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Emerging Markets

Emerging Voices: Natalie Bugalski and David Pred on the Dark Side of Development

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is from Natalie Bugalski and David Pred of Inclusive Development International. Here they discuss the World Bank’s Safeguard Policies review process. For the first time in over a decade, the World Bank is conducting an internal review of its Safeguard Policies, which aim to ensure that Bank projects do not cause social or environmental harm. Civil society groups are advocating for the Bank to bring these policies in line with international human rights and environmental standards and consistently apply them to all Bank operations. The Bank’s senior management, on the other hand, seems more concerned with making the Bank a more attractive lender that can compete with increasingly powerful state financiers, such as Brazil and China, by ensuring there are fewer strings attached to loans. However, this move would hurt the very people the Bank is supposed to help. The current World Bank Group president, Jim Yong Kim, has set two ambitious goals for the institution: eliminating extreme poverty by 2030 and boosting the incomes of the bottom 40 percent of the global population. In order to achieve these goals, Kim wants the Bank to be less risk averse and support more “transformational large-scale projects.” Kim refocusing the Bank’s strategy on its original mandate of reducing poverty is commendable, but many NGOs, including our organization, Inclusive Development International, worry that this will mean gutting the Bank’s binding social and environmental requirements and replacing them with more lax standards. In past decades, Bank-financed mega-projects, conducted without consulting local communities, caused a series of social and environmental disasters and sparked protests around the world. In response, with pressure from the U.S. Congress, the Bank adopted stronger policies to protect communities and ecosystems. During Congressman Barney Frank’s tenure as chair of the House Financial Services Committee, Congress also used its power of the purse to demand the establishment of the Inspection Panel. Over the past two decades, the Panel has enabled affected communities to hold the Bank accountable when safeguard policies are violated. Regional development banks have followed suit by adopting safeguard policies and accountability mechanisms of their own. In fact, several regional banks now have stronger standards than those of the Bank. One of the most glaring areas where the Bank has fallen behind is in protecting people affected by Bank projects from forced displacement and ensuing impoverishment. According to the Bank’s Independent Evaluation Group, at any one time more than one million people are affected by involuntary resettlement caused by active Bank projects. Displacement is often accompanied by violence and corruption, and threatens livelihoods, education, food security, and mental and physical health. Although the Bank has a resettlement policy aimed at avoiding these negative outcomes, gaps in the policy and its implementation have meant that local communities displaced by Bank projects continue to face adversity and human rights violations. The Nam Theun II Hydropower Project in Laos is an apt example of the need for human rights due diligence, and for ensuring the informed participation of people impacted by development projects. The construction of Nam Theun II displaced 6,200 indigenous people and affected more than 110,000 people downstream. In the closed society of Laos, there was no open and thorough consultation process in which people could raise objections to the project. The Bank and its partners largely ignored the repressive political environment and proceeded with the project without meaningfully consulting the affected communities and responding to their concerns. Today, according to the organization International Rivers, the local population is still struggling to recover their livelihoods after they lost access to critical natural resources. Development projects in Ethiopia further highlight why the Bank needs to adopt stronger human rights standards. Since 2006, the Bank has provided over $2 billion to help the Ethiopian government provide basic services to its citizens. However, under the guise of improving services for rural communities, the government has embarked on a mass relocation program affecting an estimated 1.5 million people. According to Human Rights Watch, the program has involved the violent, forced relocation of tens of thousands of indigenous peoples from their fertile ancestral lands to more arid areas, where promised basic services are often deficient or absent. In some cases, this has led to starvation and many victims of the program have fled to neighboring countries seeking sanctuary. There are clear links between this abusive government campaign and the Bank’s Protection of Basic Services project, as argued in a complaint brought to the Inspection Panel in September 2012. Yet the Bank has not applied its resettlement policy to this case, standing behind the Ethiopian government’s dubious claims that the relocation is “voluntary,” despite strong evidence to the contrary. In addition to the Safeguard Policies review, the Bank is also currently engaged in negotiations for the seventeenth replenishment of its International Development Association (IDA) fund, which provides concessional loans to low-income countries. Once this process is completed, Congress will be asked to approve the United States’ financial contribution to the IDA. This gives the legislature considerable influence to shape the Bank’s social and environmental protection policies for the next twenty years. Congress should use its leverage to encourage the Bank to harmonize its policies with international human rights standards. It is imperative that the hard-won gains of adopting binding safeguard policies and establishing an Inspection Panel to enforce them are not undone. Rather, the Safeguards Review and IDA 17 Replenishment negotiations should be seized as an opportunity to ensure that the rights of poor and vulnerable communities are protected and promoted in all Bank projects.

