

According to data released by Brazil Central Bank in July 2014, international visitors spent US$797 million in Brazil in the month of June 2014. Higher revenues from spending by international tourists in Brazil and reduced foreign trips by Brazilians during 2014 World Cup contributed in improvement of international travel account of services trade, which posted a deficit of US$1.2 billion in June 2014, down 17.3% from June 2013, providing some cushion to current account deficit. Economists believe that current account deficit over 5% of gross domestic product may lead to currency crisis in Brazil involving difficulty in debt repayments and currency depreciation. The twelve-month current account deficit remained stable at 3.6% of gross domestic product in June 2014, at the same level as in August 2013, because of narrowed gap in international travel account of services trade.

A survey conducted by Getúlio Vargas Foundation (FGV) and the Foundation Institute of Economic Research (FIPE), conducted by interviewing 6,627 foreign visitors and 6,038 Brazilians during the World Cup indicated that about a million tourists from 203 different countries came to Brazil during the tournament. Foreign visitors stayed in the country for an average of 13 days and visited 378 Brazilian municipalities. Thus, the event offered an opportunity for the country to promote its less popular tourist destinations to a group of diverse visitors. Furthermore, the survey suggests that 95% of the visitors expressed the desire to revisit, which might indicate brighter days for tourism industry in the future, provided that these tourists actually come back.

A Rocky Road to the Event

A look into World Cup-related investment across these sectors reveals that there have been mixed repercussions of the event across social and economy spheres. However, on a broader level, the planning, preparation, and organization of the event were challenged by a range of problems, which led to lost opportunities or even negative outcomes, and questioned the overall benefit of organizing 2014 World Cup by Brazil.

Increased Costs and Delays

In 2007, Carlos Langoni, then Finance Director of the 2014 World Cup Local Organizing Committee and former President of the Brazil Central Bank, estimated the World Cup-related cost at US$6 billion. In January 2010, Sports Ministry revised the estimates to around US$11 billion. According to the Responsibility Matrix 2013, the estimated actual expenditure was US$13 billion.

The increase in costs is believed to be partially attributed to the rampant political corruption in Brazil. By analyzing Brazil’s electoral data and government audit reports from 2007 to 2013, The Associated Press reported many-fold increase in campaign contributions to the political parties by the construction firms that were awarded most World Cup projects. This is suspected to have been a form of a bribe to win Word Cup-related projects and later allowed these companies to make huge profits by indulging into unfair practices such as fraudulent billing, under-compensation to workers, etc. For instance, Andrade Gutierrez, a construction conglomerate that got large contracts associated with World Cup, increased its political contributions to US$37.1 million in 2012 from US$73,180 in 2008. Adding to the suspicion of possible political linkage of the construction firms involved in World Cup-related projects, in 2014, Contas Abertas, a watchdog group that scrutinizes Brazilian government budgets, alleged that some contracts were awarded directly to the chosen construction firms and were never made available for public bid. A government audit report on construction projects associated with World Cup, released in early 2014, highlights several instances of price-gouging and suspected misuse of financial linkages between the construction firms and government. For instance, Brasilia’s government failed to impose US$16 million fine on Andrade Gutierrez for a five-month delay in completion of the stadium in the city. However, no corruption charges have been filed yet on individuals or companies related to World Cup work.

Additionally, experts believe that the lacking capability of construction firms in project planning and management also contributed to rising costs and delays. Furthermore, in order to accelerate the construction work, ‘emergency’ contracts were awarded at a higher price to leading (and known to be influential) construction firms, waiving the normal contracts, which further led to inflated costs.

Overexploitation of Workers

Construction projects, especially the stadiums, which were left to last-minute completion, had adverse effect on the workers. Many workers were assigned twelve-hour shifts and were asked to give up holidays to finish the construction work in time for World Cup. Some workers reportedly lost their employment as they could no longer tolerate the stress and physical strain. Around eight workers died in accidents on construction sites and these accidents occurred mainly due to lack of safety measures and inhuman working conditions. Many workers that had migrated from rural parts of the country to urban areas in search of World Cup-related employment opportunities complained about poor working and living conditions and under-compensation. Between 2007 and 2014, workers in various parts of the country, supported by labor unions, went on strike demanding their basic rights. Strikes and accidents triggered further delay in construction work related to World Cup.

Projects Financing and Funds Clearance Issues

According to Responsibility Matrix 2013, 80% of the total investments in World Cup-related projects were financed through investments and funding from federal, state and municipal governments.

Source of Funds

A larger role from the private sector was anticipated in preparation for 2014 World Cup, particularly for the event-specific projects such as construction of stadiums, and the government was expected to contribute mainly as a facilitator for the event. As the actual contribution from private funding was limited, the strain was passed on to local government budgets. In 2010, on failure to attract private investments for building stadiums for World Cup, the National Bank for Economic and Social Development (BNDES) opened a credit line of US$2.7 billion for completion of the World Cup stadiums. After receiving requests from states for financing, BNDES took up to three months to analyze the proposals and consequently the stadium construction work was further delayed.

