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How China’s Foreign Investment in Africa is Helping Reduce Poverty

China’s Foreign Investment in Africa
Africa is going to play a key role in shaping the economic environment of the world for the rest of the 21st century. Being the most rapidly urbanizing area in the world and projected to double in population by 2050, addressing and controlling poverty levels in Africa will be of significant importance. Here is how China’s foreign investment in Africa is helping to reduce poverty.

Chinese Investment in Africa

One important method through which Africa is developing a strong infrastructure to support this rapid urbanization is through Chinese foreign direct investment (FDI). FDI is where a company based in one country invests in a project based in another country.

In the 21st century, China has made investments in African infrastructure. With more than 2,200 Chinese firms active in Africa in 2013 and Chinese FDI having risen from $74.8 million in 2003 to $5.4 billion in 2018, this poses great opportunities for Africa.

The World Data Lab predicts poverty is due to a steady decline up to at least 2030 in Africa. FDI will play a key role in providing opportunities for these individuals coming out of poverty.

As the World Bank outlined, China’s big role in African economic activity will mean that the economic transition in China will also affect economic growth in Africa. The World Bank outlined how China will have an important impact on Africa’s economy.

Ultimately, FDI has lots of potential for Africa, but it requires cautious treatment. Africa does not want to become dependent on Chinese investment nor does it want to go ahead with projects that do not prove to be sustainable or prosperous for African growth in the long term.

Infrastructure, Urbanization and Trade

The most important impact that China’s foreign investment in Africa has had so far is on developing infrastructure. Following China’s domestic experience of mass investment into infrastructure enabling advanced growth, they have initiated the same process in Africa.

China has led about 40% of all investment into infrastructure in Africa since 2011, including some major projects such as a $12 billion railway construction along the coast of Nigeria and an $11 billion economic zone and mega port in Bagamoyo. China is playing an essential role in enabling this to happen as it can provide the scale at a cheaper price than anyone else.

The benefits of China’s investments in Africa are numerous. Africa has a rich resource and mineral endowment that requires assessment. With China’s investment, opportunities to utilize this rich resource base are becoming greater. For example, Africa now supplies more than one-third of China’s oil and 20% of its cotton. On top of this, Africa is home to half of the world’s manganese, which is beneficial for making steel. Other resources that are essential for electronics are also in Africa.

Consequently, China’s FDI into infrastructure is propelling Africa forward in the global trade market. China has formed 25 special economic zones in Africa for trade. These areas include 623 businesses that have brought in $7.35 billion of trade up to 2020.

China’s foreign investment in Africa also shows potential in reaching out to boost the service sector also. This is due to the younger generations being increasingly digitally active, the rise of services around renewable energy and telecoms and the increased online accessibility of information concerning African markets. It is important to note that Africa’s more developed infrastructure played an important role in enabling this.

FDI has still prospered through COVID-19 due to more regionalized supply chains. This led to more investment in local manufacturing, taking advantage of Africa’s low labor costs. This has opened several new opportunities for African countries to reduce their poverty levels.

Long-Term Sustainability

However, countries in Africa need to remain alert to the potential risks of the tempting FDI pouring in from China. There are risks of African countries falling into unobtainable levels of debt. There have been signs of this danger already. For example, The Ababa-Djibouti Railway cost one-quarter of Ethiopia’s budget for 2016 and the Mombasa-Nairobi rail went four times above the planned budget for Kenya, with China financing 80%. This could catch up with Africa, becoming very vulnerable to Chinese economic shocks or very reliant on Chinese finance. Some have gone as far as to call this a form of Chinese colonialism in Africa.

As a result, some African nations have begun to change their approach to Chinese investment. In 2020, the Kenyan high court ordered the Gauge Railway construction to be canceled due to procurement laws. Other countries have followed in step, including Ghana and the Democratic Republic of Congo (DRC). This would suggest nations are becoming more cautious when entering a contract with Chinese investors as they are aware of the potential risks further down the line. As a result, alone, Chinese foreign investment in Africa will not be the solution to reducing poverty.

Countries in Africa need to remain aware that rapid investment into the continent will not see a parallel growth pattern to that of China. In contrast to China, Africa does not have a single unified market. Instead, Africa has many internal barriers to the trade of business, information and logistics. This reduces the positive effects of investment in a smaller region in Africa. The more intercontinental free trade agreements Africa can make, the more the individual countries may reap the rewards of Chinese FDI.

The Borgen Project Spoke to Serena Wang, who translates Chinese news and reports concerning Africa into English for the China & Global South Project. This helps to provide an insight into the ideologies, aims and activities of China in Africa.

