Emerging Markets

Welcome to “Women Around the World: This Week,” a series that highlights noteworthy news related to women and U.S. foreign policy. This week’s post,  from October 23 to October 28, was compiled by Valerie Wirtschafter, Dara Jackson-Garrett, and Katherine Hall. Nepalese Parliament Elects its First Female President This week, the Nepalese parliament elected Bidhya Devi Bhandari, the deputy leader of the ruling Communist party, to serve as the first female president of Nepal. A longtime advocate for women’s rights, Bhandari was one of a few politicians who worked to ensure that gender equality issues were addressed in the country’s new constitution, which was adopted in late-September. Under the new constitution, one-third of Nepal’s parliamentary leaders must be women and a woman must hold the position of either president or vice-president. The new constitution—and subsequent election of Bhandari—is an important victory for women’s rights advocates in Nepal, following a long history of marginalization. UN Report Criticizes Iran for its Human Rights Record and Treatment of Women On Monday, Ahmed Shaheed, the United Nations’ special rapporteur on the situation of human rights in Iran, released a report condemning Iran’s dismal human rights record. In the report, Shaheed cites the country’s repression of women, journalists and dissidents as particularly troublesome, and notes that women are still treated like second-class citizens in Iran. Iranian women face a number of restrictions that severely limit their rights. Regardless of age, they are required to have a male guardian’s approval to marry, obtain a passport, and travel outside of country, and a woman’s testimony in court is only worth half the value of a man’s. In 2014, Iran was ranked 137 out of 142 countries according to the World Economic Forum’s Global Gender Gap Index, a report released annually to measure gender gaps in health, education, economic, and political participation. New Report by the International Monetary Fund Bolsters Evidence for Women’s Economic Participation as a Driver of Economic Growth Earlier this week, the International Monetary Fund released a study, Catalyst for Change: Empowering Women and Tackling Income Inequality, which underscores a strong empirical link between gender inequality and income inequality. Despite clear evidence that women’s economic participation is a strong driver of growth, women still face barriers in critical areas, such as access to finance. The study concludes that inequality of opportunity for women—particularly in education and health—is the most important driver of income inequality in emerging markets and developing countries. The report provides additional evidence in support of the new gender equality-focused sustainable development goal (goal five), which includes a commitment to women’s economic participation and a call for equality in property ownership, inheritance, financial services, and natural resources.

Projected capital outflows are placing pressure on the currencies of some of the world most dynamic emerging markets. 

CFR’s Civil Society, Markets, and Democracy (CSMD) Program highlights noteworthy events and articles each Friday in "This Week in Markets and Democracy.” Africa’s Governance and Economic Struggles New IMF data and the 2015 Ibrahim Index of African Governance (IIAG), both released this week, show stalling or declining economic growth and governance progress across the continent. Despite better health, education, and human development statistics, IIAG found backsliding in accountability and rights, with thirty-one out of fifty-four countries deteriorating. Africa’s business environment—measured as competitiveness, bureaucracy and red tape, and investment climate—scored the lowest and fell the most of any category since 2011. The IMF echoed these gloomy metrics, projecting sub-Saharan growth to slow to 3.8 percent in 2015, hit by an overreliance on commodities. Both sets of data make clear the interdependence of governance and economic growth. The lowest-scoring countries on IIAG’s business indicators—including Eritrea, Somalia, South Sudan, Sudan, and Equatorial Guinea—also ranked among the worst on rights and participation. And Côte d’Ivoire, ranked as IIAG’s “most improved” based on its aggregate governance score is among the few sub-Saharan countries expected to post high growth through 2017. Post-Disaster Aid: When it Works, When it Doesn’t Nearing the six-month anniversary of Nepal’s devastating earthquake that killed more than 8,500 people, comparisons to other natural disaster relief efforts highlight the potential pitfalls of aid delivered in a governance vacuum. Thailand’s post-tsunami recovery fared well relative to others—the country’s centralized (albeit authoritarian-leaning) leadership owned the response, mostly relying on technical rather than financial assistance. In contrast, Haiti remains a cautionary tale—despite some $9 billion in relief aid 150,000 Haitians still live in “temporary” camps and the government remains fragile, as witnessed in the recent chaotic and violent parliamentary contest. Nepal appears to be heading on a similar route with the government yet to draw up a plan for spending $4.1 billion in international donations, even as three million survivors lack shelter, food, and basic medical care in one of the world’s poorest countries. With the new constitution in dispute, a political crisis brewing with India, and a worsening fuel shortage all costing the economy an estimated $1 billion, reconstruction will likely be delayed further. What We’re Reading on the TPP Agreement… This week twelve countries, representing 40 percent of the world’s GDP, signed onto the Trans-Pacific Partnership (TPP). Now experts are chiming in on the many potential effects for participants: Kimberly Ann Elliott from the Center for Global Development summarizes the TPP’s impact for developing countries: cutting agricultural subsidies and expanding access to capital controls may help poorer members, but concerns over rules of origin and intellectual property rights linger. Siddhartha Mahanta finds the changes to the heavily-criticized investor-state dispute settlement process important, saying they may “strike a blow to corporate impunity”—especially cases brought by tobacco companies against smoking bans. As the TPP deal closed, the World Bank announced that extreme poverty will drop below ten percent globally in 2015. John Cassidy argues that trade helped lift 1.3 billion people out of poverty, even as it increased inequality within countries. Fellow CFR expert Ted Alden says that a TPP deal reasserts U.S. leadership in global trade negotiations and strengthens its influence over future rules.    

