Emerging Markets

Iran’s Sanction Are Gone, but Not Its Corruption Corruption presents a huge hurdle for Iran. It ranks 136 out of 175 countries in Transparency International’s Corruption Perceptions Index, and 118 of 189 in the World Bank’s Doing Business report. Despite earning $650 billion in oil profits over the last eight years, billions went missing, and little found its way into public goods such as infrastructure. Still, as international sanctions lift, European and Asian companies including Daimler, Airbus, Total, Eni, and Statoil have or are considering ventures. The UK government even published a guide on doing business in Iran, noting the prevalence of customs that violate its Bribery Act. Corruption Undercuts African Defense Spending A new Transparency International report documents widespread vulnerabilities to corruption in African defense spending.  Though risks vary by country, budget opaqueness (40 percent of countries surveyed fail to publish one), and lack of auditing or oversight for defense spending are common themes enabling corruption. A few examples of exploiting these weaknesses: Uganda’s military paid $740 million for six Russian fighter jets worth $327 million and disbursed $324 million in salaries to ghost soldiers over the past twenty years. Egypt classifies its estimated $4.4 billion defense budget as a state secret. A heavy uptick in African military spending exacerbates potential for graft, doubling over the past ten years to $50 billion in 2014. Many African states spend disproportionately on defense relative to Organization for Economic Cooperation and Development (OECD) nations, diverting money away from vitally-needed healthcare and education. Transparency International goes so far to suggest that corruption fuels extremism across the continent–all the more reason to require greater openness and accountability. Taking on Mexico’s Corruption…in Spain Spanish authorities detained Humberto Moreira, former chairman of Mexico’s ruling Institutional Revolutionary Party (PRI), on charges of embezzlement, bribery, and money laundering of €200,000 sent to Spanish bank accounts. The proceeds are allegedly from his time as governor of Coahuila, during which state debt grew from $27 million to $2.8 billion. Mexican investigations against Moreira were quickly dropped, though the United States indicted two of his top officials for money laundering—his former finance secretary pleading guilty. Mexico’s unwillingness or inability to hold public officials accountable contrasts sharply with other Latin American countries, notably Brazil and Guatemala, where arrests of high-level officials reflect growing activism in policing illicit cash flows. Yet Moreira’s arrest shows that even when domestic corruption investigations fail justice may be done, as foreign authorities are increasingly able and willing to step in.

Oil Prices Plummet—Will Subsidies Follow? As crude prices fall below $30 a barrel, oil-producing states face mounting fiscal challenges. Saudi Arabia’s 2015 deficit neared $100 billion, roughly 15 percent of gross domestic product (GDP);Venezuela’s reached 14 percent; and Algeria expects foreign reserves to fall by $30 billion in the coming year to cover its looming fiscal gap. Across commodity-dependent nations finance ministers are looking to cut budgets. Energy subsidies are an obvious target, as these expensive and inefficient payments distort markets and undermine development. In December, Saudi Arabia reduced fuel subsidies and prices went up 50 percent. Algeria promised to cut energy subsidies (though in the short term, they are rising). Even in Venezuela, where citizens pay less for gas than water, rumors are the government is considering a hike. The hesitation? Price increases during recessions don’t go over well; in Venezuela, the unpopular move helped bring Hugo Chavez to power. Companies Accountable for Rights Violations Globally The United States is increasingly holding multinational companies liable for human rights abuses in other countries. This week, the U.S. Supreme Court upheld a verdict that found Nestlé guilty of aiding and abetting child slavery by knowingly purchasing cocoa from Ivory Coast suppliers that use child labor (Cargill and Archer Daniels Midland were also accused in the original case). Where Nestlé lagged, Intel is leading—announcing that it expects to entirely eliminate conflict minerals from sourcing and production this year. It is one company of many companies working to comply with Section 1502 of the Dodd-Frank Act, requiring them to disclose the use of “conflict minerals” to the Securities and Exchange Commission (SEC). Poland’s Democracy in Doubt Democracy is faltering within the European Union (EU). In Poland, long considered Eastern Europe’s democratic anchor, the right-wing Law and Justice Party (PiS) used its absolute majority to replace five judges on Poland’s constitutional court and mandated a two-thirds majority to overturn legislation, in defiance of a judicial challenge and thousands of protestors. The PiS then moved to “legally” curtail rights. President Andrzej Duda signed a law enabling his government to dismiss and replace state radio and television executives, inciting rumors that he may nationalize the media. Yet unlike many other governments that supress freedom of expression and dissent, Poland may face sanctions. The European Commission responded by launching an investigation into whether the new legislation violates the EU’s rule of law framework and democratic norms. Hungary, which managed to avoid EU sanctions for its own authoritarian shift, promises to block any action.

