Information and stories about economy.

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Public-Private Partnerships in Africa

Public-Private Partnerships in Africa
While over the last few decades the economies of Africa have, as a whole, grown quite substantially, the economic problems Africa faces are still monumental in scope. On a continent that supports around a billion people, nearly 600 million lack access to electricity and almost 300 million have no access to safe water.

A promising solution to help combat these vast problems concerning infrastructure and service delivery is Public-Private Partnerships (PPP). Although there are many distinct models for PPPs, in essence, they are contracts between the public sector and a private party in which both entities share their skills and assets in delivering a service or facility for the use of the general public.

Each party shares in the risks and rewards of the venture. PPPs have taken place mainly in economic infrastructures such as power, transportation, telecommunications and water and sanitation.

Unsurprisingly, the most developed country in Africa, South Africa, has had the most experience with PPPs. Fifty PPPs have occurred on the national or provincial level and 300 at the municipal level between 1994 and 2005.

Furthermore, between 1992 and 2012, there were a total of 51 PPPs in the water and sewage sector in Africa, with a total investment during this period totaling a little more than $3 billion. This limited number of PPPs in these sectors are due to certain constraints that hinder the further success and development of PPPs in Africa.

These constraints include: inadequate legal and regulatory frameworks for PPPs, lack of technical skills to manage PPP programs and projects, unfavorable investor perception of country risk, Africa’s limited role in global trade and investment, small market size, limited infrastructure, and limited financial markets.

More simply, many companies believe the potential reward of a PPP venture into Africa is outweighed by the potential risk. Yet encouragingly, the belief that Africa is an attractive investment destination is much more likely held by a company, if it has already ventured in Africa.

According to data gathered from the Ernest Young 2014 Africa attractiveness survey, while only 39 percent of respondents without businesses in Africa thought that Africa’s attractiveness has improved over the past year, 73 percent of those with businesses in Africa thought the continent’s attractiveness improved over the past year.

It seems that the perception of Africa that many businesses hold does not match what is actually happening in the continent.

The likelihood that those numbers are primarily fueled by a mismatch of perception and reality rather than positive bias by companies willing to venture into Africa in the first place, greatly improves in light of another encouraging finding.

According to the same EY 2014 survey, Africa was the second most attractive region in the world to invest in. In 2010 it was the eighth most attractive region out of the world’s 10 regions and in 2012, the fifth.

While comprehensive, holistic data on PPPs in Africa is scarce, it is fair to think that their potential is vast on the continent. A World Bank report on PPPs found in Uganda’s 10-year experience in small town water PPPs, water connections have almost tripled since PPPs introduction in 2002. More than 1.5 million people are now served through PPPs in small Ugandan towns.

The report aptly concluded, “Involving the private sector has proven worthwhile even if the private party isn’t bringing much money in. Small-scale PPPs have a significant role in reaching the poor.”

Public, Private Partnerships are a valuable tool in solving Africa’s vast infrastructure deficits. Mitigating the impediments for these contracts would be an important step in providing basic services to hundreds of millions of Africans. But maybe more importantly, companies should dip their toes in the water holes of Africa, as they may be surprised with what they find.

– Connor Bohannan

Sources: African Development Bank, Earnest Young, National Treasury of South Africa, OECD, Venture Africa, The World Bank
Photo: Flickr

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Surprises in the Social Progress Index Rankings

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The gross domestic product (GDP) has become the primary way to evaluate how countries are doing. However, the Social Progress Index, launched in 2014 by the Social Progress Imperative, aims to provide a more comprehensive picture.

By only looking at the monetary value of goods and services produced within a country, it is easy for data to be skewed or not reflect the full picture. The GDP could be easily skewed by income inequality; consequently, developing countries with high levels of corruption or income equality would be seen as doing better than they actually are.

Purchases made on the black market and payments for cars and appliances besides original down payments are not included, even though this money is used for goods and services. Furthermore, goods produced but not necessarily sold are counted into the GDP, even if the products are sitting in a company warehouse.

The Social Progress Index looks at twelve different components within three different categories: Basic Human Needs, Foundations of Well-Being and Opportunity. In comparison with the GDP rankings, there are a few rankings that shouldn’t be a surprise: Norway, Sweden and Switzerland are the top three; all of the Scandinavian countries are in the top ten.

