The Policy Dispatch #6 [1st March 2025]

🚅 Talk of speed. This week, most European governments passed through legislative changes or announced projects in response to Trump’s policies. The UK slashed its development budget in record time to boost its defence budget to make talks easier along with a King’s Letter ✉️ . That would not have been the case if Kamala had won. Too early, is it ? 😜

⏱️ In Today’s Dispatch:

• 💵 Impact of USAID cuts on Sub-Saharan African countries

• 🥇 Designing better policies for the Informal Economy

• 📰 Policy News recap

• ⏩️ Emerging Policy Trends

• 💎 Brain Boost: Latest Journal Gems

Read time: Approx. 6 minute

💵 How are African countries impacted by USAID closure ?

The Trump Administration’s decision to cut USAID funding is having direct and immediate impact. Thousand of aid workers have lost their jobs and numerous critical projects are left unfunded. Health and Humanitarian Assistance are two categories most impacted as they account for 80% if the USAID budget.

• Affected Organisations are scrambling to find new sources of funding. The Ethiopian Civil Society Organizations Council has called on the government to use all diplomatic avenues available to fill the gap.

• Unfortunately the help will not come from the Europeans as they have also cut their aid budgets.

• Countries such as Ghana and Botswana had already put in place policies anticipating such cuts such as the Ghana Beyond Aid vision and Botswana’s shift to better use its revenue from its diamond industry. Much more reforms are required though to turn this tragedy into an opportunity.

• It is unclear if China will step in to fill the gap.

🔢 Today’s Figure

^{$314 Trillion}

That is the value of global debt in 2024. It’s a $7 trillion increase from 2023. A smaller increase than the previous year but nevertheless represents the first time since 2020 that the debt-to-GDP ratio has increased. Developing countries carry the bulk of the debt.

🥇Shadow Economy

The informal economy can make up a significant portion of the economy in developing countries. They also employ a very large portion of the workforce. Typically governments had favoured formalisation policies as it is good for tax income. However, policing and regulation alone are not enough. Financial aid, tax reforms, investment and better data are required to design better policies.

• In Niger, the government has stopped taxing hawkers and petty traders in order to alleviate the financial burden on them.

• In an high inflation environment, policy advocates are recognising that the informal sector is an easy way to bypass the middlemen which can reduce prices significantly. Zimbabwe meanwhile is doubling down on forcing producers and traders to use digital Point of Sales system to monitor every transaction.

• Policy advocates in Ghana are calling for the government to simplify its taxation system and to tax with dignity in order to lessen the financial burden on informal sector workers. Ghana Statistics has recently published a report on the productivity of the country’s informal sector which unsurprisingly found that the informal sector’s productivity lags behind the formal sector’s.

📰 Policy News Recap

• Chad's new asylum law grants nearly 1 million Sudanese refugees the right to work, offering a chance to rebuild their lives. This initiative, supported by Chadian business owners, provides employment opportunities to refugees who fled genocide in Darfur.

• Namibia has introduced universal health care for all its citizens.

• Mozambique has an inflation problem. In order to ease financial situations, the government has extended its tax exemption on basic goods.

• Azerbaijan has filed a lawsuit against Armenia alleging extensive environmental control in areas previously controlled by Azerbaijan. The two countries have had tense relations in recent years.

• Mexico has proposed matching the US tariffs on Chinese products. Meanwhile Ecuador has announced 27% tariffs on Mexican products

• Rwanda is increasing some taxes and introducing new ones while re-adding VAT on previously exempted products. The government is selling this as part of its strategy to have more resources for investment. Surely it is not to finance the war in Congo 🤔

• Ghana's worker protection laws, including the Workmen's Compensation Act and the new Insurance Act, aim to safeguard employees against workplace hazards. While the laws mandate employer-provided coverage and insurer accountability, a large portion of the informal workforce remains unprotected.