CFR’s Civil Society, Markets, and Democracy (CSMD) Program highlights noteworthy events and articles each Friday in “This Week in Markets and Democracy.” TPP’s Auto Parts Hold Up: North American Supply Chains in Play This week Japan and the United States resumed bilateral talks over rules of origin requirements for auto parts within the Trans-Pacific Partnership (TPP) trade negotiations. The North American Free Trade Agreement (NAFTA) rules of origin, established over two decades ago, led to an auto production boom as car companies from around the world opened factories—including VW, Toyota, Nissan, and Kia in Mexico and Volvo in the United States—to gain lower-cost market access. Canada too is tied into the tiered supply chain with car parts from Magna International and Linamar Inc. ending up in assembly lines and showrooms to its south. As the North American auto industry boasts record sales, U.S. labor unions, Canadian suppliers and the rapidly-growing Mexican auto industry oppose relaxing rules of origin. The North American bloc worries that TPP plans to lower the requisite percentage of components made by trading partners for duty-free status will lead Japanese car makers to shift some production to China and Asia more generally, undercutting North America’s advantage. Cleaning Up Corporate Supply Chains: Reporting Trumps Results? A recent study ranking over twelve hundred companies based on their compliance with Dodd-Frank’s Section 1502 provision shows the gap between monitoring supply chains and ensuring ethical standards. To adhere to Securities and Exchange Commission (SEC) requirements, 1502 mandates U.S. businesses disclose use of “conflict minerals” (tantalum, tungsten, tin, or gold) commonly found in iPhones, computer parts, lightbulbs, and jewelry. According to the Tulane-led study, in aggregate companies committed over $700 million dollars and six million employee hours to 1502-related auditing last year, yet filings revealed that 90 percent reported they were unable to verify if their products contained conflict minerals. Microsoft and Apple ranked high in compliance by adhering to a complex auditing process—though both concluded that their production process may be tainted. Designed to “name and shame” (the act doesn’t penalize those that fail to report, only those that knowingly make false reporting claims) 1502 supporters argue that greater transparency and due diligence will eventually lead to more ethical sourcing. Still, a year after the rule took effect, advocacy groups say companies are falling short, and questions remain if such reporting forwards the stated end goal of stemming violence. International Efforts to Combat Corruption: IACC Wrap-Up Transparency International ended its sixteenth International Anti-Corruption Conference (IACC) in Malaysia by calling for “zero tolerance” for public official impunity. The IACC agenda focused on how to hold corruption’s beneficiaries accountable, with recommendations ranging from criminalizing grand corruption under international law—by imposing sanctions against banks that skimp on due diligence and launder illicit funds—to stringent travel and visa restrictions on individuals suspected of bribery and graft. Many IACC participants will now head to this month’s United Nations General Assembly (UNGA), pushing leaders to adopt a post-2015 agenda that commits to global anti-corruption efforts. Despite new development goals and the conference’s efforts to bring kleptocrats and their enablers to justice, getting governments to act remains a challenge. Initial steps in tracing and repatriating the $1 trillion annually drained from developing countries through corruption and illicit financial flows include a new U.S. FBI effort to investigate international allegations of theft and bribery, and UK Prime Minister David Cameron’s vow to take on money laundering by outing foreign entities buying British property.    