Blog Post by Guest Blogger for Isobel Coleman October 30, 2013 Development Channel
Capital Flows

Global Economics Monthly: October 2013

Bottom Line: In the face of uncertain capital flows, an international network of swap lines would help to ensure adequate liquidity and act as a significant enhancement of the global financial safety net. Should the International Monetary Fund (IMF) and major central banks provide credit lines to countries facing sharp outflows of capital? In 2007, 2010, and 2011, the Federal Reserve's dollar-swap lines with other central banks played a critical role in stabilizing markets and ensuring an adequate supply of dollar liquidity. Now, in the context of sudden reversals of capital flows ("sudden stops"), there are proposals for new swap or credit arrangements for emerging markets and for the periphery of Europe. These proposals have their virtues, though perhaps not the ones their proponents claim. Swap Lines, the Fed, and the IMF The idea that the International Monetary Fund (IMF) should coordinate a global network of swap lines gained currency during the financial crisis, partly in response to complaints from countries excluded from the Fed's swap lines. The Fed's prudential concerns, along with a mandate to limit swaps to countries viewed as threatening global financial stability, highlighted gaps in the global safety net. In addition, the Fed's swap lines were temporary. The primary argument for a new arrangement rests on the observation that in today's financial markets—highly leveraged, complex, and interconnected—adequate liquidity is central to avoiding crisis. This suggests the need for something more comprehensive and permanent. This debate is not new. A group of Asian countries led by China launched a regional swap plan in 2010 (the Chiang Mai Initiative), and, in the run-up to the Seoul G20 Summit, the Koreans floated a proposal for a global network of swaps modeled on Chiang Mai. Around the same time, motivated in part by concern that the Asian arrangements would compete with it as a global financial authority, the IMF floated a proposal for an IMF-backed network of swaps. These proposals never gained broad support, and with the easing of the crisis the pressure for reform went away. The catalyst for renewed debate was the reversal of capital flows from emerging markets, beginning in June, based on expectations that the Fed would begin to exit from quantitative easing. The most developed proposal comes from Ted Truman, who in a recent piece calls for a global network of central bank swap lines coordinated by the IMF. Central banks would retain control over the lines, though the IMF would identify the need and decide when systemic risks warrant activation of the lines. The plan would be a significant enhancement of the global financial safety net, though the complexity of the proposal, the magnitude of the liquidity commitments it requires from central banks, and the central role it gives to the IMF are sure to raise opposition in major capitals. Emerging Markets: The Next Big Crisis? A number of emerging markets have seen a large capital outflow, precipitating sharp financial market moves and forcing a tightening of policies. Attention has focused in particular on the "fragile five"—Brazil, India, Indonesia, South Africa, and Turkey—countries with substantial financial markets, large current account deficits, and financial imbalances. But in other respects, it is hard to see these problems as the start of a systemic economic crisis. For example, in contrast to conditions at the time of the 1997 Asian financial crisis, most of these countries have substantially higher international reserves to act as a buffer against capital flow reversals. External imbalances are manageable and more of the debt is of longer maturity. Consequently, the risk of a sharp run on banks, which happened in Korea in late 1997, seems less likely. Markets have stabilized recently. Nonetheless, corporate and financial sector leverage remains high in many countries, posing an uncertain but continuing risk of runs. Precautionary and Contingent Credit Lines Still, it is hard to argue against the notion that countries should do more to get ahead of a possible crisis and prepare for contingencies. The IMF offers credit lines to countries vulnerable to global shocks but with otherwise strong policies.[1] However, the stigma associated with turning to the IMF has limited the use of those programs. In 2011, the IMF discussed the possibility of simultaneously offering credit lines to a group of countries as a way of overcoming resistance to these programs. The idea was that prequalifying countries would lessen the pain associated with having to approach the IMF for support. The problem with this idea is what to do when a country's policies worsen, or are subsequently seen as inadequate. Drawing on a credit line cannot be a substitute for necessary policy reform. Even so, I see a case for an expanded use of precautionary lines as a signal to markets and to strengthen a country's defenses against market turmoil. Progress is possible in the current discussion of how to support countries in the European periphery. Ireland and Portugal may request contingent credit lines from Europe's Economic Stabilization Mechanism (ESM) to help them exit their IMF-supported adjustment programs. In Ireland's case, a contingent line would be a transitional arrangement to signal to markets that the country continues to have European support. In Portugal's case, a new bailout is likely, though both the government and its European creditors are loath to admit it. As a consequence, European leaders appear resistant to provide a credit line to Portugal; that is a pity. Moreover, other countries in the periphery could benefit from contingent lines from the IMF. So what purpose do these credit lines serve? In practical terms the lines are the framework for the needed expansion of the safety net and for "more Europe." If this approach helps to achieve improved governance in Europe, then that would be a major step forward. More generally, a network of IMF-supported swap lines would strengthen the global safety net and provide an important buffer against future sudden stops in capital flows. Looking Ahead: Kahn's take on the news on the horizon The Cliff Is Dead, Long Live the Cliff A U.S. government shutdown is in effect with no clear exit strategy. A far more material and potentially damaging standoff on the debt limit looms. The World Bank and IMF Meet Meetings later this week between the world's two major financial institutions will reveal anxiety about growth and capital flows, but offer little agreement on what to do about it. Abenomics' Second Arrow The issue is fiscal sustainability over the medium term, without killing growth now. The decision to go ahead with the consumption tax is good on structural grounds but has renewed growth fears. Endnotes ^ The two main programs are a flexible credit line (FCL) for countries whose policies would be adequate absent global financial market volatility, and a precautionary credit line (PCL) for those countries where some policy changes would be needed.