Voices from the Field features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is authored by Sarah Degnan Kambou, President, and Lyric Thompson, Senior Policy Manager, of the International Center for Research on Women (ICRW). UN Women recently hosted a dialogue with women’s rights advocates from around the world to discuss how to link the world’s new development framework, the Sustainable Development Goals (SDGs), with the world’s women’s rights framework, which was designed to promote and achieve gender equality. The theme of the discussion was an acknowledgement that, as scholar and former UN official Anne Marie Goetz noted in her remarks, women’s rights activists did not initially mobilize around the SDGs. Despite a belated start, women’s rights groups ultimately conducted considerable advocacy through various forums, including the Women’s Major Group, the Commission on the Status of Women, and online and regional consultations with the goals’ drafters. This effort bore fruit: with respect to women’s and girls’ issues, the SDGs represent a considerable improvement over their predecessor, the Millennium Development Goals (MDGs) when it comes to the inclusion of women and girls. As with the MDGs, there is a stand-alone goal dedicated to gender equality, but the level of ambition has increased considerably, from the previous promise to “promote gender equality and women’s empowerment” to today’s commitment to “achieve” gender equality and empowerment of both women and girls, which echoes what is outlined in the world’s women’s rights framework. Under this overarching gender goal, there are a series of targets the world hopes to achieve in the next fifteen years. Importantly, these include numerous issues that were wholly ignored in the MDGs—violence against women and girls chief among them. As we mark the close of the 16 Days of Activism to End Gender-Based Violence, we should celebrate the inclusion of targets focused on ending child marriage, female genital mutilation, trafficking and exploitation, and violence against women and girls in the SDG framework. Other important women’s rights issues—such as the burden of domestic and unpaid care work, economic rights, sexual and reproductive health, and political participation—are also included. Additionally, girls, in particular, are referenced eleven times across the agenda’s seventeen goals---a big change from the MDGs, where girls’ needs were barely mentioned. So where do we go from here? First, while the goals and targets of the SDGs have been adopted, a measurement and accountability framework is still in development—and this will really be where the rubber hits the road. The new goals will mean little if they are not tracked, measured, and financed.  In his final progress report last summer, UN Secretary-General Ban Ki-moon pointed out that the most neglected goals of the MDGs were those focused on women and girls. We cannot let this happen again. To truly achieve the goals that are set under the measurement and accountability framework, however, we need to get creative. One as-yet untapped resource could be the private sector, which has been highlighted by governments as a critical partner in achieving the SDGs. Indeed it seems as if not including the private sector will handicap our efforts to improve women’s lives and spur economic development. Recent research has shown that India alone loses approximately $56 billion a year in potential earnings due to early pregnancy, early marriage, secondary school attrition, and under- or unemployment among young women. If we don’t fix some of the biggest barriers to girls’ and women’s empowerment and economic opportunity, we’ll see this trend of tremendous economic loss continue in other countries throughout the world. The need for private sector involvement in achieving these goals and targets becomes even more salient when you consider that private sector financial flows dwarf official development assistance. As such, it’s critical that those in the private sector are tapped to support the women’s rights agenda. A recent study from the McKinsey Global Institute found that if the private and public sectors worked together toward women’s full economic participation, the global economy stands to gain up to $28 trillion in the next ten years, providing governments and private sector actors alike with a solid case for investment. ICRW has worked with a number of corporate partners interested in supporting the social and economic development of women and girls, including mapping trends around private sector investment in women’s economic empowerment, which totals $300 million. We hope to see this interest and commitment grow. This focus on the economic empowerment of women is a strong foundation on which to expand, and gives us the opportunity to look at the role the private sector can play in supporting empowerment across sectors and age groups. Studies have shown that investment in girls’ empowerment and reductions in early marriage rates have economic and social benefits to societies, and that they are relatively inexpensive to implement. For example, ICRW’s Planning Ahead for Girls’ Empowerment and Employability (PAGE) program works with the private sector to empower adolescent girls and prepare them to transition into adulthood. Considering how much India loses per year when women and girls can’t participate in the labor market, it is clear that this type of investment is a win-win, creating a skilled work force for employers and governments. However, if the private sector is to be engaged in a greater role under the SDGs, our yet-to-be-developed accountability framework must speak to corporate actors as well as governments. So far, this has not been the case. The refining of the indicators and measurement framework presents an urgent and closing window to address accountability, so that we can ensure that this is a truly universal framework that leaves no one behind.