“This has actually helped to dismiss Westernised myths about Chinese workers in Africa. It highlighted the racism that is present in Chinese activities but also proved that debt trapping was not as serious as reported by the West,” and “it showed a lot about the operations in China, including coal, cobalt, mining and the push into the tech industry,” explained Wang.

This proves useful for helping both the West and Africa understand the aims and activities that China has in Africa. This could be very important for African countries to ensure they undertake projects that are sustainable and properly understood.

The Future of FDI in Africa

The World Bank has proposed some important measures for countries in Africa to adopt if they are to maximize their returns from Chinese FDI. These include diversifying their products and exports, increasing their integration into global value chains and improving their business climate to expand exports. If fully maximized, the World Bank suggests that African GDP could expand by 4.7% by 2030. However, this is only the beginning. About 64% of the population in Sub-Saharan Africa would still be earning between $1.90 and $10 a day. This would be an improvement on levels in 2022 but not the end goal for Africa.

Overall, China’s foreign investment in Africa proposes many benefits for Africa that will create new markets and opportunities. This will ultimately help to reduce poverty levels across the continent. However, African countries need to be wary about their debt levels and entering Chinese investments that do not prove to be beneficial to the nation in the long term.

– Reuben Cochrane
Photo: Flickr

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Vision 2030: Poverty Eradication in Saudi Arabia

Poverty Eradication in Saudi Arabia
Vision 2030 is an ambitious Saudi government project to overhaul Saudi Arabia’s economy and society by the year 2030. Launched in 2016, its reforms include ambitious goals regarding poverty eradication in Saudi Arabia. Also and importantly, it hopes to transition Saudi Arabia from an oil-dependent economy to a diversified modern one. Together, the innovations in poverty eradication in Saudi Arabia and the transition to a more diversified economy should position Saudi Arabia as an economic leader in the Middle East. In fact, Vision 2030 has gained acclaim as a model for rapid modernization and innovative poverty eradication in middle-income and developing countries.

Renewable Energy Revolution

Two hallmarks of Saudi Arabia’s Vision 2030 are expanding job opportunities for young Saudis in non-oil sectors of the economy and reducing poverty by raising living standards. In 2016, the government announced its ambitious goal to acquire 50% of its energy from renewable energy by 2030. For this reason, it pledged a $400 billion investment to expand the renewable energy sector. In turn, this investment embraces new technologies that will expand economic opportunities for Saudi citizens in the renewable energy sector, and that leads to poverty eradication that can raise living standards in the country. The program will also reduce pollution and promote human health, important for poverty reduction. The Saudi move to renewable energy is also meant to curb Saudi carbon emissions that account for 4% of the total global output. 

Futuristic Commercial Hubs Could Make Saudi Arabia a Global Business Center

As part of Vision 2030, Saudi Arabia announced its intention to build Neom, a futuristic city in the northwest region of the country on the Red Sea coast. This $500 billion project positions Neom as a center for trade, investment, tourism and technology. The Neom project embodies the overarching Vision 2030 goals because renewable energy sources will power Noem entirely. Further, the project underscores the diversification policies of Vision 2030 because Noem will heavily on foreign investment to drive tourism and the use of Neom as a cargo hub.

Since the Saudi government launched Vision 2030 in 2016 foreign direct investment (FDI) in the country has skyrocketed from $5.321 billion to $17.625 billion as of Fall 2021. This increase in investment and trade is an indicator of modernization measures and accomplishments of Vision 2030.

Investments in Smart Technology to Drive Entrepreneurship

Saudi Arabia’s government pledged unprecedented levels of investment in developing the country’s technology sector. The hope is to become a knowledge-driven economy. The Saudi government pledged $6.4 billion for investments in smart technologies as part of Vision 2030 to make the country a center of the global technology industry. Part of this program has included a $1.2 billion investment in training 100,000 Saudi youths for careers in the smart technology sector. This will occur by improving digital skills including familiarity with AI, 5G and cybersecurity. For example, The Garage Start-Up District program encourages start-up companies and other entrepreneurs by providing grants, marketing and training support and full-service workspaces. By creating job opportunities for Saudis in a modern economy, these programs should reduce poverty rates for Saudis entering this emerging technology sector.

Smart Technologies to Promote Health Care Access

Just as much of Vision 2030 focuses heavily on the growth of the technology sector, the Saudi government also is using smart technology to promote quality health care access through mobile apps. One app called Sehha offers remote medical and preventative care. Launched in 2017, Sehha provided 2.1 million consultations by 2020.