Report by Robert Kahn October 7, 2013
Americas

New From CFR: Shannon O’Neil on Foreign Direct Investment in Latin America

In 2012, Latin America received more foreign direct investment than ever before. In a recent blog post, Shannon O’Neil describes the implications of this investment. She explains: Foreign direct investment is not an unencumbered good—stories abound about foreign-owned companies flouting domestic laws, exploiting labor, and degrading the environment. But it remains an important and sought after tool for economic expansion…when focusing on economic development more broadly, not all money is created equal. Read her full post here.

Blog Post by Development Channel Staff October 2, 2013 Development Channel

Energy and Environment

What Africa Needs to Succeed

In the early 2000s, Africa’s future seemed grim. The Economist’s May 13, 2000 cover declared “Africa: The Hopeless Continent.” But over a decade later, when The Economist again devoted a feature story to the continent, the message had changed entirely to “Africa Rising.” A new book by Jonathan Berman, Success in Africa: CEO Insights from a Continent on the Rise, aims to explain how this transformation happened and what the world can expect from a now-hopeful continent. Berman argues that three simultaneous revolutions - in governance, education, and communications - have catapulted the region forward. Indeed, for eight of the past ten years, Africa grew faster than East Asia, with a solid 4.2 percent growth in GDP in 2012 and 5.3 percent projected for 2014. The proportion of poor Africans fell from fifty-eight percent in 1999 to 47.5 percent in 2008. The number of AIDS-related deaths fell thirty-two percent between 2005 and 2011, and the region now boasts the world’s fastest-growing middle class. Berman rightly lauds the sound economic management and investment strategies that have propelled the economies of countries such as Ghana, Kenya, Tanzania, Botswana, and Gabon. In addition, the book profiles hard-charging African CEOs such as James Mwangi, the CEO of Kenya’s Equity Bank, which boasts nearly 8 million accounts and a market capitalization of over $1 billion; and Funke Opeke, a Nigerian businesswoman and CEO of Main One Cable who is helping wire and bring transformational high-speed, affordable Internet access to the continent. These business leaders, with their world-class skills and long-term visions, are forging new markets, driving growth, and raising both economic and political expectations along the way. Although some African nations have made promising progress, the reality is that economic and social reforms have occurred unevenly across the continent. Some countries, including the Democratic Republic of the Congo, Nigeria, and Angola, are still held back by rampant corruption, severe inequality, and undiversified economies. The continent faces several other challenges as well. Perhaps its most pressing issue is education. Africa’s workforce, currently made up of nearly 400 million people, is expected to grow by 122 million people this decade, becoming the largest in the world by 2035. This represents a huge economic opportunity, but one that Africa will be able to take advantage of only if it is able to upgrade its education system. Today, children in sub-Saharan African countries spend an average of just 4.7 years in school - attaining only rudimentary math and reading skills. And thirty-five percent of African youth have no access to secondary school or technical training. A related source of long-term concern is that Africa’s current mix of economic activity, which is mostly related to resource extraction, will not generate a sufficient number of jobs to soak up Africa’s youth bulge. The International Labor Organization reports that between 2000 and 2007, the working age population grew in Africa by 96 million people but there were only 63 million new jobs created. As we’ve seen in the Middle East, having a majority of unskilled and unemployed youth in a population is a huge risk factor for conflict. This is particularly important given the rise of extremism in the Sahel and West Africa. In Nigeria, for example, where there is rampant unemployment, government corruption, and too little formal education, youth are ripe for radicalization by Islamic jihadist organizations such as Boko Haram. Berman doesn’t ignore these real challenges, and readily acknowledges that although the positive trends he emphasizes are still underway, their outcomes are “by no means certain.” Nevertheless, Success in Africa helps change the lens through which Africa is viewed. Readers will come away with a greater appreciation for the dynamism, innovation, and economic potential of the continent.