Voices from the Field features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is from Henriette Kolb, head of the Gender Secretariat at the International Finance Corporation (IFC), the private sector financing arm of the World Bank. Reading newspaper and magazine reviews of the year that just ended, I was struck by how many expressed views on gender and feminism. Topics ranged from extreme violence against Yazidi women in northern Iraq to the gender wage gap in Hollywood. Slate mused about the confusion of celebrities when it comes to feminism and The Guardian outlined new gender definitions that came into the mainstream in 2015. It seems that the voices questioning existing gender norms, legal frameworks, and discriminatory policies are growing louder. Rightfully so, given the large and persistent gaps when it comes to women’s full and equal political and economic participation. In 2015, dialogue about gender equality was not only amplified by the ongoing U.S. election campaign, but also by an array of widely-discussed reports and books like the McKinsey Global Institute’s The Power of Parity and Anne-Marie Slaughter’s book Unfinished Business. But commentary alone won’t spur us into action in 2016 or beyond. One promising effort that hopes to move us out of inertia and promote action is the new World Bank Group gender strategy for 2016-2023. The aim of the strategy is to support governments and the private sector to close unjust and economically costly gender gaps. The strategy is firmly anchored in the belief that creating equal opportunities for all people irrespective of their race, sex, age, or location is beneficial not only for the individual, but for families, companies, and societies alike. The World Bank Group developed its new strategy by listening to clients’ priorities, analyzing data on remaining gender gaps, and building on its own operational experience. Extensive consultations with over 1000 stakeholders, ranging from civil society organizations, to governments, to the private sector, in more than twenty countries, from Afghanistan to Uruguay, shaped the process. The resulting strategy highlights four pillars that the World Bank Group will focus on in the years to come: closing remaining gender gaps in health and education; reducing constraints to more and better jobs, especially in the provision of affordable and accessible care services and safe transport; closing gaps between men and women in ownership and control of assets such as land and housing; and closing gaps in finance. Men and boys will be engaged in working towards results. The strategy strongly emphasizes the need for governments and the private sector to work side by side, as barriers to gender equality cannot be resolved by one alone. One example of the potential of public-private sector collaboration is in tackling gender-based violence, which affects one in three women across the world. In Papua New Guinea, a study by the Overseas Development Institute developed measures to evaluate the cost of gender-based violence—which affects 70 percent of the country’s women—on the economy. The Papua New Guinean government and the Business Coalition for Women, supported by International Finance Corporation (IFC), a member of the World Bank Group, decided to work together to curb widespread violence. The coalition of sixty companies understood that workplace absenteeism, often a direct result of violence at home, had negative consequences on productivity and profits. Engaging the private sector in tackling gender inequality is not an issue unique to Papua New Guinea. Companies that were part of the World Bank Group’s strategy consultations confirmed that creating equal opportunities for women and men as employees, company leaders, customers, and suppliers was increasingly considered a matter of smart business and not an act of company charity. IFC’s clients realize that inequality leads to a loss of talent, a smaller number of potential customers, lower productivity, and unsustainable business practices. Company leaders confirmed that the question as to why gender equality matters for businesses had been sufficiently answered—firms now want concrete help with how to get there. The World Bank Group’s strategy is well placed to support government and private sector clients with gender-smart approaches that generate equal opportunities for men and women worldwide. The World Bank Group will accomplish this through senior management commitment, a focus on results, a country-driven approach, analysis of what works and what doesn’t, measurement of gender gaps, and the leveraging of partnerships. The strategy will provide concrete examples on how to achieve better development outcomes for all. I hope that, while reading the year-end reviews of 2016, I will learn about stories that show how the multitude of voices raising concerns over inequalities have translated into a year crowned by major achievements in gender equality. Innovative partnerships and commitment to the new gender strategy will have turned dialogue into action.