Furthermore, complex and time consuming procedures continued to cause delay in funds clearing. According to World Cup Transparency Portal, by March 2014, 89.9% project work had already been contracted out, but payments were done for only 51.2% of them. This was implying increased payments out of local governments’ pockets in the second quarter of 2014, which occurred at the expense of several high-importance sectors such as healthcare or education.

Roadblocks for Micro and Small Enterprise

Around 44,000 enterprises associated with Brazilian Service of Support for Micro and Small Enterprises (SEBRAE), a non-profit autonomous institution promoting competitiveness and sustainable development of micro and small enterprises, are estimated to have earned US$230 million in revenue from World Cup-generated business opportunities from 2007 to 2014, which indicates that several of them were able to take good advantage of the opportunities provided by the event. However, it appears that many small food and FIFA merchandise vendors could have benefited to a greater extent, if they were not deterred to capitalize on large demand generated in the close proximity of stadiums during World Cup by FIFA’s heavy fee of US$8,000 from any non-FIFA approved vendor who wished to operate in a 1.5 km radius of host stadiums. The question is whether such a considerable fee remains in proportion to small and micro vendors’ scale of operations, who after all distribute FIFA merchandize, contributing to the publicity success of the event.

Even the few selected street vendors (estimated at around 1,000) that were granted temporary licenses to sell FIFA sponsors’ goods in the FIFA prohibited zones during the World Cup were not much at advantage. FIFA sponsors were responsible for selecting, contracting, and training the vendors. Proven experience of the vendors in selling goods in the neighborhood was the main the criteria for selection. Vendors were provided with uniforms, authorization cards, as well as goods to sell. Vendors retained a fixed 30% share in revenue from goods sold during the event, which limited their ability to negotiate the profit margins. As these vendors were not allowed to sell goods from non-FIFA sponsors, they lost an opportunity of earning higher revenues by selling locally manufactured or self-produced goods.

Mass Eviction

Eviction of People from Host CitiesBetween 2007 and 2013, about 248,297 people were forced to leave their homes due to infrastructure work for the tournament. Social activists claimed that most of the designated areas for relocation were at far distances from former dwellings and were less developed. There have been complaints that the compensations offered by the government to people for relocation were unfair and insufficient.

For instance, in May 2014, AlJazeera reported that in Rio de Janerio compensation sums offered to people for relocation was half the value of their old house, while employment opportunities in relocated areas remain scarce. These people belong to most impoverished communities in Brazil and lack of work opportunities and inadequate compensation may further worsen their condition, which may also lead to increase in crime rate.

Tax Revenue Lost Opportunity

Brazil government was rather generous in giving out tax breaks in relation to various activities associated with 2014 World Cup, and this was considerable revenue lost for the budget. In 2010, the Ministry of Treasury announced tax breaks for the construction and renovation of the stadiums for World Cup. The entities involved in stadium works were granted exemption from Industrialized Products Tax, Importation Tax, or social contributions. In addition, the twelve host cities were granted exemption from State Value Added Tax on all operations involving merchandise and materials for construction or renovation of the stadiums. Furthermore, all expenditure by FIFA in Brazil for World Cup was exempted from taxation. While it is always expected that tax relieve and exemptions are given in such high-profile, national events, it remains doubtful whether Brazil could afford foregoing such tax revenue, especially in the face of many social, structural, and welfare problems eating away the country’s public system.

 

EOS Perspective

2014 World Cup is believed to have provided a boost to Brazil economy, but this push was not significant enough to upswing economy’s recently sluggish growth. The temporary rise in tourism associated with the event, can, to some extent, offset lowered production and disruptions in the country during the event. However, it is unlikely that gains from this short tournament will make up for the inflated and overrun costs, suspected political corruption, fraudulently spent or lost money, missed opportunities of diverting some of the funds to other sectors, or social damage caused by disregard for dwellers and workers, along with other social costs that follow these deficiencies in a ripple effect. World Cup-generated opportunities benefited mostly construction, hospitality, travel, and tourism sectors.

The improvements and modernization of infrastructure will leave positive legacy for the country, which is a positive outcome, however achieved at a great expense, arguably not comparable with the country’s current financial capabilities. As emotions cool down and more objective analyses are offered by various experts, it is more and more visible that the positive impact of the event on Brazil economy, its people, and businesses is rather short-lived. Over long term, it is likely that Brazil will end up being the loser of the 2014 FIFA World Cup. As the event-generated income sources slowly dry up, Brazil will be left with a huge bill to pay in its hand, one that will have to be settled over years to come.

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