Blog Post by Isobel Coleman September 20, 2013 Development Channel
Americas

The Road Ahead: Strategies to Support Women Entrepreneurs

The Multilateral Investment Fund of the Inter-American Development Bank (IDB) and The Economist’s Intelligence Unit recently published their inaugural Women’s Entrepreneurial Venture Scope (WEVenture Scope) report, which ranks twenty countries in Latin America and the Caribbean based on their business climate for women entrepreneurs. “Women entrepreneurs in Latin America and the Caribbean are potentially one of the greatest underutilized resources in the region,” the report finds, noting that over the past twenty years, a more women in Latin America and the Caribbean have become active in the workforce, which has spurred economic growth. According to the report, Latin American women’s growing incomes led to a thirty percent reduction in extreme poverty from 2000 to 2010. The report’s authors suggest that this reduction would be even more dramatic if there were more female entrepreneurs in the region. Despite mounting evidence that empowering businesswomen has widespread economic benefits, however, their social and economic potential remains largely untapped. The WEVenture Scope report shows that because women in Latin America and the Caribbean are unable to access the capital, resources, skills, and networks that they need to develop their businesses, many female-run microenterprises cannot grow into the small and medium enterprises (SMEs) that drive countries’ job-creation and economic growth engines. In addition, over half of the women entrepreneurs surveyed in Latin America and the Caribbean participate only in the informal economy, leaving them more vulnerable to corruption and further limiting their access to financing. The barriers facing women entrepreneurs in Latin America and the Caribbean are hardly unique to the region. In its 2012 Women’s Report, the Global Entrepreneurship Monitor (GEM) showed that although women’s participation in entrepreneurship differs across regions, there are still fewer women than men entrepreneurs in almost every country. The exceptions: Panama, Ecuador, Mexico, Thailand, Nigeria, Ghana, and Uganda. In fact, studies have shown that women in Latin America and the Caribbean are more likely to pursue entrepreneurial activities than their peers in almost any other region of the world. GEM data shows that twenty-seven percent of the female population in Sub-Saharan Africa and fifteen percent in Latin America and the Caribbean are engaged in entrepreneurship, but women’s entrepreneurship rates in the Middle East, North Africa, Europe, and Asia barely reach five percent. The GEM report highlights a number of factors that could contribute to the low rate of female entrepreneurship worldwide. For example, women usually start their own businesses out of economic necessity rather than opportunity and frequently have less confidence in their entrepreneurial abilities than their male counterparts do. The report’s authors stress that these challenges need to be put in context, noting that gender disparities have cultural and institutional roots, given that entrepreneurship is often a male-dominated field with few female role models. Still, women entrepreneurs continue to play a growing role in economic growth. As of 2012, there were more than 126 million women around the world starting or running their own businesses and an additional 98 million leading established businesses. Many of these women-led businesses employ women as well as men, and more women entrepreneurs enter markets every day. With fewer barriers in the forms of access to capital, markets and networks, those numbers should climb even higher.