In 2016, the connection between women’s economic participation and prosperity is undeniable.  Decades of research from the International Monetary Fund, Organisation for Economic Cooperation and Development, the World Economic Forum, and other leading organizations confirms that women’s participation in the labor force is critical to economic growth. Yet, despite this evidence, a range of legal barriers inhibiting women’s full and equal economic participation remains on the books in countries around the world. The World Bank’s 2016 report on Women, Business and the Law offers a stark picture of the ways in which laws and policies continue to undermine women’s economic productivity. Of the 173 economies surveyed, 90 percent have at least one regulation on the books that impedes women’s economic opportunities. Gender-based job restrictions remain common: about 100 countries impose limitations on the jobs that women can hold. In thirty economies, women face a constellation of barriers, with ten or more laws inhibiting women’s economic participation on the books, and in eighteen countries, husbands or male guardians can legally prevent women from working altogether. These obstacles have a multidimensional effect of women’s opportunities: lower levels of gender equality in national laws are associated with fewer girls attending secondary school, fewer women in the formal workforce or running businesses, and a wider gender wage gap. These legal barriers matter, of course, because they undermine women’s rights and self-sufficiency. But given that these restrictions stifle broader economic growth, it is not only human rights advocates who should care about these limitations—finance ministers should also take note. Indeed, the private sector has increasingly recognized the growth potential afforded by women’s economic participation: just last month, McKinsey Global Institute released a study assessing the potential gain of women’s equal workforce participation at $28 trillion globally, or 26 percent of annual global gross domestic product (GDP), if the gap between women and men were to close by 2025. Notably, the study highlighted that advanced and developing countries alike stand to gain, but these gains would materialize only in a “full potential” scenario in which women had identical access to labor markets as their male counterparts. In recent years, government leaders have begun to eliminate barriers to women’s economic participation. According to the Bank, over the past two years alone, sixty-five economies—the vast majority in the developing world—enacted legal reforms to boost the economic contributions of women. But as the Bank report outlines, much more work remains to level the economic playing field between women and men. As 2016 dawns, no region in the world can claim to have achieved gender equality in economic opportunity. This hampers profits and productivity in every corner of the world. Importantly, international momentum in favor of reforms to promote women’s economic participation is growing. The new Sustainable Development Goals (SDGs) recently adopted at the United Nations include concrete targets to improve women’s economic activity, calling for equality in property ownership, inheritance, financial services, and natural resources. The SDGs also address a range of factors—from ending violence against women, to recognizing unpaid care and domestic work, to promoting equal participation in leadership and decision-making—that are critical for women to realize their economic potential. As nations move from adoption to implementation of these new targets, development practitioners should enlist the support of economic leaders and policymakers to enact the reforms needed to unleash the full economic contributions of women and strengthen economies across the globe. Listen to the audio of the CFR roundtable event Legal Barriers to Economic Participation>>

Modi’s Reforms at Odds A senior official in Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) is pushing a corruption probe that threatens to derail his own party’s Goods and Services Tax (GST). A linchpin of Modi’s economic platform, the reform would replace numerous local and state taxes with a single nation-wide tax. The government expects GST to boost government revenue, attract foreign investment, and add up to two percent to GDP. With the corruption case’s targets—opposition Congress Party leaders Sonia and Rahul Gandhi—denouncing the investigation as politically motivated, the fallout will likely halt Modi’s tax reform in India’s opposition-led upper house. As the Gandhi case advances, the GST may not, putting Modi’s ambitious pro-business and anticorruption agendas at odds. Does the WTO Still Matter? This week’s failure to advance the Doha Round of trade talks further diminishes the World Trade Organization’s (WTO) clout in setting global trading rules. Stuck for over a decade on issues of market access for poor countries and sharing globalization’s gains more equally, the United States and others have already refocused their energies on bilateral and regional trade agreements (RTAs)—completing nearly two hundred such deals during fourteen years of Doha negotiations, most recently the Trans-Pacific Partnership (TPP). U.S. Trade Representative (USTR) Michael Froman made the shift official this