2015 is shaping up to be the anti-corruption year for Latin America. After resigning last week in the face of a growing corruption scandal, Guatemalan President Pérez Molina now faces trial and potentially jail. Investigations into government corruption have disrupted politics as usual in Brazil, Chile, and Mexico, while scandals continue to unfold in Argentina and Panama. The Dickens quote "it was the best of times, it was the worst of times” is perhaps too dramatic, but differences in how the cases are playing out across the region are quite striking. In Brazil and Guatemala, wide-ranging investigations have led to prosecutions and convictions of many of the nations’ most connected political and economic elites. In contrast, in Mexico, President Peña Nieto, the first lady, and the finance minister were recently cleared of conflict of interest allegations, and in Chile, President Bachelet’s son, Sebastián Dávalos, has so far evaded criminal charges in an influence-peddling scheme. The divergent outcomes are due in part to the differing nature of the alleged crimes. In Brazil and Guatemala, officials are charged with embezzling public funds. Through the use of wiretaps, email monitoring, and financial forensics, Brazilian prosecutors traced the flows of hundreds of millions of dollars that private companies overcharged the state-led energy company Petrobras for construction and service work, and then distributed among themselves and into political party coffers. And the Guatemalan president and the vice president are accused of running a customs fraud operation, pocketing tens of millions of dollars in import duties. The Chilean and Mexican cases on the other hand are about profiting from political access. In Chile, Caval, a company half-owned by Bachelet’s daughter-in-law, received a $10 million loan from Andronico Luksic through his Bank of Chile the day after Bachelet was reelected president. Her daughter-in-law and son then used the money to flip real estate, using insider information to buy land that was expected to quickly soar in value when the local government reclassified it for commercial development—reaping $5 million in profit. In Mexico, the president, first lady, and finance minister purchased homes from Grupo Higa, a construction conglomerate awarded hundreds of millions of dollars in public works contracts. The alleged links in both cases between favorable financial terms and political favors—and wrongdoing—are more difficult to prove than the embezzlement schemes. The divergent outcomes also reflect the importance of independent and tenacious prosecutors. Brazilian attorney general Rodrigo Janot and his team have gone after dozens of high profile suspects, including Eduardo Cunha, head of Brazil’s lower house of Congress; construction magnate Marcelo Odebrecht; and former President Lula da Silva, despite pushback from many economic and political leaders (President Rousseff has repeatedly supported the investigations). The enterprising Guatemalan attorney general Thelma Aldana has found a sophisticated and willing partner in the UN-backed and independent International Commission against Impunity in Guatemala (CICIG), using its ten years of experience building corruption cases to take on the nation’s highest ranking officials. This hasn’t been the case with Chile’s and Mexico’s more halting and limited prosecutorial investigations. In Chile, prosecutors have been slow in advancing the case against the Bachelet family, hindered by Dávalos ordering his computer erased before leaving the presidential offices at La Moneda. No whistleblowers have come forward; his former coworkers maintain their silence. In Mexico, the federal comptroller, an office created by and reporting to the president, led the investigation and limited its scope from the beginning. The comptroller cleared the president, the first lady, and the finance minister after determining that the property transactions pre-dated the administration and contract terms weren’t changed once they took office. In finance minister Videgaray’s case, the comptroller further decided that the intent to purchase (which occurred before he assumed his current office) mattered more than the signing and notarizing of documents. The investigation revealed the actual closing occurred months later and the cashing of the check didn’t happen until a few days before the Wall Street Journal broke the story. As Latin American nations work to break out of the middle-income trap, and struggle to grow in the face of global economic headwinds, the ability to take on corruption will increasingly matter. Corruption favors connections over quality, stifles entrepreneurship, and scares away foreign direct investment. This seems to be a lesson two of Latin America’s most open economies have yet to learn.