Blog Post by Gayle Tzemach Lemmon August 21, 2013 Development Channel
China

Global Economics Monthly: August 2013

Bottom Line: Growth is slowing in China, which could constrain the pace of rebalancing and policy reform. China's long-term growth could disappoint markets. If you are an English football fan, you may have noticed an odd occurrence this preseason: the big teams are all touring in Asia. Booming shirt sales and rising viewership apparently are sufficient evidence that the Asian consumer is the future. Rebalancing is here. For a more nuanced assessment of China's rebalancing and future growth prospects, the International Monetary Fund's (IMF) annual review of the Chinese economy is worthwhile reading. It raises several questions about growth and reform, the tradeoffs between the two, and the financial pressures ahead, which the news coverage failed to notice. Good Slowdowns and Bad Slowdowns Everyone agrees China's economy is slowing, but why it is slowing matters. The IMF's view is that the underlying momentum of the economy is strong. It forecasts growth this year of 7.75 percent, above the government's own 7.5 percent forecast, though the IMF acknowledges the risks are on the downside. Strong credit growth and signs of stabilization in investment are expected to support activity, while weak external demand, financial market uncertainties, and spillovers from the recent weakness in economic activity could weigh on growth. If the IMF is correct, there is room for a more aggressive reform agenda—even if such reform is likely to slow growth in the short term. These reforms would aim to contain financial risks while transitioning the country to a "more consumer-based, inclusive, and environmentally friendly growth path." Conversely, many market participants see growth slowing more sharply, with forecasts for this year and next in the 6 percent range and downside scenarios of below 5 percent. At the same time, forecasts also broadly assume that there is a floor below which the government is not prepared to allow growth to fall. The government could try and protect this floor through easier fiscal policy, along the lines of the spending and tax incentives announced in mid-July. But the scope for such policies is limited, given the ongoing pressures to rationalize spending and financial policies. (Though, as shown in Chart 1, the recent tightening of credit conditions has proved temporary.) Consequently, weak growth dynamics could lead the government, under pressure from anti-reform critics, to slow the pace of reform. I wonder if the focus on growth is warranted. Domestic commentary tends to highlight jobs, household income, and other indicators besides growth as driving policy. Further, to the extent that Beijing thinks economic reform is central to its ten-year mandate, weak growth could be a justification for faster, not slower reform, in order to bring forward the consumer benefits of a rebalanced economy. But the general concern throughout the IMF report seems to be that low growth should not be an excuse for delaying reform. Figure 1. Chinese Shibor, Deposit, and Lending Rates Source: shibor.org. Certainly some structural reforms do boost growth. Opening markets spurs investment, and rebalancing should support the expansion of consumer-goods industries. But the IMF acknowledges that in China's case the most important reforms are likely to be a drag on growth in the near term. The IMF's policy prescription involves reining in credit growth and other measures to limit excessive risk-taking in the financial sector; allowing greater room for market forces (such as liberalizing interest rates, which will lead to higher borrowing costs for many firms); revamping local government and state-enterprise spending and investment; and eventually moving to a more market-oriented exchange rate. In the long term, these reforms promise major benefits. In the short term, however, this package of measures slows investment and growth, and brings long-simmering financial imbalances to the surface. Given such uncertainties, it is understandable if Chinese authorities are slower to act than the IMF hopes. The Two Financial Crises? Much of the focus recently has been on the prospects of a near-term financial crisis arising from years of overinvestment in low-return projects. In this regard, the Chinese government has to do two things: fix the incentives and put in place a new financial architecture, and deal with the overhang of bad debts and insolvency. Credit booms and busts often involve costly cleanups, both in terms of fiscal policy and lost growth. Figure 2. Relationship Between Fiscal Cost of Crisis and GDP Growth Source: International Monetary Fund, People's Republic of China: 2013 Article IV Consultation. The IMF report touches on a number of important debates regarding the right sequencing of liberalization. One issue being hotly debated now is whether the government, in general, and the central bank, specifically, have gotten the sequencing of liberalization wrong by prioritizing capital-account liberalization. While the report endorses the idea that opening to international capital flows can be an important anchor and discipline on markets, it also acknowledges that given significant domestic distortions, opening prematurely can worsen the misallocation of capital. To its credit, the IMF report also focuses on the longer-term growth prospects and the need for rebalancing over time. One implication of efforts to rebalance is that the pattern of returns across the economy needs to change, creating winners and losers. The return on capital will fall, and the return on labor will rise. This will mean additional losses and additional financial stress during the transition. And this, in turn, implies the possibility of a second financial crisis along the path to rebalancing. The prospect that problems today may not manifest for many years underscores the importance of not losing focus on the longer-term challenges facing China. Heading to 6 Percent? The majority of market participants, save for those predicting a collapse in China, are expecting that Beijing will aim for 7 percent growth in the medium term. Advocates of this growth optimism will find little comfort in the IMF report. One element of the growth outlook is adverse demographics. As shown in Chart 3, China is on the verge of a sizeable demographic shift due to a shrinking workforce and aging population. In the next twenty years, a sharp increase in retirement-age workers, coupled with a decline in young workers as a result of the one-child policy, will both reduce labor-force growth and increase the strains on the safety net. According to one report, China's elderly dependency ratio—the number of people over 64 as a share of the working population—is set to rise from around 11 percent today to around 24 percent in 2030. Figure 3. Youth and Old-Age Dependency Ratio Comparison Source: "China's Demography and Its Implications," by Lee, Xu and Syed (IMF Working Paper). The IMF raises the possibility that a shrinking labor force could create a profound shift in labor-market dynamics known in the economics world as a "Lewis turning point," where surplus labor dries up and causes a surge in relative wages. While this is good for the rebalancing story (though many of these near-retirement workers will maintain high savings rates in coming years), it means a smaller contribution to overall growth from labor-force growth. In the IMF's reform scenario, investment also slows over time as the economy becomes more consumption-oriented. In the context of declining growth in labor and capital, growth will fall sharply absent a substantial upturn in productivity. Here the IMF offers a mixed message. On the one hand, it argues that the long-run productivity effects of a strong reform effort could be profound. But the IMF also acknowledges it will take time. In sum, these risks look tilted to a period of lower growth, not unlike the long-term growth forecasts prepared by the Organization for Economic Cooperation and Development (OECD) and private-market analysts. China's ability to finance investment is facing increasing constraints due to shrinking resources and becoming more reliant on liquidity expansion, with associated risks of financial instability and asset bubbles. Altogether, the IMF report is most consistent with the view that Chinese growth will slow steadily in coming years, that reform will be slow, and predictions of a Chinese rise need to be tempered. At the same time, China remains central to regional and global supply chains. Whether China takes a risk with an ambitious reform effort and rebalancing effort, or slows its transition in an effort to protect growth, will tell us a lot about the outlook for global growth. Looking Ahead: Kahn's take on the news on the horizon Fiscal Cliff Returns History suggests a deal will be reached, but the showdown over government funding and the debt limit is likely to be messier than anticipated. Argentina Debt Ruling A court ruling, expected soon, is likely to be negative for the government. Greek Financing Gap Soars The IMF estimates an 11 billion euro gap, ensuring a showdown post German elections.