Mawid, another health app, allowed 14.3 million Saudis to book 67 million medical appointments from 2018-2020. The Tabaud app was also one of the first of its kind in the world to provide its 3 million users with Bluetooth notifications of contact with someone who tested positive for COVID-19. This enabled users to quarantine and the government to effectively contact trace to contain outbreaks. This smart technology is particularly important for rural communities living further away from hospital infrastructure. These new innovations that safeguard human health boost the goal of eradicating poverty through having a labor force healthy enough to contribute to a modernizing economy.

Vision 2030 presents innovation in poverty eradication in Saudi Arabia while also striking a balance between development and environmental concerns. All of this is also important for reducing poverty by diversifying the economy and maintaining human health. If Saudi Arabia continues its ambitious economic reforms, it can present an appealing model for other middle-income and developing countries to replicate. Finally, modernization and poverty eradication would foster a more prosperous and stable world.

– John Zak
Photo: Flickr
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Foreign Investment Through the Prosper Africa Campaign

Foreign Investment Through the Prosper Africa CampaignForeign assistance helps people living in poverty while also benefiting the donor nations. Foreign aid helps domestic business interests because investment abroad in emerging markets opens the doors for more consumers. Furthermore, it stimulates demand for those domestic goods and services.

A new U.S. government initiative, called the Prosper Africa Build Together Campaign, is aiming to do just that by encouraging investment in Africa. The campaign promises development for recipients and new opportunities in key emerging markets for donors.

Africa’s Emerging Markets

Across the continent, income levels are rising. Some predict that by 2030 global household consumption will reach well over $2 trillion. Opportunities abound with urbanization in countries such as Nigeria, which holds seven cities with populations of more than a million people. By 2030, a fifth of the world’s consumers will live in Africa — with an increasing number of people breaking into the middle class. As GDP per capita continues to rise, so will the buying power for consumers across the continent. Additionally, Africa’s citizens will look to purchase more goods, including luxury goods. Already, Africa is the fastest-growing market for telecommunications and the second biggest market for mobile phones.

Prosper Africa Build Together Campaign

The Biden Administration promises to “elevate and energize” trade and investment across Africa. The Prosper Africa Build Together Campaign is the vehicle to accomplish that task. The goal is to get U.S. government agencies, African governments and the private sector to coordinate together in order to invest in development projects.

USAID states priorities for projects include “clean energy and climate smart solutions, health, and digital technology.” The private sector is key in this campaign as U.S. relationships with African countries start to shift while these nations continue to develop. More and more, relationships will evolve from being focused on aid to relationships focused on trade and investment.

The Prosper Africa Build Together Campaign is one mechanism of the Build Back Better World Initiative. The campaign encourages private sector investment which can help “on a scale that could never be matched on foreign aid alone.”

Prosper Africa Early Results

So far, the two-pronged approach of facilitating transactions and shaping future opportunities seems to be working. Prosper Africa fostered 800 deals, spurring more than $50 billion in exports and investments in over 40 countries across Africa.

For example, one success story comes from Ghana. An investment saved Global Mamas, a small firm that sells unique handcrafted products. Because of the economic hardship associated with COVID-19, Global Mamas saw its domestic revenue decline by 90% and lost almost 50% of its global revenue. USAID’s West Africa Trade and Investment Hub helped to secure $2 million of private funding to save the company. Furthermore, it set Global Mamas up for a sustainable future post-pandemic with projections of over $1 million in exports. The investment will save more than 250 jobs and establish 85 new jobs within one year. Additionally, the jobs go primarily to women who will be the primary earners of their household.

Looking Forward

Fighting global poverty is not only the right thing to do, it has benefits for domestic interests. Investing in key emerging markets helps to grow new consumer bases and in the end, everyone can prosper together. The Prosper Africa Build Together Campaign imagines such a world where we can fight global poverty by encouraging sustainable growth. But, it also supports the investor’s economy at home and improves the domestic industry.

– Alex Muckenfuss
Photo: Flickr

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Why Countries Should Be Investing in Brazil

investing in BrazilThere are numerous reasons to invest in foreign aid in general. That can include partaking in growing the global economy, promoting international human rights and opening donor countries to potential investment returns. What makes Brazil a particularly good market to invest in is its promising role in the global economy. There are several reasons why investing in Brazil is beneficial.

COVID-19 Response

As of January 2021, Brazil has the third-most COVID-19 cases worldwide. The Brazilian economy was not in its best shape at the start of the pandemic because it has not fully recovered from the 2014-2015 recession. This made the economy vulnerable to precarious economic shocks that resulted in increased poverty, unemployment and small business fragility.