week, publicly calling for WTO members to move beyond Doha. Where the WTO’s strength remains is in trade dispute resolution as businesses and nations still turn to it for arbitration. Last week alone, the WTO ruled in favor of Canada and Mexico against U.S. meat labeling with up to $1 billion in damages, and the United States lodged a formal complaint against China for discriminatory aircraft pricing—reflecting the WTO’s evolution from setting the rules to enforcing them. New United Nations Development Report The 2015 Human Development Index (HDI) released this week reflects on the report’s twenty-five year history, with the United Nations Development Program (UNDP) finding that living standards improved for two billion people as dozens of countries climbed the development ladder. Measuring income, life expectancy, and education across 188 countries, Norway leads and Niger lags in the HDI, while Rwanda and China are most improved overall since 1990. Focused on “work for human development,” this year’s report argues for employment’s broader value, offering not only economic but development gains. It also illuminates the still major challenges—the 21 million people in forced labor, 74 million unemployed youth, and the threat to whole categories of workers from technological change.

Emerging Voices highlights new research, thinking, and approaches to development challenges from contributing scholars and practitioners. This post is from Dean Karlan, professor of economics at Yale University, president and founder of Innovations for Poverty Action, and founder of ImpactMatters, a newly-launched organization that helps nonprofits use and create evidence to assess their impact. Earlier this fall the United Nations (UN) ratified the Sustainable Development Goals (SDGs), a new agenda for helping the poor around the world by 2030. Their ratification comes fifteen years after the Millennium Development Goals (MDGs), more than doubling the number of global commitments from eight to seventeen and breaking them down further into 169 targets. The goals include ambitious and noble aspirations, from ending global poverty “in all its forms everywhere” (SDG 1) to ending hunger (SDG 2). But, do the goals matter? Since last summer when the UN released a report on how the MDGs fared, debate has ensued about whether setting defined goals made countries more likely to achieve them. More precisely, did aiming at the MDGs lead politicians and donors to allocate more resources to poverty-fighting, thus leading to improved outcomes? As we turn to the SDGs, here is what we know about how goals may help or hurt, and a modest proposal for applying it. Behavioral economists and psychologists have shown that goal setting can help individuals lose weight, finish annoying work tasks, exercise regularly, save more, and so on. Politicians, being people too, may need a set of goals to help them focus on and invest scarce resources in social problems. Research also shows that while goals help, setting too many of them can deter progress and limit motivation. If one pledges to lose weight, stop drinking coffee, read more books for pleasure, and ignore work e-mails on the weekend—all at the same time—something is going to give. The 169 SDG targets (most likely added to placate various UN constituencies) mean a lot more goal setting than the MDGs. Can politicians and development experts keep track of all these commitments? Unrealistic goals can also be a problem—not only do they not get met, but they may fail to motivate. We know that signing up for a marathon is not the best way to make good on a New Year’s resolution to get into shape. The same goes for pledging to end all global poverty instead of merely reducing it. So when it comes to whether the SDGs matter, I have a proposal to find out: randomize the way the 169 targets are assigned. Many development economists (myself included) have done rigorous studies on goal setting at the household and individual level. In the Philippines, we set up randomized control trials (RCTs) to test whether offering people a commitment “goal savings” account helped them to save more money, and encourage them to spend more of it on large, durable goods. It did. In Uganda, a study we did found that offering children a commitment “goal savings” account led to higher expenditures on school supplies and improved test scores. Why not apply the same rigor to test what motivates the world’s politicians to reduce poverty and inequality? We can allocate each UN member country a number of targets on which to focus, and then track progress over time to learn whether those with particular targets did better on a specific goal than countries without them. Of course, this would be logistically impossible, and would make for a badly-designed randomized trial (with the “control” goals already known). Though my proposal is tongue-in-cheek, it highlights the challenge of measuring the new SDGs. Some ask: how are we going to know if any improvement was made because of the goals? That may be the wrong question. Instead, we should ask whether a particular policy is a good or bad idea. Because while the SDGs motivate us towards aspirational outcomes, they do not tell us what to do. Learning what policies actually work is a much more useful basis for a study, and where we should focus our attention.