However, there are countries that, based on GDP, one might expect to be more highly ranked. The United States is sixteenth, China doesn’t break the top seventy and no Middle Eastern oil-producing country is ranked above 35.

Countries many consider to be more developing, such as Panama, Colombia and Malaysia, are in the top fifty countries. Ghana is ranked significantly higher than Nigeria, although they have similar GDPs.

To better understand these rankings, the Social Progress Index also includes scorecards for each country and categorizes elements of the data as either relative strengths or weaknesses.

China, for example, has many relative weaknesses in factors contributing to opportunity, including perceived criminality, political freedoms, average years women spend in school and private property rights. For the United States, freedom over life choices, maternal and child mortality rates and community safety net were among the relative weaknesses.

The Social Progress Index Rankings have much to offer organizations at all levels with regards to information and comparison building. This information can be used to help shape policy, guide partnerships and raise awareness on what can be improved in different countries.

Regardless, the Social Progress Imperative’s Social Progress Index, like other indices such as the OECD Better Life Index, raises important questions as to what individuals consider developed versus developing.

Looking at the Social Progress Index and the GDP, the differences between the more holistic Social Progress Index and the money-focused GDP are vast, thus supporting previous research and theories that place well-being at an individual or community level at equal or greater value to economic output.

Priscilla McCelvey

Sources: Quora, Social Progress Imperative, TED
Photo: Pixabay

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Global Peace Index Offers Critical Poverty Insights

Global Peace Index Offers Critical Poverty Insights
The Institute for Economics and Peace, or IEP—a think tank with offices in New York, Mexico City and Sydney—has released the ninth edition of their Global Peace Index. The Index makes use of 23 qualitative and quantitative indicators in an effort to illustrate the levels of peace around the world, highlight trends and inform policymakers.

Safety and security in society, the extent of domestic and international conflict, and the degree of militarization are the three facets that the IEP uses to gauge where global peace stands.

IEP views peace as a prerequisite to solving the major issues facing humanity. “It is a cross-cutting facilitator of progress, making it easier for individuals to produce, businesses to sell, entrepreneurs and scientists to innovate and governments to effectively regulate.”

Therefore, they study what makes societies peaceful in order to contribute to the debate on meeting the challenges facing a 21st century world.

They have identified eight pillars that are hallmarks of peaceful societies. A sound business environment, good relations with neighbors, high levels of human capital, acceptance of the rights of others, low levels of corruption, good governance, free flow of information and an equitable distribution of resources all help to establish peaceful societies. These pillars have complex interactions and “are both interdependent and mutually reinforcing, such that improvements in one factor would tend to strengthen others and vice versa.”

So, how is the world doing? The overall trend since the first edition, in 2008, has been a downward one. Although external conflict has significantly dropped, refugees and internally displaced persons, internal conflict, terrorism and violent demonstrations have more than taken up the slack, setting the stage for a less peaceful world.

Since last year, 81 countries have become more peaceful while 78 states have slipped. European countries continued their peaceful trajectory, while peace levels in the Middle East and North Africa have deteriorated significantly. The United States ranks 94 behind 21 African nations, and Iceland is the most peaceful country.

What is more shocking is that, by IEP calculations, violence cost the world $14.3 trillion in 2014, or 13.4 percent of global GDP. This cost has increased by 15.3 percent since 2008.

If the world was able to decrease violence by a meager 10 percent, enough money would be freed up to decuple (multiply by 10) the current level of official development assistance. This is important because IEP has also identified how closely aligned the Sustainable Development Goals are with the eight pillars of peace, implying that an increase in official development assistance would further reduce violence, putting into motion a virtuous cycle.

Although the idea that peace is beneficial for societies does not offer a radical new insight, IEP and their reports help quantify and illustrate just what type of violence is happening where, and why that may be.

For instance, IEP has found that high income inequality is associated with an increase in violence in urban environments, and that murder rates and urbanization are inversely correlated. These findings lay out a roadmap for policymakers to properly respond to and develop interventions that can help make the world a safer place.