The COVID-19 pandemic has left countries like Brazil with possible lasting economic damages. Many emerging and developing countries rely heavily on foreign aid for financial and humanitarian support. Offering foreign aid to Brazil will not only help pave the way for a domestic post-COVID recovery but also alleviate some of the negative impacts of the pandemic through humanitarian benefits.

Diversified Opportunities in Emerging Markets

The Brazilian economy is classified as an emerging market. Emerging markets are economies that are transitioning into a developed economy. Since the launch of the MSCI Emerging Market (EM) Index in 1988, which measures portfolio performances of emerging markets, investing in emerging countries proved to create new and diversified opportunities outside of common markets.

Market Expansion and Economic Growth

Since 2016, Brazil has shown an increase in GDP growth with approximately a 1.3% increase. In 2020, Brazil fell back into recession because of COVID-19. However, Brazil’s economy displayed growth and has played an important role in the growth of the Latin American economy as it makes up 35% of the Latin American GDP. It is approximated that the Brazilian market reaches 900 million consumers in just the Americas.

On how quickly the Brazilian economy rebounded, Bloomberg reports boosted domestic demand and exports with a 9.47% rise in economic activity index from July to September of 2020 in comparison to the previous months.

As Brazil recovers from COVID-19’s economic impact, it leaves opportunity for foreign investors to take advantage of Brazil’s growing market, especially with its low interests. Some of Brazil’s profitable sectors include real estate and agricultural goods like coffee, sugar cane, corn and soybean. Participating in these sectors expands Brazil’s domestic market and hence the world market size.

Geographical Location

Especially for the United States, Brazil’s proximity allows easier trade. For other advantages, Brazil’s geographical properties for the agriculture sector also make its commodities attractive. Approximately 28.7% of land is used for agricultural production which makes up more than 4% of the annual Brazilian GDP. Following China, the United States and Australia, Brazil has the fourth-most amount of agricultural land.

Foreign Investment Returns

Encouraging enterprises to invest in foreign aid can ultimately result in great returns. A common type of foreign aid for these corporations is Foreign Direct Investment (FDI). Through FDIs, corporations can potentially gain lasting interests, multinational consumers and flexible production costs. This type of foreign aid also brings developing countries like Brazil innovative technology, investment strategies, jobs and infrastructure from investing corporations of developed nations.

Foreign investment is critical to developing and emerging markets. Investing in Brazil promotes development and sustainability and also benefits foreign investors greatly. Furthermore, foreign investment assists economic recovery following unforeseen economic shocks like that of the COVID-19 pandemic.

– Malala Raharisoa Lin
Photo: Flickr

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Poverty in Bangladesh and Economic Growth

Poverty in Bangladesh
Bangladesh is a small country in South Asia bordered by India and Myanmar. With a population of 161 million, the country had a poverty rate of 21.8% in 2018. Since its inception in 1971, Bangladesh has faced a myriad of issues. In 1971, the annual GDP was -14%, the country was plagued by famine and floods and there were high rates of political instability. In recent years, the government has been actively working to reduce poverty in Bangladesh by addressing concerns across a variety of sectors. According to the Asian Development Bank, Bangladesh currently has the fastest growing economy in the region.

Involvement of NGOs

Several NGOs have been involved in Bangladesh’s economic success. These NGOs include Practical Action Bangladesh (PAB) and Proshika. These two NGOs have worked to implement policies that have allowed Bangladesh to better support its working population, namely by focusing on entrepreneurship.

Proshika is a Bangladesh-based NGO concerned with skills training and employee management. The NGO is responsible for starting the Small Economic Enterprise Development (SEED) program, which was created to help impoverished people and reduce poverty in Bangladesh. This program provides microloans, employee training, technology help, business consultation and more.

PAB has worked on a similar initiative in the form of the Markets and Livelihoods Programme (MLP), which provides training, technology help and more. These programs were studied in relation to the smith communities (blacksmiths, goldsmiths, etc.) in Bangladesh. The smith communities are some of the most impoverished in the country. In a 2015 paper published by Rezaul Islam at the University of Dhaka, Islam found that these programs were essential to allow these communities to prosper and create financial growth by encouraging entrepreneurship.

Diversifying Exports

Bangladesh has emerged in recent years as a major export provider for a variety of goods. In 2018, Bangladesh’s exports increased by 4.5%, increasing an additional 10.1% in 2019. Bangladesh is a significant producer of rice, jute, mangoes, vegetables and inland fish. Recently, Bangladesh has also been exporting technology, exporting four ships to India and 12 robots to South Korea.

Investing in Education

Bangladesh has also taken great strides to invest in the education of its young workforce. Every year, Bangladesh is seeing 500,000 students graduate from college, of which 65,000 receive IT training. This has transitioned Bangladesh’s economy from rural-based agriculture to a more urban and modern economy.