Voices from the Field features contributions from scholars and practitioners highlighting new research, thinking, and approaches to the advancement of women and U.S. foreign policy interests. This article is from Ann Cairns, President of International Markets for MasterCard and Mary Ellen Iskenderian, President and CEO of Women’s World Banking. About 2.4 billion people don’t exist. They are alive, but invisible. Simply because they have no driver’s license or national ID card. And without one, they are excluded from some of the most essential parts of everyday life. They can’t own property. Or vote. They can’t receive government services. Or open a bank account. And most of them are women. For most people in the developed world, the right to an official identity is so fundamental we hardly realize we have it. But each time we flash a card or input a number, we’re essentially saying, “I exist. I belong. Please open the door.” To mark Human Rights Day on December 10, let’s focus our attention on ensuring everyone has an ID--so they can exist. Empowering women with forms of legal identification not only strengthens them and their families, but also can powerfully contribute to a country’s social and economic well-being. In fact, by one estimate, some 27% of GDP growth is left on the table each year due to gendered economic inequality – much of it caused by women’s lack of access to formal financial and economic networks. A recent World Bank report, The Identification For Development (ID4D) Agenda: Its Potential For Empowering Women and Girls, notes that on virtually every global measure, women are more economically excluded than men. They are more likely than men to engage in informal employment and to work in lower-paying or unpaid endeavors. Globally, women earn 10 to 30% less on average than their male counterparts, and their workforce participation has stagnated over the past two decades. Ensuring that women have a recognized form of identification can help address some of the root causes of this imbalance. Identification opens access to education, employment, health care, and government services, such as social protection. A recognized identity is also critical to access to financial services. The World Bank 2014 Global Findex reports that 2 billion adults—38% percent of the world’s adult population—do not have bank accounts. The overwhelming majority live in developing nations, and most are poor and female. Surveys reveal that 18% of unbanked adults cite “lack of documentation” among the reasons they don’t engage with formal financial services. This is why government issuance of IDs linked to payment functionalities has such tremendous potential as a large-scale measure to expand financial inclusion. Consider the ripple effect that access to these services can have. Having a legal identity allows a woman to open accounts in her own name, maintain confidentiality of her savings, and exert greater control over how her funds are spent.  As the ID4D report indicates, when women control their own finances, they exert more decision-making power in their households, feel more confident, and are more active politically and socially. Universal identification benefits businesses, too. Financial institutions that begin to serve more women clients will see gains as the women utilize multiple products from these institutions and refer others to them. Consider, for example, Bangladesh’s garment industry, which accounts for 80% of the country’s exports, and where a full 85% of workers are young, poor, and semi-literate women. The majority don’t have a government issued identity, so less than 20% of these workers have access to bank accounts and almost all receive payment in cash. This presents a challenge for workers’ tracking and contesting payments, such as proper compensation owed for overtime work. Imagine the power these women would have if they had a recognized identity and services provided by financial institutions. Some of the most innovative development initiatives today recognize this nexus between technology, gender, and macroeconomic health. Advances in biometric identification technology, which enable identification based on physical features such as thumbprints, are opening possibilities beyond traditional cards and documentation. Take Pakistan, where the government implemented a biometric ID system to ensure that government payments can only be collected by female beneficiaries, rather than by their male relatives. Pakistani women using the new ID cards reported having higher status and more bargaining power in their families—an outcome that also benefits their children, as studies have shown that when women control household budgets they spend more on nutritious food, education and health care. Given the evidence, and the advances in identification technologies, the imperative for women’s access to ID is clear. They exist. They belong. It’s time to open the door.