CFR’s Civil Society, Markets, and Democracy (CSMD) Program highlights noteworthy events and articles each Friday in “This Week in Markets and Democracy.”  International Anticorruption Efforts Seem to be Working in Guatemala A far-reaching battle against government corruption is unfolding in Guatemala. Prosecutors have uncovered a widespread customs bribery ring through the use of wiretaps, email interceptions, close monitoring of individuals, and financial analyses. They accuse government officials of siphoning off tens of millions of dollars in import duties. Evidence suggests that the fraud’s biggest beneficiaries have been Vice President Roxana Baldetti (who resigned and is awaiting trial), and President Otto Pérez Molina, who so far is resisting demands for his resignation. Whether now or later, it is quite likely both will face jail time—a first for this nation and all of Latin America. These investigations should hearten international anticorruption fighters, showing that international efforts can make a difference even in places with weak institutions and long legacies of graft and impunity. Leading the charge is the International Commission against Impunity in Guatemala, or CICIG. Founded in 2006, CICIG is a UN-funded independent prosecutor’s office (the United States has contributed some $25 million since its formation) dedicated to strengthening Guatemala’s judicial and security institutions. In this latest and most ambitious case, CICIG’s head, Colombian-born prosecutor Iván Velásquez Gómez, has worked closely alongside the Guatemalan public prosecutor’s office, bolstering their investigations into government corruption. CICIG’s success has led to calls by citizens of El Salvador and Honduras for their own version of the organization. How Democratic Are Snap Elections in Turkey and Greece? In the past week, both the Greek and Turkish governments have called snap elections. With ruling Syriza party ranks split over heavy austerity measures, Greek Prime Minister Alexis Tsipras resigned and called for new elections September 20th. In Turkey, where the neighboring Syrian war and Kurdish insurgency threaten stability, President Recep Tayyip Erdogan called parliamentary elections for November, and designated his hand-picked successor, Ahmet Davutoglu, as interim Prime Minister to oversee the vote. Scholars tout the benefits of this parliamentary electoral mechanism, enabling leaders to avoid gridlock or a lame duck administration (both perils of presidential electoral regimes). Yet politicians use these elections strategically—dictating the schedule to maintain their political advantage at times in ways that do little to further democratic inclusion or legitimacy. In Greece, Tsipras looks to shuffle his coalition, abandoning the anti-austerity platform that brought him to power last February. The quick turnaround leaves little time for other parties to form a government or rally around voter opposition voiced in a July referendum. Meanwhile, Erdogan is betting that early elections will bolster his power after the Justice and Development Party (AKP) lost its parliamentary majority in June and Davutoglu failed to form a coalition. (Opponents charge the move was an attempt to thwart them from forming their own alliance). In both places the leaders are following the democratic rules, yet invite debate over their democratic legitimacy. While shoring up support through early voting may be preferable to an imminent “no” vote, leaders can also manipulate snap elections to extend power in times of political and economic crisis. AGOA’s Challenges Rooted in Structural Weakness U.S. and African officials met this week in Gabon to flesh out what Congress’s ten-year extension of the African Growth and Opportunity Act (AGOA) can mean. Since AGOA began in 2000, duty-free market access for thirty-nine sub-Saharan African countries has boosted U.S.-bound exports fourfold to over $26 billion. Yet to truly increase African global competitiveness, a renewed AGOA pact will need to grapple with the economies’ structural challenges. Commodities dominate African trade—oil comprises nearly 90 percent of AGOA exports. The trade deal won’t move Brent crude prices. Another source of exports, agriculture, has yet to modernize—the majority of sub-Saharan African jobs remain in low-productivity farm work. And the United States is reluctant to provide market access—the newly-authorized AGOA provides more technical assistance for agriculture but does little to eliminate tariffs and quotas for African sugar and cotton producers. The U.S. and African officials could and should focus on helping get goods to market. Sporadic electricity, bad roads, silted ports, and general transportation costs are up to ten times higher in sub-Saharan Africa than in Asian economies, eliminating the upside of large and affordable labor forces. For example, slow logistics and customs procedures keep Ethiopia’s growing coffee and flower industries from reaching their full potential. Though total U.S.–Africa trade increased during AGOA’s first fifteen years, the $26 billion represents just a small fraction of U.S. imports. And the vast majority of non-oil imports came from South Africa. Unless agriculture, infrastructure, and structural barriers are tackled, AGOA won’t make a significant difference for Africa’s companies, workers, and broader economies.

This Week in Markets and Democracy will return on August 28. Until then, here is what CSMD is reading this week. The World Economic Forum identifies ten trends that will shape the future role of civil society—new technology and a focus on inequality topped the list. Economist Dani Rodrik argues that emerging markets are facing a slowdown because they did not follow the fundamental rules of growth, and failed to undertake the necessary political and structural reforms. In light of China’s recent devaluation, Shawn Donnan of the Financial Times looks at currency’s changing role in trade. As economies become more integrated into global supply chains, fluctuations matter less. In a new report, Transparency International concludes that half of the forty-one parties to the Organisation for Economic Cooperation and Development (OECD) Convention on Combating Foreign Bribery have not prosecuted any foreign bribery cases since signing the agreement.