– John Wachter

Sources: Vision of Humanity 1, Vision of Humanity 2
Photo: Visionofhumanity

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Why Offshore Accounts Hurt More Than Just U.S. Finances

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As of this year, more than $2 trillion is being stored overseas. This income is not taxable by the U.S. government and has cost the United States approximately $90 billion in tax revenue each year.

When a corporation such as Google, for example, makes profits, the company stores these profits in shell companies overseas in tax havens where the tax rates are very low or nonexistent. Bermuda and the Cayman Islands are two of the most commonly used tax havens in the world for U.S. companies.

The amount of subsidiary (shell company) profits in these nations is often many times the actual size of the tax haven’s gross domestic product, a showcase of the absurdity of the situation.

Various tax code holes and accounting magic constitute the ground for these practices that are essentially in the open but also largely ignored and unaddressed. By using offshore accounts, these companies pay on average a tax rate of 6.9 percent. The U.S. tax rate on this cash would have been 35 percent.

This systematic tax avoidance is unfair to the U.S. taxpayers and should be properly addressed and fixed. Those $90 billion a year could be used for great causes back on U.S. soil and abroad. This taxation loophole hurts everyone and not just Uncle Sam’s wallet.

The current amount of money that the United States spends on foreign aid is in the ballpark of $15 billion per year. If just five percent of the lost revenue ($90 billion) was used for foreign aid, this would increase funding by around a third.

About a third of the money dedicated to foreign aid is used for health purposes abroad–directly improving and saving lives. The rest of the money could help fund critical social assistance programs here at home as well.

By allowing corporations to evade taxation, the United States loses 90 billion chances a year to spend money on foreign aid to help people abroad, fund critical programs to help the poor in the United States and virtually anything else that could need funding.

The opportunity costs of not closing these tax loopholes are enormous to people abroad and people at home. It is an insult to American citizens, and to the aid workers who need more funds to help the poor and simultaneously give these very same corporations more consumers to court in the long run.

– Martin Yim

Sources: Forbes, Bloomberg, RT, NPR
Photo: Nation of Change

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How Economists Are Using Social Programs to Fight Global Poverty

Social ProgramsEncouraging immunization has long been a major focus for development organizations working to improve conditions in poor regions. But for households in many communities, a lack of time and money can pose major obstacles, making it difficult for families to send their children to health clinics.

In an effort to combat this trend, economists are testing incentive programs to see whether or not communities can be encouraged to immunize on a larger scale.

Across the Indian subcontinent, scientists and economists are using randomized controlled trials (RCTs) as part of a massive trial, testing whether incentives such as food can increase the “stubbornly low” immunization rates for children in impoverished areas. As part of the experiment, 70 local health clinics in the Indian state of Haryana provide parents with a free kilogram of sugar if a child begins a standard series of vaccinations and a free liter of cooking oil if they complete it.

Researchers randomly assigned clinics in the seven Haryana districts with the lowest immunization rates to either provide incentives or not. While initial results of the experiment are not expected until next year, similar experiments suggest that results are likely to be positive. In a study conducted in India and published in 2010, monthly medical camps caused vaccination rates to triple, and offering incentives increased the rate of vaccination by six times.

“We have learned something about why immunization rates are low,” said Massachusetts Institute of Technology economist Esther Duflo, who notes that for families in poor communities, sending their children on a trek to a faraway clinic can carry high opportunity costs. “And you can balance that difficulty with a little incentive.”

According to a 2011 study on vaccination rates in India, the country is home to one-third of the world’s unimmunized children, despite being a leading producer and exporter of vaccines. Nearly half of Indian children do not receive the full schedule of immunizations.

Among the leading causes of the vaccine deficit are “little investment by the government; a focus on polio eradication at the expense of other immunizations; and low demand as a consequence of a poorly educated population and the presence of anti-vaccine advocates.”

The implementation of RCTs has come at a time when people are raising doubts as to the efficacy of foreign development aid provided by countries like the United States. While some $16 trillion of aid has flowed to the developing world since World War II, there is little empirical data as to whether, and to what extent, that money has improved recipients’ lives. Scientists see these tests as the answer to that question and hold that such studies will help development organizations better target areas of need in developing countries.