Bangladesh has also been working hard to address the gender disparity gaps in education. In 2015, Bangladesh was one of a handful of countries that managed to achieve an equal amount of school enrollment across genders and had more girls than boys enrolled in secondary education.

Developing the IT Sector

Bangladesh has developed the information technology (IT) sector of its economy, which now totals to a little more than 50% of the country’s GDP. The country has established around 8,000 digital centers across the nation and scaled up internet and phone coverage.

Annually, Bangladesh’s technology products exports total about $1 billion. The government hopes to increase this number to 5 billion USD by the end of 2021. The country also boasts about 600,000 IT freelancers.

Increases in Foreign Investment

All of Bangladesh’s economic growth has yielded another benefit: increased foreign investment. Investors from around the world have chosen to invest heavily in Bangladesh’s economy, demonstrating the strong growth potential of Bangladesh. In 2019, foreign investment increased by 42.9%. HSBC bank has predicted that Bangladesh can achieve a spot in the top 30 economies of the world by 2030.

Bangladesh demonstrates how growing the economy can help fight poverty. Increases in job opportunities, employee training, education and more benefit the impoverished in the country. Moving forward, it is essential that efforts to reduce poverty in Bangladesh continue.

– Anushka Somani
Photo: Flickr

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Prosper Africa Helps Address Global Poverty

Prosper Africa helpsTwo direct consequences of the alleviation of poverty in a region are economic growth and bolstered purchasing power. For countries that invest in the development of a region, there is the potential that a two-way economic relationship begins once that region’s population gains the necessary financial strength to buy more expensive consumer goods. The relationship between the United States and Africa reflects this trend, especially with the start of the Prosper Africa initiative. Prosper Africa helps end global poverty, starting with Africa.

Africa’s Economic Potential

Despite having struggled with chronic poverty issues, Africa is home to six of the 10 fastest growing economies in the world. With one billion potential consumers, Africa has the potential to become an economic powerhouse that can provide any international trading partner with a valuable destination for exports and a significant source of imports.

Seeing this opportunity, in 2018, the United States federal government launched the Prosper Africa initiative, which developed out of increasing requests by U.S. companies to have easier access to African markets.

With the oversight of the U.S. State Department and International Trade Administration, Prosper Africa offers U.S. and African businesses a wide-ranging set of economic tools such as access to financing, loan guarantees, insurance and business strategy advising. The program facilitates deals between U.S. and African businesses to foster a stronger two-way economic relationship between the United States and Africa.

Prosper Africa Shows Promising Signs of Success

According to a 2019 analysis by the Congressional Research Service, Prosper Africa has been implemented across the continent. Each U.S. embassy in Africa has created a team designated to fostering ties between U.S. and African businesses. Furthermore, the U.S. Development Finance Corporation has also launched an online point of access to the array of business tools that the initiative offers.

These efforts have had noticeable results across the continent. Since June 2019, Prosper Africa has facilitated more than 280 deals valued at roughly $22 billion in more 30 African countries, including Cameroon, Namibia, Sudan and Madagascar. These deals have been struck in sectors as diverse as healthcare, aerospace and financial services.

Prosper Africa helps countries in that it has also led to government reforms aimed at fostering a more transparent and efficient business environments in 10 African countries. These reforms ensure that small and medium-sized African businesses can access financial services and that governments can effectively implement necessary regulatory frameworks to govern business environments.

Ending Global Poverty is Beneficial for All

Prosper Africa helps Africa and the entire world because the fight against global poverty does not solely consist of one-way foreign aid investments. These investments have the potential to be the beginning of a healthy economic relationship between a developed nation and emerging economies. Once the United States takes the lead on an issue, the rest of the world follows. From addressing drug trafficking to addressing terrorism, the United States has shaped the focus of the international community on countless issues. Through Prosper Africa, the United States has the potential to lead the way once more and uplift the lives of billions in Africa.

– John Andrikos
Photo: Flickr

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Aceli Africa: Strengthening African Agribusinesses

African AgribusinessesOn November 30, 2020, USAID announced a joint operation with the Swiss Agency for Development and Cooperation and the IKEA Foundation to contribute $30 million to Aceli Africa to help bridge the financing gap experienced by many African agribusinesses. The grant is estimated to have a tremendous impact and will unlock $700 million in financing for up to 750 African agribusinesses in Tanzania, Kenya, Rwanda and Uganda.

Agri-SMEs Lack Financing

Much of Aceli Africa’s work focuses on a data-driven approach to incentivizing financial institutions to provide loans for small and medium-sized African agribusinesses or “agri-SMEs”, as Aceli Africa calls them.