On April 24, 2013, the Rana Plaza factory, which manufactured apparel for Benetton, Primark, and J.C. Penney, among others, collapsed in Dhaka, Bangladesh. The disaster killed over 1,100 and injured another 3,000, most of them young women. In the tragedy’s wake, Bangladesh has tried to help the victims and their families, and to improve industry safety and working conditions more generally, with mixed results. Rana Plaza highlights both the best and the worst of what globalization and global supply chains bring to developing countries. Large-scale apparel manufacturing came to Bangladesh in the late 1970s. South Korean company Daewoo, better known today for its auto and electronics businesses, joined with local partner Desh Garments to found one of the first export-oriented garment factories, producing shirts. Many more followed–today the country claims over 5,000 garment factories with 4 million workers. In 2011, Bangladesh accounted for almost 5 percent of global apparel exports. The industry drives the domestic economy, representing 16 percent of GDP and spurring growth of nearly 6 percent a year for the last two decades. Apparel dominates exports, constituting over 90 percent of what the nation sends abroad. This trade has helped fundamentally change Bangladeshi society, in many ways for the better. Poverty rates have fallen from 70 percent in the 1970s to less than 40 percent today. The nation has made steady gains on the UN’s Human Development Index. And the garment industry gave particularly rural women an alternative to backbreaking agricultural labor and opened up the possibility of financial independence. A 2015 study in the Journal of Development Economics found that Bangladeshi women with access to garment factory jobs delay marriage and childbirth and stay in school longer, as literacy and math skills are valued on the factory floor. Yet the industry also pays poorly and restricts union membership. Workers routinely suffer from respiratory diseases, injuries, and even death. Rana Plaza is just the worst of many incidences: in 2005 the Spectrum garment factory collapse killed 64 and 112 people died in the Tazreen garment factory fire in 2012. The often blatant disregard for labor rights and safety standards comes in part from the way these supply chains function. A 2014 study by the NYU Center for Business and Human Rights found that international brands such as Zara and the Gap operate through indirect sourcing. By subcontracting to purchasing agents, the big brand names have little to no access and oversight. And outsourcing continues on down the production pyramid: factories that receive contracts from middlemen often then subcontract themselves in order to scale up to meet the volume and time demands of fast fashion. So Zara rarely knows, much less inspects, these multiple levels of dressmakers, leaving little to no transparency in the manufacturing process. And there is scant loyalty from big brands pursuing the lowest nominal cost, limiting factory incentives to invest and making accountability all the more difficult. As production moves to smaller and more unregulated factories–some just rows of sewing machines in garages or homes–abuses multiply. These facilities often fail to maintain even basic safety standards, for instance supplying fire extinguishers in the overheated, fabric-filled rooms. Low wages, long hours, and disregard for safety standards create the conditions for disasters like Rana Plaza. The response to the Rana Plaza collapse also underscores the good and the bad of this global commercial connectedness. International organizations quickly pressed for improved working conditions. The International Labor Organization’s (ILO) Better Work Bangladesh program pushes for more monitoring by the government and the industry itself. International brands and buyers founded the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety to help change the dangerous status quo. Still, these programs only target companies on the books–an estimated 40 percent of the industry. And the government’s National Action Plan to upgrade the garment sector remains an aspiration rather than a reality. While the Accord and the Alliance have spurred some positive shifts, the government lacks the funds and the capacity to revamp the industry. Some foreign firms are changing their practices. H&M inspects its subcontractors’ facilities and offers incentives for better working conditions. Uniqlo is shifting the way it works with suppliers, creating longer-term relationships, providing 18-month forecasts, and compensating local partners for any lost production. Still others, including the Gap, haven’t altered their practices or signed onto plans to monitor and finance factory safety, arguing it would expose the company to litigation in the United States. For the actual victims of the Rana Plaza, compensation and justice lag. An ILO-managed Rana Plaza Donors’ Trust Fund for the victims just reached its USD$30 million goal. And only this June were factory owner Sohel Rana and 41 others charged with murder. As Bangladesh struggles to improve wages and working conditions, the public and private sectors worry about losing the industry and its jobs. After the 2014 police crackdowns in Cambodia, the government instituted a higher monthly minimum wage for its garment industry. In response, many Western brands began to look elsewhere. New countries–particularly those in Africa–hope to boost their own manufacturing potential by joining the apparel supply chain, competing with Bangladesh and others on cheap wages and low power costs. Automation, including robotic sewing machines, threatens to replace manual labor altogether. How Bangladesh addresses these challenges will affect its economy, its politics, and its people. Still, the possibility for a prosperous future remains deeply tied to trade and to remaining an integral part of these and other global supply chains.