Research organizations are primarily interested in implementing tangible policy changes and hope to do so by demonstrating empirical research regarding development aid. Such is the aim of the Global Innovation Fund, which offers funding for organizations looking to conduct similar tests.

The fund has received nearly 2,000 applications for projects in 110 countries, and it will announce the first wave of grant recipients later this year. The amount of funding provided by such organizations, however, is tiny, and even at major lending institutions, the portion of investments backed by rigorous and empirical research is small.

The World Bank started a Development Impact Evaluation division in 2005, and the number of projects receiving “formal impact evaluations”—by means of RCTs, for example—increased from 20 in 2003 to nearly 200 in 2014. But that only accounts for 15 percent of the bank’s projects. This is largely because of the up-front costs of such evaluations, which carry average funding requirements of nearly $500,000.

While expensive and time-consuming, the more empirical research is conducted on social programs and development aid, the more effective those initiatives will become in remedying the conditions that drive global poverty rates. As this information is presented to donor governments in the developed world, and as aid allocation becomes more transparent, development experts will be better able to target areas of need in poor and developing countries.

– Zach VeShancey

Sources: Nature, NIH
Photo: Nature

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How Economic Opportunity Reduces Child Marriage in India

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Child marriage continues to pose significant social challenges for countries around the world, but nowhere more than in India, where an estimated 47 percent of girls are married before their 18th birthday. But Indian state governments have developed promising programs to provide girls with opportunities aimed at weakening the social and economic arguments for marrying young.

While the Indian Prohibition of Child Marriage Act (PCMA) established legal ages for marriage at 18 and 21, respectively, for women and men, enforcement of the law depends on cooperation on the local level. Because the social and economic conditions that compel women to marry young have yet to be addressed, the PCMA remains largely ineffective.

According to Girls Not Brides, a global partnership of over 500 organizations working to ending child marriage, the primary factors driving child marriage are “economic considerations (poverty, marriage-related expenses/dowry), gender norms and expectations, concerns about girls’ safety and family honour, and lack of educational opportunities for girls.” While a National Action Plan to prevent such marriages was drafted in 2013, it is yet to be finalized.

State governments have adopted a number of policy initiatives to address the underlying conditions that compel children to marry. In late 2013, the government of West Bengal launched Kanyashree Prakalpa, a conditional cash transfer program intended to provide every indigent female student aged 13 to 18 with an annual scholarship and a $400 grant on her 18th birthday.

Girls must be unmarried to receive those benefits, which are meant to provide economic incentives for families that would otherwise marry off their daughters. According to Roshni Sen, one of the designers of the cash transfer initiative, nearly 3 million girls have enrolled in Kanyashree Prakalpa.

“They feel enormously enabled – it is not just the prospect of receiving money that excites them, but that they receive it in bank accounts that are opened in their names,” wrote Sen in an article for Devex. “It has put on hold their parents’ quest for a suitable groom. Most important, it has given them the opportunity to start a new dialogue with their parents, a dialogue in which they dare to speak of their future identities forged through continued education and professional training, identities which may – or may not – include marriage.”

Another initiative called Empowerment of Adolescent Girls, commonly referred to as SABLA and implemented by a district in West Bengal, is designed to help adolescent girls meet their nutritional requirements and to stay in school, with the goal of ensuring their eventual fulfillment of their rights to land.

According to Sen, strengthening women’s right to land can give them the resources they need to provide for their families on a long-term basis. It also helps organizations meet a number of development challenges, ranging from malnutrition to a lack of financial access. Under the program, government workers in West Bengal teach girls about their rights to attend school, their right not to be married before the age of 18, and their rights to assets, like land and other forms of capital.

These programs often help girls establish leverage with their parents, and evaluations of the program have found that “participating girls are more likely to stay in school, more likely to have an asset in their own name and less likely to be a child bride.”

Because national government policies depend on enforcement at the local level, smaller scale programs like SABLA are often better suited to remedying the deeply rooted social customs that drive phenomena like child marriage. As development organizations continue to focus on providing economic opportunity to vulnerable communities, poverty rates will decrease, and demographics like Indian women will be better able to realize their potential and gain the financial autonomy necessary for self-determination.