Report by Robert Kahn August 5, 2013

Americas

Emerging Voices: Public-Private Partners in Development

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is by Deirdre White, president and CEO of CDC Development Solutions (@CDCDevSolutions). Here she discusses the limits of foreign aid and how the private sector can help further development goals. Due to years of national economic turmoil, the future of U.S. foreign aid is now uncertain. In May, Congress proposed capping next year’s foreign aid budget at $40.6 billion, which is fifteen to twenty percent less than the current amount of $51.7 billion. The recent sequestration has reduced international assistance programs by another $1.7 billion. Fortunately, several advances bode well for the future of economic development. First of all, over the next several years, a number of today’s developing countries—including Ghana, Mozambique, and Tanzania—are expected to move into the ranks of the middle income countries, joining states such as Chile, Brazil, and South Africa. With more wealth, these countries should be better equipped to help their underserved citizens. Still, many organizations in these countries, including government agencies, businesses, and nonprofits, require foreign assistance; but more than traditional direct aid investment, these organizations now need elite professional training. Thus, as the U.S. government begins to cut foreign aid spending, there is an enticing opportunity for private sector organizations to step in and provide much needed skills-transfers and training. Seeking to cultivate this approach to development, the State Department and USAID hosted a Forum on International Corporate Volunteerism last month that recognized the catalytic impact of training programs for organizations and individuals in emerging and frontier markets. Representatives from Amazon, Citibank, IBM, CDC Development Solutions (the organization I work for), spoke at the event, as companies learned how they can use their resources to further global development. Drew O’Brien, the State Department’s special representative for global partnerships, championed the effectiveness of innovative public-private partnerships. In his opening remarks, O’Brien explained “Corporate volunteer programs bring private sector innovation and experience to our diplomatic and development work . . . At the same time, they help to achieve our foreign policy objectives.” Jim Scott, senior advisor to the NGO Seed Global Health and a panelist at the event, described how his organization’s Global Health Service Corps (GHSC) is cultivating stronger, more sustainable health systems by training doctors and nurses in underserved areas. This year, GHSC will send thirty-three physicians, nurses, and medical professionals to African countries on year-long assignments. Rather than providing direct medical services in rural areas that do not currently have access, these volunteers will work with government ministries of health and education to train dozens of local practitioners in medicine, psychology, and nursing. This type of program will enhance the knowledge base of current and future generations. One GHSC volunteer, who will be travelling to Malawi, is a child psychologist. According to Scott, there are no child psychologists currently practicing in that country. Thus, the volunteer plans to work on a strategy to secure the practice of child psychology in Malawi after she leaves, in addition to training local professionals in the practice. It is these types of long-term plans and partnerships that will help emerging and frontier markets overcome many challenges. More than direct funding, developing communities abroad need expertise. “What would happen if every Fortune 500 company fielded 100 employees per year?” asked Stanley S. Litow, president of the IBM Foundation and vice president of IBM’s Corporate Citizenship efforts, speaking about the long-term potential of the initiatives he oversees. “Collectively, we would deploy 50,000 of the most talented leaders around the world to solve some of the most difficult problems facing society.” IBM, which is celebrating the five-year anniversary of its Corporate Service Corps, the largest program of its kind, recently deployed a team of volunteers to Brazil to work with Casa da Criança, a NGO that serves youth centers across the country. Since 1999, the organization has managed over $19 million in donated products and services; mobilized 2,000 architects, interior designers, and artists; and has worked with nearly 30,000 partner companies. In four weeks, the IBM team helped train Casa da Criança in a new business approach that integrates digital technologies into their work and will enable the organization to manage their products, services, and partnerships more effectively and efficiently. The NGO expects to enjoy an eight percent gain in productivity and efficiency by using these technologies. This corresponds to $117,000 in annual savings. Over a five-year period, these new practices should save the organization enough money to serve an additional 600 children. In many African countries as well, business acumen could help jumpstart economic development. The journalist Ben Schiller pointed out in his recent Fast Company article that many entrepreneurs in emerging markets need to develop strong management skills more than they need funding. The private sector is in an ideal position to develop and benefit from training programs that spur economic development in emerging and frontier markets. At the end of his recent tour in Africa, President Barack Obama remarked, "I believe that the purpose of development should be to build capacity and to help other countries actually to stand on their own feet. Instead of perpetual aid, development has to fuel investment and economic growth so that assistance is no longer necessary." Innovative programs led by private sector actors, in partnership with NGOs, governments, and individuals can bring the world closer to this vision. As Special Representative O’Brien eloquently described, “We are fortunate to work in a field where there is no such thing as a bad idea. For every problem or issue that’s out there, there are solutions and partners that are waiting.” Now is the time for such partnerships to flourish.

Blog Post by Guest Blogger for Isobel Coleman July 25, 2013 Development Channel
Global

The Rest Leapfrogging the West: How Rising Incomes and Technological Innovation Are Driving Financial Inclusion in Emerging Markets

Isobel Coleman hosts Robert Annibale, Global Director of Microfinance, Citigroup, and Shamshad Akhtar, Assistant Secretary-General for Economic and Social Affairs, United Nations, for a discussion about how to reach the two billion people who do not have access to formal financial services. This roundtable was generously supported by the Center for Financial Conclusion at Accion, which is leading the Financial Inclusion 2020 Campaign.