This is a post in a new series on the Development Channel,“This Week in Markets and Democracy.” Each week, CFR’s Civil Society, Markets, and Democracy Program will highlight noteworthy events and articles. Free Trade vs. Human Rights? Malaysia, TIP, and the TPP On Monday, the U.S. State Department released its Trafficking in Persons (TIP) Report, an annual guide to how countries measure up in combatting the $150 billion global trafficking industry. The TIP report is known for its tier-based ranking system: Tier 1 (best) to Tier 3 (worst). Already the State Department is getting flak from Congressional leaders and human rights advocates for its controversial upgrade of Malaysia–moved from Tier 3 to a Tier 2 ‘Watch List.’ The report justifies Malaysia’s rise due to an increasing number of trafficking investigations and a widespread public awareness campaign, but critics point to evidence that migrants are still “trafficked and abused with impunity.” Many believe the upgrade reflects political expediencies related to the Trans-Pacific Partnership (TPP) trade deal, as the recently passed Trade Promotion Authority excludes Tier 3 countries from fast-tracked agreements. The controversy calls into question whether the TIP report prioritized politics over principles. Turkey Targets Kurds–Does Democracy Suffer? My colleague Steven Cook writes this week that the deepening U.S. and Turkish cooperation to fight ISIS creates a foreign policy “quagmire” for the United States. He worries that Turkey is using a U.S. military partnership as cover to target the Kurdistan Workers’ Party (PKK)–the Kurdish nationalist movement with a presence in both Iraq and Turkey. Viewing the PKK as a major political and security threat, President Recep Tayyip Erdogan has detained hundreds of Kurds and blocked pro-Kurdish websites for “promoting terrorist propaganda.” Critics accuse Erdogan of exploiting anti-Kurdish sentiment to gain political advantage after his Justice and Development Party (AKP) lost its parliamentary majority in June’s elections. Though potentially a political winner for Erdogan in snap elections this fall, anti-Kurdish nationalism represents a step back for Turkey’s democratic progress. All this makes Turkey an uneasy partner for the United States and its own foreign policy goals. Cardin’s Anti-Corruption Agenda Before Congress recesses in August, Senate Foreign Relations Committee ranking Democrat Ben Cardin is pushing two anti-corruption measures. The first–the bipartisan Global Magnitsky Human Rights Accountability Act–expands on a Russia-specific sanctions law (named for whistleblower Sergei Magnitsky) to make corruption a sanctionable offense globally. It allows the president to deny or revoke visas and freeze assets of foreign individuals responsible for “significant acts” of corruption and “gross” human rights violations. Championed by rights groups, the re-introduced bill made it through committee on Wednesday. Also this week, Senator Cardin called out the Securities and Exchange Commission (SEC) for failing to implement section 1504 of Dodd-Frank, five years after the financial regulation passed. Known as the Cardin-Lugar amendment, 1504 requires extractives companies listed on U.S. stock exchanges to disclose payments made to foreign governments, allowing citizens and NGOs to track oil revenue from multinationals such as Exxon, Chevron, and ConocoPhillips. As the United States stalls, 30 other countries have adopted similar laws.

This is a post in a new series on the Development Channel,“This Week in Markets and Democracy.” Each week, CFR’s Civil Society, Markets, and Democracy Program will highlight noteworthy events and articles. Obama Juggles Economics and Human Rights in East Africa As President Obama heads to Kenya and Ethiopia, he looks to pursue a primarily economic agenda in a region with democratic suppression and serious human rights violations. The U.S. relationship with both countries is at an inflection point. The ICC only recently dropped its case against Kenyan President Uhuru Kenyatta for alleged crimes against humanity, and Ethiopia’s government is increasingly authoritarian. Still, positive economic growth presents opportunities to broaden U.S. focus from security assistance and aid to more trade and private investment. In 2015, Kenya shed its low-income status, while Ethiopia is set to attract a record $1.5 billion in foreign direct investment. U.S. investment in Africa lags behind China and Japan, and some critics dismiss President Obama’s $7 billion public-private electricity plan, Power Africa, as ineffective thus far (others disagree). After renewing the African Growth and Opportunity Act (AGOA) last month, the administration may seek to boost trade ties with East Africa’s nascent manufacturing sector. Yet the challenge is clear–how will President Obama balance an economic relationship with the imperative to address abysmal human rights records? Sub-Saharan Africa: Two Democratic Steps Forward, Three Steps Back? The trial of former Chadian dictator Hissène Habré for alleged war crimes began Monday in Senegal (now postponed), marking a “historic step for African justice.” It is the first time an African country will try the former leader of another. Also this week, President Obama met with Nigerian President Muhammadu Buhari, the country’s first leader elected after a democratic power transfer. These bright spots stand in contrast to democratic backsliding elsewhere. Burundi’s elections took place on Tuesday, despite an opposition boycott that followed months of political violence and intimidation as President Pierre Nkurunziza sought a disputed third term. In Rwanda and Uganda, current leaders are also trying to extend their stays. President Paul Kagame is moving to amend the Rwandan constitution to allow him to run for a third term. And Ugandan President Yoweri Museveni is pushing legislation that would stifle opposition before 2016 elections. While clinging to power is nothing new in sub-Saharan Africa, whether civil society resistance can peacefully prevent such political grabs remains to be seen. Diplomacy in Iran and Cuba: Deals First, Human Rights Later In the United States’ two historic diplomatic deals with longtime adversaries, human rights took a back seat to security and economic interests. Iran may halt its nuclear program, but it continues to jail journalists and carry out public executions. As Cuba opens to U.S. trade and diplomats, the Castro regime still silences opponents, and political dissidents suffer brutal prison conditions. So what happens now for human rights? With a nuclear deal signed, advocacy groups want more U.S. pressure on Tehran. There are renewed demands to release Washington Post journalist Jason Rezaian–arrested one year ago this week and charged with "espionage." The Obama administration acknowledged "profound concern” over Iran’s human rights record, and clarified that related sanctions will remain. To our south, many call for U.S. diplomats in the newly reopened Havana embassy to push for democratic reforms. The goal: to ensure normalized relations will help, rather than hinder, Cuban’s basic freedoms.  

