The US-Africa Leaders Summit in Washington, DC, ended the first week of August, and brought together more than 50 African leaders to discuss Africa’s growing influence on the global stage. The summit came at a crucial time, in light of the recent Ebola outbreak in West Africa.
Ebola has infected more than 1,700 people in Guinea, Liberia Nigeria, and Sierra Leone – half of whom have died. The current Ebola outbreak is the largest on record and is expanding, despite great efforts to contain and combat it. Liberia’s president has officially declared a state of emergency. In response, the World Health Organization announced a $100 million plan to combat the disease.
West Africa, the epicenter of the outbreak, is one of the poorest regions in the world. GNI Per Capita as of 2012 (current USD) in Guinea was $493.50, $413.80 in Liberia, and $633.50 in Sierra Leone. Such extreme poverty leads to unsuitable living conditions, a lack of sanitation, unreliable healthcare, and the consequential spread of lethal diseases. It is unsurprising to find such a vicious feedback loop in West Africa where poverty, economic volatility, and disease is the norm.
Beyond taking innocent lives, the Ebola outbreak may have severe consequences for the region’s economic growth and progress. Since the outbreak began, borders in West Africa have been closed, hotels are empty, and flights have been cancelled. Rio de Janeiro-based Vale SA (VALE5), the world’s biggest iron-ore producer, sent all foreign workers home and cut all operations by half, following the example of many other foreign companies in the region. Previous economic progress made in the region is sure to take a major hit. Such a devastating outbreak comes after years of relative peace among these three countries. Not long ago, all were involved in years of interconnected wars and civil strife. Today, they are working together to battle the Ebola outbreak.
Liberian Finance Minister Amara Konneh recently stated that the current outbreak has already cost his country’s economy $12 million USD. Liberia has shut down schools and many local markets in response to the outbreak. The finance minister also noted that GDP will expand 6.8% this year, a 2.5% drop from last year. Similarly in Guinea, the World Bank and IMF estimate that the countries GDP will fall from 4.5% to 3.5%. To add to the misery, economists agree that food prices will rise as staples and other supplies in the region become scarce. Sando Johnson, a senator in the province of Bomi, northwest of the Liberian capital Monrovia, stated, “the restrictions were ‘severe’ and warned that people would die of starvation if they are not relaxed.” In Liberia, a bag of rice selling for 1,300 LD ($15.76 USD) now goes for around 1,800 LD ($21.8 USD).
West African countries have deployed thousands of soldiers and policemen to enforce the quarantines at borders. These officials are tasked with conducting intensive searches of individuals and vehicles, only allowing essential goods to cross. This level of enforcement is believed to be necessary to contain the virus, or else we could be dealing with the next “bubonic plague” of our time. Such circumstances demonstrate the far-reaching effects of the current Ebola outbreak, and the need to end it.
Limited education, skyrocketing food prices, and closed borders, all byproducts of the outbreak, are becoming problematic. iF the virus spreads beyond West Africa, so will its negative consequences. It is now clear that Africa is at a critical point, and the response from global and African leaders will be essential in controlling the disease and limiting its effects on the worldwide economy.
Like fashion, international development is guided by trends. While some trends come and go, others withstand the test of time. If recent events are any indication, a new international development trend is on the horizon: development banks, governed by developing countries.
Just before the Asia-Pacific Economic Conference in Bali last October, China announced the establishment of the Asian Infrastructure Investment Bank (AIIB). As its name suggests, the bank will devote its resources to finance national and regional infrastructure development projects throughout Asia. Startup capital for the new bank is expected to be $50 billion, with aspirations to match. One of the new bank’s notable plans is constructing a railway from Beijing to Baghdad. Though ambitious, China is willing to devote its resources to the cause. According to the McKinsey Global Institute, China spent 8.5% of its GDP on infrastructure from 1992 to 2011, more than any other country in the world.