Event with Robert Annibale, Shamshad Akhtar and Isobel Coleman May 29, 2013
Emerging Markets

New From CFR: Backgrounder on South Africa’s Economy

In a new CFR Backgrounder, CFR.org’s Christopher Alessi explores the lingering inequalities in South Africa’s economy and the obstacles to faster growth, from educational failures to a shortage of labor-intensive manufacturing. As he writes: ...despite the great advances of the past twenty years, the economic circumstances of most South Africans have remained largely unchanged. Income inequality, a legacy of apartheid-era education policies, remains the greatest challenge facing South Africa today, experts say. The failure of the governing African National Congress to deliver on its economic promises has fueled social unrest and poses a threat to its leading economic and political position in Africa. You can read the full Backgrounder here.

Blog Post by Development Channel Staff May 22, 2013 Development Channel
Emerging Markets

New From CFR: John Campbell on Brazil’s Role in Africa

Yesterday on his blog, CFR senior fellow John Campbell wrote about Brazil’s involvement in and assistance to Africa. As he argues: Brazil’s expanding role in Africa is overshadowed in the international media by China and India’s larger role. (So, too, is South Africa’s role.) But, Brazil’s approach to Africa appears to be the more broadly based, with important political and developmental aspects, as well as economic. You can read the full post here. The Development Channel has also been following the role of emerging donors through Emerging Voices posts and a Question of the Week series about China and Africa. Last month, CFR senior fellow Isobel Coleman analyzed the proposed BRICS development bank, a potentially important milestone for emerging donors.

Blog Post by Development Channel Staff May 2, 2013 Development Channel
Emerging Markets

Lessons from Emerging Markets

Join Joyce Chang, Richard Clarida, and Peter Henry for a discussion of how emerging markets have responded to the global recession of 2008-2009 and potential lessons for developed countries. Inaugurated in 2002 in memory of Council member John B. Hurford, this annual lecture features individuals who represent critical new thinking in foreign policy and international affairs.

Event with Tim Ferguson April 22, 2013 John B. Hurford Memorial Lecture
Emerging Markets

Democracy in Development: The BRICS Development Bank

Yesterday I published an article on ForeignPolicy.com posing ten questions about the BRICS development bank, recently announced by BRICS leaders, and its implications for global development. One question is whether developing countries will welcome the bank. As I write: Probably. China is known for extending loans and resources without conditionality around touchy subjects like governance, and if the BRICS development bank follows suit, it’s hard to imagine many countries saying no to easy money. Still, there’s likely to be some skepticism, in no small part because of China’s inevitably outsized role in the new bank and also because of the mixed reviews China gets from its global south trading partners. You can read the article here and an excerpt on my blog here.

Blog Post by Isobel Coleman April 10, 2013 Development Channel
Energy and Environment

Investing in (and from) the BRICS

In a recent interview, Goldman Sachs’ Jim O’Neill, whose pen gave birth to the concept of the BRICs—the constellation of emerging economic powers Brazil, Russia, India, and China (and now including South Africa)—said the countries’ combined growth had “exceeded all expectations.” Noted O’Neill, “in slightly over a decade the group’s GDP has grown from approximately $3 billion to $13 billion. The BRIC countries have the potential to avert a global recession and to grow faster than the rest of the world and to pull all of us along with them as a (growth) engine.” As each of the BRIC economies has grown their combined economic strength has made an impact on Foreign Direct Investment (FDI) flows—both inward and outward. Indeed, they have helped to alter the map of global investment. A recent report from the UN Conference on Trade and Development (UNCTAD) vividly illustrates this shift. “Since 2010,” it says, “developing and transition economies have absorbed more than half of global FDI inflows, and in 2012 FDI flows to developing economies, for the first time ever, exceeded those to developed countries—with US$130 billion more.” The numbers tell the story of a collection of emerging nations that have evolved into a growth engine even while the global economy has sputtered, as I discussed in a post last week. In the past decade “FDI inflows to BRICS more than tripled to an estimated US$263 billion in 2012.” Even financial crisis and recession did not hit the BRICS as hard: flows fell by 30 percent in 2009 compared to 40 percent for the developed world. And the recovery also arrived in faster order: the BRICS’ share of global FDI reached 20 percent in 2012, “up from 6 percent in 2000.” As the foreign dollars have piled up the investment dollars have poured out and the BRICS have become global investors of significant financial heft. Outbound foreign investment from the BRICS grew from “$7 billion in 2000 to $126 billion in 2012, rising from 1 percent of world flows to 9 percent.” Most notable among the investment stories is the growth of BRICS investment in Africa—and not simply in primary goods such as minerals or petroleum, but in the services and manufacturing sectors. In 2012 BRICS foreign investment accounted for a quarter of Africa’s inflows. According to UNCTAD, “the rise of FDI in manufacturing, which has positive consequences for job creation and industrial growth, is becoming an important facet of South–South economic cooperation.” All of the BRICS minus Brazil now count “among the top investing countries in Africa on FDI stock and flows.” And even while the numbers are smaller, Brazil has had an impact on investment in Africa. The Brazilian Development Bank has helped to fuel the growth of the ethanol industry in countries including Angola and Mozambique. And other Brazilian banks have helped to fund housing developments. As the BRICS continue to invest in Africa their funds raise important questions for policymakers and investors alike. Among them, as UNCTAD asks, is “what policies by BRICS could favor investment in Africa in sectors that can make a particular contribution to productive capacity building and employment generation?” And how can BRICS investors best link to local firms through supply chains and local procurement? These questions and more are sure to confront both business and the public sector as the BRICS become ever more central to global investment flows.