This is a post in a new series on the Development Channel,“This Week in Markets and Democracy.” Each week, CFR’s Civil Society, Markets, and Democracy Program will highlight noteworthy events and articles. Takeaways from Third Financing for Development Conference World economic leaders and civil society groups were in Addis Ababa this week for the Third Financing for Development Conference, discussing how to fund global development for the next 15 years. Most debated was international tax reform. Developing countries advocated two changes: replacing the existing OECD tax-regulating body with a UN agency (to give them more of a say), and cracking down on corporate tax evasion. Unsurprisingly, rich countries blocked the UN proposal. One issue that participants were able to agree on–the need for more accurate, real-time development data. As a first step, the U.S., U.K. and the Hewlett Foundation jointly pledged $5 million to the Global Partnership for Sustainable Development Data, launched in Addis on Wednesday. Pope Francis Takes on Capitalism, Corruption in Latin America Pope Francis sealed his status as champion of the marginalized during an eight-day tour through Bolivia, Ecuador and Paraguay. In public speeches and meetings with civil society, he decried the “globalization of exploitation and indifference,” and the ills of free market capitalism–poverty, injustice and environmental degradation. The Pope openly criticized political leaders for their role in deepening inequality, even as many tried to use his visit to boost their credibility. In Ecuador, the Pope urged President Rafael Correa to forego the short-term economic benefits of resource exploitation, responding to indigenous groups’ concerns over expanded oil exploration. In Paraguay, he called on government officials to banish corruption, the “gangrene of the people,” and to improve rule of law with “rapid, clear trials,” a nod to the country’s flawed judicial system. Though the Pope’s message was well-received in a region facing severe poverty and graft, some question bringing this anti-capitalist rhetoric to U.S. Congress and UN General Assembly speeches this fall. Egypt and China Justify Recent Arrests In the name of countering Islamic State terrorism, Egyptian President Abdel Fattah al-Sisi’s government is systematically silencing dissent. Last week’s arrests of four journalists add to the eighteen already imprisoned for allegedly “sympathizing” with the banned Muslim Brotherhood. And a new counterterrorism law that would impose draconian jail sentences on journalists who contradict government information was only amended after significant domestic and international pushback. Egypt’s “anti-terror” crackdowns echo China, where this week security services detained more than 50 human rights lawyers and activists, accused of creating “social chaos” as part of a criminal syndicate.  

Governments, civil society groups, and business leaders are gathered this week in Addis Ababa, Ethiopia for the UN’s Third Financing for Development Conference (FFD3). Up for debate is how to fund the Sustainable Development Goals, or SDGs, a new set of global development indicators that the UN will adopt in September. The Addis agenda reflects two major changes since the First Financing for Development conference held in Monterrey, Mexico in 2002. First, the good news–there has been a dramatic reduction in global poverty. Between 2002 and 2015, 28 low-income countries–as classified by the World Bank–made the jump to middle-income status. The second, less-encouraging trend is that foreign aid commitments from developed countries have faltered. Aid spending is far from the UN target of 0.7 percent of gross national product (GNP) established in Monterrey. Instead, the OECD average is closer to 0.39 percent as of 2014, ranging from 1.1 percent in Sweden to 0.08 percent in Poland and the Slovak Republic. In the wake of these trends, the Addis talks will focus on two alternative approaches—private sector investment and domestic reforms. Foreign direct investment (FDI) in developing countries already far outstrips aid flows, totaling $480 billion in 2012, compared to $90 billion in aid spending. While investment stimulates growth and creates jobs, conference participants want to ensure that FDI contributes to inclusive growth that reaches the poorest populations. One proposal at Addis seeks to end tax evasion by multinational corporations, estimated to siphon $100 billion away from developing economies each year—money that might otherwise be used for health and education, and to modernize agriculture and infrastructure. Another avenue for post-2015 development financing is mobilizing domestic resources. Developing countries can raise revenue through higher taxes–now only 13 percent of their GDPs–and improve collection through automation. Equally important is combating corruption and illicit financial flows, which deprive developing economies of an estimated $1 trillion annually. The policy recommendations adopted at FFD3 will be non-binding. But, they could help set the tone for September, when governments and the development community commit to an ambitious post-2015 agenda that aims to eradicate poverty, end hunger, and ensure water and sanitation for all. Whether the 17 proposed SDGs will be achieved largely depends on financing.            