While plans for the AIIB are still underway, Brazil, Russia, India, China, and South Africa (BRICS) recently announced plans for their own bank. Like the AIIB, the New Development Bank (NDB) will finance infrastructure projects, with initial assets reaching $50 billion. An additional $100 billion will be designated for the Contingency Reserve Arrangement (CRA) for member states with suffering from severe current account deficits. Unlike the general infrastructure fund, to which all member states contributed equally, the CRA is dominated by Chinese assets. Of the $100 billion, the Chinese will contribute $41 billion with South Africa contributing $5 billion and Russia, Brazil, and India each contributing $18 billion. With the CRA, the NDB could prove a viable alternative to the IMF, and likely with fewer conditions.
In less than a year, two new development banks have taken root. Does this trend have staying power?
If anything, the new banks will remind the development community of the importance of infrastructure development. However, to be successful, the banks’ leaders must have realistic expectations with respect to international cooperation and lending capacity.
The AIIB and NDB challenge the structure of current global development institutions. The Bretton Woods system, created in 1944, reflects the economic structure of a bygone era in which the BRICS had not yet emerged. Decades later, the economy has changed though voting structure has not. The BRICS hold only 11% of the votes in the IMF, though their economies claim 20% of the world economy. A 2010 IMF agreement will redistribute some of the votes to give more weight to developing countries, thereby reducing the importance of financial contributions. The agreement, however still awaits ratification from the U.S. Congress. Until then, China, poised to be the world’s largest economy this year, will have fewer votes than Belgium, Netherlands, and Luxembourg combined.
The World Bank estimates a $1 trillion infrastructure gap for low- and middle-income countries, and the AIIB and the NDB could help to close the gap through their own financial contributions, a collective $200 billion. Cooperation with preexisting institutions, however, could be more complicated. Though sizeable, the initial capital of the AIIB and the NDB is much smaller compared to the World Bank or even the Asian Development Bank, with $232 billion and $165 billion, respectively. Cooperating with the World Bank, Asian Development Bank, and other institutions could mean that priority projects for both banks are deferred due to the financial might of its development predecessors. To be a serious alternative to preexisting institutions, both AIIB and NDB must raise additional capital.
Perhaps the most notable shortcoming is both banks’ lack of involvement in any African country save for South Africa. According to the World Bank, approximately 70% of people in sub-Saharan Africa live without access to electricity. It is puzzling as to why other African countries are given the cold shoulder, particularly Nigeria and its 170 million people, the largest in Africa. Coupled with increasing GDP growth and decreasing inflation, the country is Africa’s second largest economy, and is expected to be one of the world’s top economies by 2030. China is Africa’s largest trading partner, though the country’s trade with the continent is only a 5% share of China’s global trade. Given that Africa has some of the world’s most pressing infrastructure needs, Africa’s lack of inclusion is questionable at best.
Both banks must exercise caution in their financial management and project execution. In plans for both banks, China is set to be a chief financial contributor, however the country remains a top beneficiary of World Bank funds. China, along with Brazil and India owe a collective $66 billion in outstanding loans. Additionally, both banks must remain cognizant of the impact of infrastructure in the least developed areas. In a 2013 Center for Economic Performance paper, economist Ben Faber found that small countries with only recently connected highway systems experienced GDP growth that was on average 19% less than small countries unconnected to highway systems. This was due to the inflow of inexpensive goods that replaced demand for local goods.
While the benefits of infrastructure are numerous, it is by no means a poverty-eradicating panacea. But it is very helpful. Increased productivity and competition make infrastructure investment key driver of economic growth and a lasting trend.
Do development banks governed by developing countries have lasting power? Only time- and perhaps the international community- will tell.
It sounds reasonable to assume that a high crime rate correlates with political, economical, and social turbulence. But Nicaragua, a country lying in the center of Central America, defies this apparent logic. Despite its reputation as the second poorest country in the western hemisphere, Nicaragua has made remarkable strides in public security compared to its regional neighbors, the Northern Triangle– El Salvador, Guatemala, and Honduras. In 2012, the homicide rate in Nicaragua was 11.3 per 100,000 persons, less than one-third of the rates seen for its three northern neighbors.