According to Aceli Africa’s research, agri-SMEs represent a golden opportunity to solve hunger and poverty throughout Africa and help fulfill key U.N. Sustainable Development Goals (SDGs), such as gender equality and climate action.

This is because smallholder farmers consist of both men and women and provide direct access to food sources that are responsibly raised in accordance with the needs of the local environment. Furthermore, the expansion of the agricultural sector in Africa is two to three times more effective in eliminating poverty than growth in any other sector.

Despite the great potential of African smallholder farms, banks are largely unwilling to loan them much-needed financing to power additional growth. Banks do not have the risk appetite for small farms in Africa due to price volatility, the seasonality of farming, pest invasions and a weak regulatory environment.

The result of this is an investment shortfall of $65 billion per year for agri-SMEs in Africa. Initiatives focused on microfinancing do not provide enough financial injection for agri-SMEs, which are larger than the microenterprises that are the usual recipients of microloans. Agri-SMEs are thus left out of financing. However, the work of Aceli Africa aims to change these circumstances.

Aceli Africa Incentivizes Banks to Loan to Agri-SMEs

To bridge this gap in financing, Aceli Africa partners with numerous organizations such as USAID, the IKEA Foundation, Feed the Future and the International Growth Center to incentivize banks to loan and provide technical assistance to agri-SMEs.

This is where the aforementioned $30 million contribution has the potential to positively impact agriculture and African agribusinesses. One of the incentive programs that Aceli Africa employs is to cover the losses of the first loan that a financial institution gives to an African agri-SME.

This works by depositing 2-8% of the loan’s value in a reserve account that the lender can access when losses are experienced. This boosts risk appetite among lenders and makes banks and other institutions more willing to invest in agri-SMEs in Africa.

Aceli Africa also provides technical assistance for financial management for African agri-SMEs through online tools and other in-person approaches to help smallholder farmers optimize growth using the loans they receive. These approaches have the potential to put U.S. taxpayer dollars to effective use by addressing poverty and hunger abroad.

United States Outreach is Key in Combatting Poverty

USAID’s decision to partner with the Swiss Agency for Development and Cooperation and the IKEA Foundation to contribute to the work of Aceli Africa symbolizes the value and power of international partnership in the fight against global poverty. When the United States decides to lead on an issue, the rest of the world follows. Key international partnerships are essential for the United States to take the lead and garner international support to address key global issues.

– John Andrikos
Photo: Flickr

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Linking Poverty and Terrorism in Pakistan

Poverty and Terrorism in PakistanPakistan is a country in southwest Asia, with a population of about 212.2 million people. Of this population, about 24.3% of people lived below the poverty line in 2015. The country has struggled with years of terror, a poor economy and a corrupt taxation system, all leading to high rates of poverty. However, recognizing the cycle of poverty and terrorism in Pakistan, juxtaposed with recognizing the importance of assistance from the United States, highlights the importance of foreign aid.

Poverty and Terrorism in Pakistan

In Pakistan, four out of every 10 people are without essentials like food, shelter, access to healthcare and education. Furthermore, 22.5 million children are out of school, a statistic that is only worsening with the COVID-19 pandemic. Girls are especially affected as there are very few opportunities for female education or places in the workforce. Additionally, the taxation system targets those who cannot afford to pay their taxes. A whole 80% of Pakistan’s tax revenue comes from the poor, while only 5% comes from the rich. This inequality pushes the population further below the poverty line.

In addition to the poverty crisis, Pakistan has a long history of terrorism, which is a problem that only worsens humanitarian issues. The GDP is generally low for the country and has been shown to have an inverse relationship with terror-related killings. In 2010 specifically, killings were at an all-time high and the GDP plummeted. As a result, Pakistan has paid a steep price for its terrorism. Over 17 years, from 2001 to 2018, Pakistan spent almost $126.7 billion on damage involving terror-related incidents.

Importance of United States’ Involvement

While poverty and terrorism in Pakistan may seem like a Pakistani internal issue, it is not. For homefront reasons, the United States must continue to invest in Pakistan. As export income has proven, in 2019, the United States exported $2.6 billion worth of goods to Pakistan. This is crucial for the U.S. economy, as exports create a chain of supply and demand, which in turn, increases the need for more U.S. jobs. If the Pakistani economy worsens, the United States will export fewer goods, which directly impacts the U.S.