• Uzbekistan has adopted a new environmental assessment law, effective August 25. The legislation strengthens environmental protection measures by establishing stricter rules for environmental impact assessments and mandating public hearings for projects. The law, signed by President Shavkat Mirziyoyev on February 24, aims to improve environmental oversight.

• Angola is planning to issue up to $4 billion in debt to finance its 2025 budget. Despite reducing its debt-to-GDP ratio, Angola still spends over 25% of its revenue on debt interest, which affects funding for essential services.

• Bahrain's parliament has unanimously approved a 2% tax on expat remittances to reduce reliance on oil revenues. The tax now faces a second vote in the Shura Council. If rejected again, a joint session of the National Assembly will make the final decision.

• The Nigerian government is set to adjust electricity tariffs to reflect market realities. This move aims to ensure the financial viability of power distribution companies and attract further investment in the energy sector. The new tariffs will be implemented after consultations with stakeholders.

• Kazakhstan's central bank will buy excess dollars from commercial banks to stabilize the exchange rate. This measure addresses a situation where banks have more dollars than they need, potentially affecting the value of the tenge.

• Bangladesh is updating its ship recycling and hazardous waste management laws to align with international standards.

⏩️ Emerging Policy Trends

• The unpredictability of US policies has accelerated negotiations for Free Trade Agreements between a number of trading blocks.

  • The EU and India are looking to conclude a deal by the end of the year.

  • India and the UK are also negotiating a deal.

• A drive by policymakers to boost African debt financing via local sources. Many African countries are locked out of the international financing structure. Unlocking national sources of funding will also require higher savings rate. The African Development Bank has launched pan-African Debt Management Forum in December 2024 to help this.

• Many African countries are implementing or have implemented Education reforms.

  • Tanzania introduced reforms in 2024 to cater for Teacher’s welfare and allow Private Public partnerships.

  • Nigeria has overhauled its education system, introducing a compulsory 12-year basic education plan. This reform aims to boost student retention, reduce dropouts, align with global standards, and equip students with vocational skills for a competitive workforce.

• Reparations are still a going theme. Namibia is seeking renewed negotiations with Germany regarding reparations for the early 20th-century genocide of the Herero and Nama people. While Germany has acknowledged the genocide and offered development aid, many Namibians feel this is insufficient and demand formal reparations. Discussions continue amid ongoing legal challenges.

• Mining laws are changing to bring in more revenue.

  • Mali's government is tightening regulations on the mining sector. The new measures aim to combat fraud, improve revenue collection, and ensure greater state control over mineral resources. This includes increased scrutiny of mining permits and operations.

  • Indonesia's Mining Law amendments prioritize oil and gas, expanding mining access and raising environmental concerns. This shift potentially hinders green energy research as the Renewable Energy Bill is no longer a priority, delaying sustainable industry development. The amendments expands rights to mining to religious organisations, SMEs and cooperative while granting universities grants for research in mining.

• A study in the UK has estimated that eating unhealthy costs the economy more than the country’s Health Budget. While some governments are investing in encouraging people to eat better, more needs to be done as the gains are evident.

• Chinese local government debt remains an issue. Their debt quotas are expected to be increased during next week’s annual Chinese parliamentary session.

💎 Brain Boost

• According to a new research, European trade with low-cost producers benefits the poor, but relatively harms middle-income earners. This perceived loss fuels resentment and increases support for far-right parties. The effect is strongest in wealthier European nations more exposed to these trade imbalances.

• U.S. wholesale market share grew significantly between 1992 and 2012, driven by "superstar" firms expanding their domestic distribution through increased global sourcing, leading to higher markups.

• A study of 36 African nations from 2003-2020, using an IV-GMM model, reveals China's FDI has a slightly positive effect on African industrialization. The impact is stronger in high-recipient countries, but domestic factors like investment and infrastructure are more significant.¹ The research suggests policies to enhance these domestic capabilities.

Written by Waleed Jhumka