– Zach VeShancey

Sources: Devex, Girls Not Brides
Photo: Girls Not Brides

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Inflation in Brazil Hits New High

Brazilian Inflation Hits New High- BORGEN
As the 2016 Rio De Janeiro Olympics loom, Brazil finds itself in the midst of an inflation crisis. At a staggering rate of 9.56 percent, inflation in the South American nation is higher than it has been in 12 years. Brazil has not seen such a level since November 2003. This stark increase highlights one of the main problems facing Latin America’s largest economy.

Although the rising cost of electricity has likely played a role in the increasing inflation rate, the main reason behind the economic slump is a lessening demand for Brazilian products. China plays a major role as one of the nation’s consumers, but the Asian giant is suffering an economic slowdown as well. Dwindling demand for commodities from the Chinese is a central cause of Brazil’s economic woes.

Extremely fast price increases and the depreciation of the Brazilian real versus the U.S. dollar have opened the door for the country’s central bank to raise interest rates substantially. To combat rising prices, the central bank has raised interest rates to 14.25 percent. This number is among the highest of major world economies. Officials at the bank hope that this raise will help the country reach a target inflation rate of 4.5 percent.

However, the outlook is bleak. Brazil’s economy is projected to shrink 1.5 percent, according to the International Monetary Fund. Current statistics show the Brazilian economy ranked seventh in the world.

Dilma Rousseff, the president of Brazil, is actively trying to cut the country’s deficit. Rousseff supports several measures to both cut spending and raise taxes in hopes to get the country back on its feet. Facing fiscal setbacks and possible impeachment, however, Rousseff’s political influence is at a low point and her actions may be in vain.

Although high inflation in Brazil affects poor and rich alike, those living below the poverty line are being hit particularly hard. Long known as a nation with a shocking income gap, there is little sign that this discrepancy will improve in the near future. The poor find it difficult to strive in a prospering economy, let alone one that is dramatically faltering.

– Katie Pickle

Sources: BBC, Wall Street Journal
Photo: Flickr

 

 

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Global Public Goods: Financial Stability

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Global Public Goods (GPGs) — covered in an earlier Borgen post — are essentially goods that enhance the welfare of society when consumed and have associated effects that are not bound by discrete political units. Examples include the provision of knowledge, cleaning up oceans and eradicating disease. The expanding discourse around Global Public Goods has grown in tandem with globalization and international issues that are more technical like phytosanitary foods export, satellite transmissions and financial stability are being studied, explored and debated.

The idea of financial stability as a GPG is better viewed inversely. It is best to look at how the instability of financial markets create recessions, downturns and depressions that slow global output and either increase poverty or decrease the rate of poverty reduction.

Financial markets may be unstable for many reasons including poor oversight and regulation and mismanaged macroeconomic policies at the national level. Advances in financing practices and telecommunications have complicated things and the liberalization of capital flows has raised the level of instability. With increasingly integrated and complex financial markets, mistakes in one nation act as contagions with global effects.

A quick look at Europe’s headache over the debt crisis in Greece, who is now on a course to drop from the eurozone and “destabilize the region and reverberate around the globe,” which, in turn, was catalyzed by the 2008 Wall Street shocks, is a present-day example of how these interdependent markets can result in a type of shared vulnerability and of the far-reaching effects that an unstable financial system results in.

Unfortunately, developing economies are exposed to greater risk due to the volatility of capital flows and the difficulty for developing countries to access financing, something that has been called the double stability and efficiency problem. Many studies have quantified the cost of financial instability on developing countries and an analysis of the literature puts the cost at one percent of GDP per year from 1975 to 2000, resulting in a reduction of income for developing countries by 25 percent for that time period.

It is clear that unstable financial markets are a malady for a strong global economy and that their costs are unfairly distributed, with developing nations being the hardest hit.

So what can be done? The GPG framework advances a solution, one based on the recognition that “the world has made enormous strides in communications and interdependence between countries, yet we have not developed the policies or institutions needed to manage that process.” Therefore, international institutions are needed to ensure the stability of the financial market, precisely because it is an international affair.