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This post is from Sarah Labowitz (@SarahLabo), codirector of the NYU Stern Center for Business and Human Rights. Here, she explains why the time is right for improving factory conditions in Bangladesh, and what can be done to protect workers.  A deadly collapse at the Rana Plaza factory just outside Dhaka, Bangladesh killed almost 1,200 garment workers in a single morning in April 2013. The tragedy shone a bright light on the country’s widespread labor rights enforcement failures. Now more than two years later, millions of workers continue to work in unsafe factories. Pressure to improve conditions in Bangladesh’s garment sector has largely come from outside the country–from consumers, international clothing brands, foreign governments, and development organizations. Yet finally a confluence of factors may force Bangladesh’s domestic factory owners to change. Rise of low-cost competitors: Bangladesh lives off of its apparel manufacturing. As the world’s second largest garment producer after China, the industry comprises 18 percent of the nation’s GDP and 80 percent of its exports. But in the last year, Myanmar and Ethiopia have entered the low-wage garment market, and Vietnam will benefit from lower production costs under the newly-agreed-upon Trans-Pacific Partnership. These nations could easily chip away at Bangladesh’s market share, threatening its dominant position. Deteriorating security, driven by Islamic extremism: In the last six months, violent attacks by homegrown extremist groups and the Islamic State killed four atheist bloggers and two foreign aid workers in Bangladesh. After Cesare Tavella, an Italian aid worker, was shot and killed in downtown Dhaka while out for a jog in September, foreign buyers have started to pull their expat staff and are requiring factory owners to provide armed security guards for buying visits. The precautions add costs for suppliers while threats reinforce an image of Bangladesh as an undesirable and unstable place to do business. With increasing demand for “eco” and “slow” fashion, Bangladesh is perceived as an unsustainable sourcing destination: Adding to Bangladesh’s history of anti-union activity, since the 1990s the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) has lodged four separate complaints with the U.S. government about failures to adhere to labor rights standards. Despite millions of dollars of investment after Rana Plaza, the perception remains that workers still face serious threats to their safety and dignity at work, deterring ethically-minded companies from manufacturing there. This combination of domestic instability and external competition threatens the Bangladeshi garment industry and its broader economy unless factory owners push for meaningful reforms. Making Bangladesh’s garment sector safe and sustainable for the long term will require significant effort in three areas: An honest accounting of how many factories are producing for the export market. As it stands, no one is sure how many factories are manufacturing for export. The government says it has inspected “more than 80 percent” of 1,475 export-oriented factories. The Center for Business and Human Rights at NYU Stern estimates that the total number is closer to 7,000. Solutions to making factories safer must be based on a credible understanding of the problem’s scope. An assessment of the true costs of upgrading, relocating, and overseeing an expanded number of factories, many of which are small enterprises. Remediation efforts to date have focused on large factories that tend to have direct relationships with foreign brands. But small factories are an essential part of the industry, and there are a lot of them. A group including international experts and local owners should assess the costs of the resources, support, and oversight that would be required to make these factories safe places to work for the approximately three million workers employed in them. Dividing responsibility for these costs among foreign brands, leading local factories, governments, and development and aid organizations. No single actor can underwrite the significant costs of upgrading Bangladesh’s garment sector. Local and international participants should share the costs. Detroit provides a useful model, in which the public-private Blight Removal Taskforce successfully surveyed the city’s problem, developed a blueprint for addressing it, and raised public and private funds to meet the $800 million price tag of clearing blighted structures. Bangladesh has the potential to be a good-news story about the possibility of globalization delivering benefits to low-wage workers, even in states with weak governance. Yet changes in the way the apparel supply chain works will have to come from within.