Blog Post by Gayle Tzemach Lemmon April 1, 2013 Development Channel
Emerging Markets

Human Development, Inequality, and the BRICS

In South Africa this week a group of emerging nations, Brazil, Russia, India, China, and South Africa itself, known as the BRICs (the moniker given by Goldman Sachs in 2001), gathered to launch their own development bank. The New York Times called the move “a direct challenge to the dominance of the World Bank and the International Monetary Fund.” Observers immediately asked whether the countries have enough in common to form an economic alliance of any kind and questioned whether they could share goals given their usual roles as competitors. Yet regardless of the fate of the bank, what is certain is the rising clout of the emergings. As the United Nations 2013 Human Development Report notes, “by 2020, according to projections developed for this Report, the combined economic output of three leading developing countries alone—Brazil, China and India—will surpass the aggregate production of Canada, France, Germany, Italy, the United Kingdom and the United States. Much of this expansion is being driven by new trade and technology partnerships within the South itself.” The numbers are particularly staggering given the historic shift they represent. As the UN report notes, “in 1950, Brazil, China and India together represented only 10 percent of the world economy, while the six traditional economic leaders of the North accounted for more than half. According to projections in the Report, by 2050, Brazil, China and India will together account for 40 percent of global output, far surpassing the projected combined production of today’s Group of Seven bloc.” These figures represent a dramatic shift in people’s lives. The middle class is expected to be more than 3 billion strong by the year 2020, up from 1.8 in 2009. This growing group will boost demand for everything from commodities to goods and services and will represent a new hub for entrepreneurship and innovation. Yet alongside all the growing prosperity is the more worrisome issue of global inequality. This inequality at its most potent can stymie development and suffocate the potential of those who were born the wrong sex or race or the wrong social or ethnic or economic group. Most of the regions in the UNHDR show “declining inequality in health and education and rising inequality in income.” The UN identified three factors that have helped to foster growth and combat poverty among those nations in the global South that have achieved greatest progress: “a proactive developmental state, tapping of global markets, and determined social policy and innovation.” Along with these three factors, education has been a leading driver of development and produced “striking benefits for health and mortality.” According to the UN report, its research found that “mother’s education is more important to child survival than household income or wealth is and that policy interventions have a greater impact where education outcomes are initially weaker. This has profound policy implications, potentially shifting emphasis from efforts to boost household income to measures to improve girls’ education.” For a long time researchers have pointed to the positive power of girls’ education in boosting development outcomes. Now with the Human Development Report’s data it is possible that more focus will be placed on innovations such as unconditional cash transfers, such as those issued by the charity GiveDirectly, that get money into the hands of girls, who then can use it for school fees and uniforms. One of the report’s many compelling graphs compares educational attainment in South Korea and India. While in the 1950s a large part of Korea’s school-age children were out of school, “today, young Korean women are among the best educated women in the world: more than half have completed college. As a consequence, elderly Koreans of the future will be much better educated than elderly Koreans of today, and because of the positive correlation between education and health, they are also likely to be healthier.” In India, on the other hand, before 2000 more than half the country’s adults had no formal education. According to the report, those grim numbers have changed little. “Despite the recent expansion in basic schooling and impressive growth in the number of better educated Indians (undoubtedly a key factor in India’s recent economic growth), the proportion of the adult population with no education will decline only slowly. Partly because of this lower level of education, particularly among women, India’s population is projected to grow rapidly, with India surpassing China as the most populous country.” As the rise of the global South moves forward the questions of equity and access will continue to grow louder, even as the region’s overall boom continues.

Blog Post by Gayle Tzemach Lemmon March 28, 2013 Development Channel
India

Why Growth Matters

Two preeminent experts on the Indian economy argue that despite myriad development strategies, only one can succeed in alleviating poverty: the overall growth of the country's economy.

Book by Jagdish N. Bhagwati and Arvind Panagariya January 4, 2013