The need for the United States’ involvement goes beyond the economy though. About 8,600 U.S. troops are deployed in Afghanistan, in part due to the tense dynamic between Pakistan and Afghanistan. Many defense and security experts have implored the United States to continue working with Pakistan to improve relations with Afghanistan. Providing more foreign aid for Pakistan helps its relations with Afghanistan, which increases the possibilities of sending U.S. troops back home. Furthermore, foreign aid allows Pakistan to improve its economy by increasing security, which decreases terrorism. Decreasing terrorism in Pakistan is a national security benefit for the United States as well, thus improving both countries’ living conditions.

Save the Children

Save the Children is a nonprofit organization based in the United States that works to provide global solutions to children impacted by terror and social unrest. In Pakistan, 500,000 children are internally displaced and another 1 million refugees come from Afghanistan. These high rates of homelessness are a result of the mass amounts of violence, political unrest and poor diplomatic relations with other countries. With children making up over 48% of Pakistan’s population and 38% suffering from malnutrition, children in Pakistan are overlooked.

However, Save the Children has provided solutions to help Pakistani children. It has lifted 86,000 Pakistani children out of poverty. Furthermore, the organization has worked with programs such as the National Health Emergency Preparedness and Response Network to train healthcare workers to provide reproductive health services. Through the Literacy Boost approach, the organization was able to increase reading comprehension by 30% for Pakistani children. Save the Children also advocates for children’s rights, educates young girls and women and provides shelter and supplies to that extreme violence most affects.

The Need for Foreign Aid to Pakistan

United States’ foreign aid helps the humanitarian crisis in Pakistan but also provides benefits for the U.S. Save the Children demonstrates the impact of U.S. humanitarian relief in impoverished countries like Pakistan. There is a critical need to continue to support Pakistan and being in a position to help people in need is reason enough.

– Alyssa Hogan
Photo: Flickr

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Giving Businesses Incentives to Invest in Developing Countries

Incentives to Invest in Developing CountriesIn an era of large corporate business and capitalism, many low-income nations are struggling to increase economic growth. Although industries like fast fashion utilize cheap labor in developing countries, these companies neither invest in local economies nor help improve living standards for their employees. Businesses have the potential to play a major role in strengthening low-income economies and bringing citizens out of poverty. Thus, it is critical to create and publicize incentives to motivate businesses to invest in developing countries.

Incentives for Investing

  1. Fiscal Incentives. Fiscal incentives are one of the most common incentives used to attract businesses to developing countries. Fiscal incentives include tax exemptions, tax holidays and loans. Other examples include reduced restrictions on shareholders and stocks, as well as greater access to domestic and international partners. These rewards can be provided by local or city governments, and are designed to encourage businesses to expand into developing countries. The presence of fiscal incentives in these nations can draw in new investors, skilled workers and economic growth.
  2. Privileged Treatment. Some businesses, especially major corporations, may ask for “preferential treatment in the domestic market.”  Privileges could include increased access to resources, less regulation and priority for business decisions.
  3. Resources and Infrastructure. If a business opens in a developing country, it may possess the authority to demand lower infrastructure costs or resources. These businesses can also request lower interest rates on imports and exports in order to expand their international networks, as well as request resources to increase long-term investment domestically and internationally. Large corporations often have the power to request assistance in increasing local ties with other firms and organizations. Overall, due to developing countries’ strong desire for economic investment, companies choosing to establish this presence gain access to a plethora of resources.

Potential Risks

While incentives for businesses to invest in developing countries are certainly important, disadvantages to this practice are also worth noting. Incentives can distort the market and even create dominant monopolies. Monopolistic competition makes it difficult for small businesses to gain traction and thrive long-term, which can lead to unemployment for many local workers and business owners. Furthermore, with fiscal incentives come greater risks for inflation, corruption and fraud. Therefore, although incentives may be critical in creating economic growth and development, it is important to address their drawbacks.

Deciding Whether to Provide Incentives

In sum, encouraging large businesses to operate in low-income countries boosts profits and yields exposure to new markets. Perhaps more importantly, though, developing countries themselves benefit immensely. Corporate presence from just one company opens the door for other businesses to expand into these countries, attracting new jobs, income, resources and opportunities. This economic growth can help reduce extreme poverty by involving more citizens in the job market.

However, it remains essential for developing countries to acknowledge the potential drawbacks of corporate investment and make economic decisions accordingly. Regardless, providing incentives for business investment has the potential to give hope to low-income countries aiming to improve life for their citizens.

– Sophia McWilliams
Photo: Flickr

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5 Countries That Show Development Assistance is a Two-Way Street

Development AssistanceThe Development Assistance Committee (DAC) is a division of the Organisation for Economic Co-operation and Development (OECD). It facilitates economic development worldwide, partly by providing financial assistance to developing countries. The DAC currently has 30 members, including the U.S., Japan and the European Union. According to analysis organization DevelopmentAid, 155 countries received development assistance from these members and of other non-member donors in 2018.