CFR’s Civil Society, Markets, and Democracy (CSMD) Program highlights noteworthy events and articles each Friday in “This Week in Markets and Democracy.”  The terror attacks in Paris dominated global headlines and U.S. foreign policy discussions over the past week, though regional and global economic summits went ahead as scheduled. From Turkey to the Philippines, leaders discussed the way forward on economic growth, trade, and reform. G20 Targets Corruption, Tax Avoidance At this week’s G20 meeting in Turkey, world leaders considered technical reforms to increase revenue by addressing tax evasion and corruption. Bureaucrats officially endorsed the Base Erosion and Profit Shifting (BEPS) plan to close international tax loopholes and prevent multinationals from moving profits from where they are earned to other jurisdictions. Companies worry about adverse BEPS effects such as double taxation. Others warn of U.S. job losses if companies relocate to countries with lower tax rates. And many outside the G20 argue the BEPS system will favor richer nations that made the rules, even as the UN estimates developing countries lose $100 billion each year to offshoring. Another technical issue on the G20 agenda was beneficial ownership transparency—whether governments enable corruption by not legally requiring companies and trusts to identify their real owners. According to Transparency International, the United States, China, and Brazil are among the biggest transgressors in shielding assets’ owners, despite a G20 commitment to fix the problem. Trade Dominates APEC Agenda Trade took center stage at this week’s Asia-Pacific Economic Cooperation (APEC) meeting in Manila, gathering leaders from twenty-one countries accounting for more than half of the global economy. Supporters argued for greater regional integration as a way to counter extremism and described trade as a “human right,” while opponents protested free trade as the cause of poverty and inequality. With the Trans-Pacific Partnership (TPP) agreement awaiting a U.S. vote, President Obama pushed others to ratify the deal, meeting with the heads of each TPP country. China, as Asia’s largest economy outside the TPP, countered by laying out an alternative trade proposal. Chinese President Xi Jinping also responded to concerns about Chinese growth, saying the slowdown shows his country is making the transition from export- to domestic consumption-led growth. This narrative did little to explain China’s record trade surplus on record last month, up 36 percent since 2014.

CFR’s Civil Society, Markets, and Democracy (CSMD) Program highlights noteworthy events and articles each Friday in “This Week in Markets and Democracy.”  Indonesia Pledges to Join the TPP Just four weeks after the signing of the Trans-Pacific Partnership (TPP) accord in Atlanta, other countries are already asking to join. During his visit to the White House this week, Indonesian President Joko Widodo announced his interest, hoping it will help fulfill his campaign promise to attract foreign direct investment. Others who have shown interest include Colombia, the only large Pacific-facing nation in the Americas not included in the first round, and South Korea, whose interest has grown with time due to concerns that the deal will give Japan an advantage in cars and electronics. They would join the trade deal’s twelve founding members—which together comprise nearly 40 percent of global GDP—in lowering tariffs, establishing labor and environmental standards, and eliminating barriers to trade in services. New entrants will likely have to wait until the deal is ratified. This process looks especially difficult in the United States, due to opposition from members of both political parties and numerous aspiring presidential candidates. Some are already talking about pushing the vote to the “lame-duck” session, meaning November or December of 2016. Indonesia, and the others, will have to wait. U.S. Investigates Corruption in Venezuela Last March the Obama administration issued an executive order against seven high-ranking Venezuelan officials for human rights abuses and undemocratic practices, banning them from the United States and freezing U.S.-based property. Now the Treasury Department, through its Financial Crimes Enforcement Network (FinCEN) division, is investigating several government officials for corruption and laundering money through Venezuela’s state-owned energy company, Petróleos de Venezuela (PdVSA). Though no charges have been filed, FinCEN alleges that Venezuelan government officials and PdVSA executives received kickbacks, created fake contracts, used shell companies, laundered drug money, and manipulated the official and black market currency gap for personal gain. These funds were funneled through Banca Privada d’Andorra (BPA), which FinCEN accuses of illegally processing over $4 billion from Venezuela (half of which came from PdVSA). Andorran authorities have since ordered a takeover of the bank. At the center of the scandal is Rafael Ramírez, formerly Venezuela’s minister of energy and foreign affairs as well as president of PdVSA. Ramírez is currently Venezuela’s ambassador to the United Nations, which affords him diplomatic immunity. Massive corruption just adds to Venezuela’s woes, which include deepening recession, triple digit inflation, an ever-growing gap between the official and black market currencies, widespread goods shortages, and escalating crime rates.