The prescriptions for securing stability that this new institution would advance would likely include harmonizing and introducing codes and standards for financial sector regulation, surveillance and coordination of macroeconomic policies and enabling liquidity injections for severely struggling economies, among other technical fixes.

Although unlikely to draw a crowd, these efforts would have a real impact on fighting poverty and making the world a more stable place.

The work required to coordinate and implement something of this nature will require sustained international cooperation, but what better venue to begin than the Third International Conference on Financing for Development (IMF), which is taking place next week in Addis Ababa, Ethiopia’s capital. There, the IMF plans to discuss “international policy issues such as maintaining global financial stability and international tax cooperation.” Along with other international efforts and the difficult realities faced by financing the Sustainable Development Goals, Addis Ababa may prove to be a turning point for GPGs.

– John Wachter

Sources: United Nations Industrial Development Organization, The New York Times, International Monetary Fund

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Income Disparity Continues to Plague South Africa

Income Disparity in South Africa
The country of South Africa is divided among those with nothing and those with seemingly everything, making for extremely high rates of poverty for the country overall. The income disparity in South Africa has had an impact not only on the domestic economy and security, but also on the global economy.

Reports show that approximately four percent of households in the country of South Africa make up 32 percent of the country’s household incomes. At the same time, about 10 percent of the citizens live in what are considered extreme poverty conditions, meaning families are living on under $1.25 a day. This disparity has not only drawn attention to the state of the economy, but it has also put a significant strain on the social aspects of the country as a whole.

Though South Africa stands as the second largest economy in Africa, economic disparity amidst the population has created more social tensions and controversy than the numbers would anticipate. Research shows that rates of disparity between members of the 90th percentile and 50th percentile citizens, in terms of income and economic security, have been continuing to grow in recent years. This means that the likelihood of social mobility, say from working class to middle class, or any further for that means, are rather difficult, and nearly impossible.

Despite becoming a democracy, South Africa continues to suffer with inequality between its citizens. This has proven to be an issue regarding security, as the growing size of the lower class and number of impoverished people compares to that of the other four percent. Lack of education can be a great contributing factor to this, as the number of unskilled and uneducated workers heavily outweighs the number of skilled workers in the country. Lack of skill and education leads to less opportunity for the average South African worker. Thus, educating and teaching more skill sets to the people of South Africa may, in part, begin to decrease the growing gap that continues to drive the people of the country apart.

– Alexandrea Jacinto

Sources: CNBC Africa, World Policy
Photo: Daily Maverick

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What We Fail to Mention About Foreign Aid

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1. Foreign aid remains essential for developing nations. Providing healthcare, clean water, food, shelter, vaccines and schools can create opportunity. The catch we must avoid is generalizing these methods. Aid projects succeed when they target regions’ specific needs and histories.

2. We need to actually invest in the communities we serve. This requires “patient capital” which, according to CEO of Acumen, Jacqueline Novogratz, is “money that is invested in entrepreneurs who know their communities and are building solutions…thinking of low income people not as passive recipients of charity, but as individual customers, consumers, clients, people who want to make decisions in their own lives.” Patient capital is an inclusive approach to uplifting people out of poverty. While it requires risk, experimentation, and patience, the social impact can be enormous.

Journalist and activist, Andrew Mwenda, also advocates for wealth-creating “agents” that also give way to systems of productivity. “Wealth,” explains Mwenda, “is a function of income, and income comes from you finding a profitable trading opportunity or a well-paying job.” So, what is the solution? Entrepreneurs.

3. Economic gains in foreign aid investment beats the stock market. Paul O’Connell is the president and partner of FDO Partners, LLC, which is an investment management and research firm managing upwards to US$2.3 billion. O’Connell’s TedTalk, “Investments in the future: A new approach to foreign aid” talks about the economic gains from investing in poverty-related issues like vaccinations, education, and clean water, versus investing in the stock market. Investing in each category earns two to even six times the return in comparison to investing in stocks. O’Connell urges private investors to take the reigns on these investments because the payouts will be enormous.

– Lin Sabones

Sources: TED 1, TED 2, TED 3, Wall Street Journal, Oxfam America
Photo: USAID