This week, the leaders of Brazil, Russia, India, China, and South Africa will gather in the Russian city of Ufa for the seventh annual summit of the BRICS. The BRICS have come a long way since 2001, when Goldman Sachs analyst Jim O’Neill coined the term “BRIC” to describe the four most dynamic emerging economies of the new century. With South Africa’s addition in 2011, the BRICS became a symbol of the shifting global political landscape—one in which the BRICS seek power and influence commensurate with their growing economic weight. Here are three things you need to know about the BRICS. 1. Diverse but Cooperative The first is that the BRICS are economically and politically diverse. The BRICS account for roughly 30 percent of global GDP, but that number masks underlying differences among the five countries. China’s economy is the biggest, totaling more than the other four countries’ combined. South Africa sits at the bottom, last year accounting for just 2 percent of the BRICS’ collective GDP. Source: International Monetary Fund, World Economic Outlook Database, April 2015 What’s more, the gap between China and the other four is growing. The IMF projects that the Chinese economy could reach $16 trillion by 2020, double that of the other four BRICS combined. In short, the BRICS are not rising in unison. China is clearly at the front of the pack. Source: International Monetary Fund, World Economic Outlook Database, April 2015 The BRICS also diverge politically. Brazil, India, and South Africa are liberal democracies, while China and Russia are authoritarian. Though observers have argued that these differences would prevent the BRICS from cooperating, this hasn’t entirely been the case. For all their differences, the BRICS find common ground in the principles of sovereignty and nonintervention. That’s why they unanimously condemned NATO’s intervention in Libya for overstepping its humanitarian mandate, and why Brazil, India, and South Africa have rejected Western efforts to isolate and sanction Russia for its annexation of Crimea. 2. Financial Alternatives The second thing to know is that the BRICS have begun building new multilateral institutions, marking a departure from their informal roots. By the end of this year, the BRICS will launch the New Development Bank—a $50 billion lending platform to finance infrastructure projects in the developing world. The BRICS are also creating a $100 billion Contingency Reserve Arrangement to cushion their economies from global financial pressures. It’s no secret that the BRICS launched these initiatives out of frustration with the Bretton Woods institutions, where developing countries remain underrepresented. Due to inaction by the U.S. Congress, the International Monetary Fund has failed to implement reforms that would grant developing countries voting shares matching their economic size. But with IMF reform nowhere in sight, new BRICS organizations offer an attractive alternative to U.S.-led institutions. 3. Inclusive Multilateralism The third thing to know is that the BRICS aren’t the only ones seeking to shape the emerging world order. Mexico, Indonesia, South Korea, Turkey, and others are eager to play a more prominent role in global governance. China is extending its influence through other channels as well, such as the New Silk Road initiative and the Asian Infrastructure Investment Bank (AIIB), which have overshadowed the BRICS bank. Although UN and IMF reform may be stalled, recent years have seen the proliferation of new, more inclusive multilateral arrangements that offer rising powers a seat at the table. From the Group of Twenty (G20) to the Nuclear Security Summit process, the BRICS are central members of the international institutions driving global cooperation today.

This is a post of a new series on the Development Channel,“This Week in Markets and Democracy.” Each Friday, CFR’s Civil Society, Markets, and Democracy Program will highlight the week’s noteworthy events and articles. Cost of Tax Breaks and Evasion on African Economies As organizations gear up for July’s Third International Conference on Financing for Development, new reports highlight the toll of tax evasion and outsized corporate tax breaks on African economic development. The World Bank calculates that between 2002 and 2009, Tunisia lost at least $1.2 billion in import taxes as firms undervalued and underreported imports. A recent report by Health Poverty Action (HPA) reveals that Sierra Leone has lost nearly $200 million a year in tax breaks, or three times its 2015 health budget. HPA estimates that by reducing benefits for the nation’s five largest mining firms, Sierra Leone could generate an extra $94 million in government revenue. Curbing Corruption in Central and Southeast Asia Asian countries are fighting corruption through digital platforms, legal reforms, and innovative civil society programs. With public procurement accounting for 20 percent of all government expenditures, the Kyrgyz Republic is taking on graft by requiring government bodies to publish all public contract details on a central web portal. Since the roll-out, 700 state and local governments have switched to e-procurement and over 2,000 businesses have registered. In Cambodia, Transparency International has rolled out an Anti-Corruption Card, which citizens receive in exchange for signing a declaration against corruption. The cards, now numbering over 8,000, provide discounts at cafés and shops in Phnom Penh. ILO and UNODC Launch Global Call to Action for Labor Rights Against the background of horrific labor abuses in preparations for the 2022 Qatar World Cup, the ILO and UNODC announced a partnership to promote fair and ethical labor recruitment during this week’s UN Human Rights Council session in Geneva. The two organizations are urging governments, labor organizations, and the private sector to end fraudulent labor recruiting through broad legal, regulatory, and enforcement reforms. Such legal protections would be welcome in Hong Kong, where existing laws don’t recognize labor exploitation or domestic servitude as human trafficking. In the private sector, Apple recently ended all recruitment fees for its factory workers, serving as a model for other corporations to end rights violations in their supply chains.