Development Assistance Programs

Official Development Assistance (ODA) distributes financial assistance annually to low-income, lower-middle- and upper-middle-income status countries. Eligibility is based on national per capita income. Countries transcend eligibility once they exceed the high-income threshold set by the World Bank for three consecutive years.  The highest Gross National Income (GNI) was $12,376 as of 2018.

Many countries have graduated from being ODA recipients to become donors themselves. Researchers from the Overseas Development Institute found countries become donors when possible both out of morality and the recognition that aid can “lubricate commercial, trade and investment opportunities” for a donor country. But, it’s not just high-income countries that recognize this. Some nations have become development donors even while still being ODA recipients. Below are five such countries that are both aid donors and recipients simultaneously, proving foreign aid is often a two-way street.

Five Countries That Prove Foreign Aid is a Two-Way Street

  1. Brazil. With a 2019 GNI of $9,130 dollars, Brazil is an upper-middle-income country. It is an ODA recipient, receiving about $430 million in net ODA and official aid in 2018. According to the data organization Development Initiatives, Brazil’s biggest donors are Japan, Norway and Germany. Most of its ODA capital is directed to improving water and sanitation, agriculture and food security and infrastructure. However, Brazil has long been a donor nation, too. In 2010, the Brazilian government found that from 2005-2009 the country invested “more than $1.8 billion dollars into international development” efforts. In 2010 alone, Brazil disbursed $1 billion in aid abroad. One year later, it received that same amount itself in ODA financing. Brazil’s donations largely go to Latin America, the Caribbean and sub-Saharan Africa, particularly for peacekeeping and humanitarian purposes.
  2. South Africa. South Africa is an upper-middle-income ODA recipient with a 2018 GNI of $5,750. It received about $915 million in net ODA and official aid in 2018. In 2011, it received $1.5 billion, but it disbursed $209 million, according to Development Initiatives. Accurate assessments of total contributions and contribution breakdowns are hard to acquire because South Africa’s foreign aid programs are managed by various government organizations. Nevertheless, the country has several successful programs like the African Renaissance and International Cooperation Fund, which have steadily increased contributions since launching in 2001. South Africa’s foreign aid primarily fosters development across Africa. Conversely, as an ODA recipient, the country gets most of its ODA aid from the U.S., EU Institutions and Germany. It is directed primarily toward health issues.
  3. India. As of 2018 data, India is considered a lower-middle-income country. Its GNI for 2019 was $2,130, an all-time high for the country. However, as a nation far from the high-income threshold, it still receives substantial foreign aid. In 2018, it received $2.45 billion in ODA and official aid. The biggest ODA donors to India are the International Development Association, Japan and Germany. These funds are primarily spent on improvements in infrastructure, health and education. However, in 2011, while India took the third-largest share of ODA aid with $5.4 billion received, it also became the sixth-largest non-DAC member donor country. It disbursed $787 million toward international development cooperation. India’s contributions primarily support technical and economic development in Africa. 
  4. Chile. Chile was removed from the ODA eligibility list in 2018, having reached high-income status. It remained at $14,670. However, before achieving this status, Chile’s international development cooperation had been bilateral. The country was helping other nations throughout the world. Though its main beneficiaries are in Latin America and the Caribbean, Chile disburses money to a variety of areas for various purposes as needed. For example, it contributed $100,000 toward the crisis in Syria. The OECD estimated that in 2010, Chile’s overall contributions reached $42 million. However, it still received ODA at that time. In 2012, Chile was an upper-middle-income country and received $126 million in net ODA, largely from France and European Union institutions.
  5. Indonesia. With a 2018 GNI of $3,840, Indonesia is a lower-middle-income country that received just under $950 million in ODA and official aid in 2018. In 2011, Indonesia received $3.7 billion, making it the tenth-largest recipient of ODA. Japan is its largest donor. Almost 25% of all aid goes toward improving the country’s infrastructure. Despite still receiving such a large amount of foreign aid, Indonesia is seeing some growth. ODA’s share of national GNI has steadily decreased while government spending has increased. Moreover, in 2019, Indonesia created the Indonesian Agency for International Development to ramp up the country’s own participation in foreign aid. The agency will manage a $283 million endowment fund the government has set aside for development cooperation.

Development assistance benefits both national and global economies because it allows countries that don’t have sufficient funds internally to build domestically as well as participate in trade with other nations. This supports the logic in development aid flowing both ways in several countries. Brazil, South Africa, India, Chile and Indonesia are just five countries that exemplify such a circumstance.

– Amanda Ostuni
Photo: Wikimedia