Nicaragua’s public safety profile is an even bigger surprise once you consider its economic, political, and geographical reality. As mentioned, Nicaragua’s living standard is one of the lowest among its regional neighbors with almost half the population in unemployment and homelessness. The wage rate for police officers, set at $120 a month, as well as their availability, 18 per 10,000 persons, is just as bad as the country’s poverty level. Politically, it has only been forty years since the revolutionary knock-over of the Somoza family dictatorship, and the foreign-intervened guerilla war against the subsequent authoritarian Sandinista regime. Such a short history of recovery is a fair enough excuse for Nicaragua to have security irregularities as past remains. What takes people aback the most is probably that Nicaragua has eschewed violence by drug traffickers and youth gangs like the MARAS or BARRIOS that have defined Central and South America for centuries. While Nicaragua shares a border with Honduras, a country pegged as one of the most dangerous areas in the world with the largest presence of the Maras, it has little identified indigenous terrorism and organized crimes.
It is neither stellar sociopolitical stability nor geographic prerogative that undergirds Nicaragua’s peace-mongering environment. Then, what? The most sounding answer lies in “preventive, proactive, community-oriented police model.”
Four decades of civil war the in Northern Triangle occurred at the end of the twentieth century, though they all differed in intensity, nature, and longevity. These conflicts caused these nations to develop national security policies that engagee the military in reactionary and repressive fashion. In contrast to their iron-fist policies, Nicaragua’s police system, while still retaining the pattern of military engagement in public security, proactively seeks to create a safe social environment. For example, the Nicaragua National Police (PNN) has created specialist bodies for youth violence and intra-family and sexual violence, which take up 20% of the national crime rate. These bodies carry out comprehensive three stage responses – transforming local environments, cooperating with local NGOs and health centers for victim support, and vocational training and education.
Even more telling of the country’s success, is the community-oriented aspect of the police model. A 1995 Constitutional Reform has given the PNN its own General Directorate and greater independence, which allows it freedom from political games. Under the centralized leadership, its operation is enrooted in a strong police-society partnership in a decentralized manner. There are usually broad channels of communication with local residents such as community assemblies and direct linkages with the people. In each district, there is a sector police chief, responsible for paying door-to-door visits to residents, building close ties with them, and inviting them for neighborhood watch activities. Among 100,000 volunteers nationwide assisting the PNN in both crime detection and victim support are some professionals like law and psychology students, as well as some experienced former gang members and victims of violence, and NGOs. The fact that Nicaragua has social culture of parochialism and small-township, resulting in close community ties, complements the picture.
Nicaragua is not completely spared from the threats of violence. There are still 25,000 or so youth gangs. They are small in scale and often do not have foreign connections. But it is a logical sequence that the Mara gangs, contained in the North for now, may move south and reach these youths, especially at the wake of the Central America border control agreement which allows free movement of citizens between Nicaragua, El Salvador, Guatemala, and Honduras. Threats from a Mexican Mob, the Zetas cannot be ignored, as well. The persistence of low income, high poverty level further “legitimizes” participation in cocaine smuggling and investments. Above all, fraud in 2008 municipal elections, and the Police Directorate’s neglect of the limit on a five-year term, a writ-large departure from democratic order, pose a greatest disturbance to the philosophy of the country’s legal system.
Nicaragua has done a fair job so far, fair enough for the neighboring countries to learn from, though not replicate, its police model. Whether it will continue to be exemplary depends first on the collective effort by its regional partners to contain and ultimately eradicate organized crime groups. What remains of greater importance is to strive to live by a pillar that ensures equality of all people both politically and economically.
Over the past three decades, and despite great hopes to the contrary, Mexico’s economy has under-performed. In the early 1908s, Mexico introduced aggressive political and economic reforms in an attempt to gain footing among the world’s strongest economies. These reforms embraced global markets and decreased the state’s role in the economy. An independent central bank was introduced along with more developed financial markets, as the country faced a tough macroeconomic stabilization period. Additionally, the country liberalized foreign trade and investment by privatizing nearly 1,000 state-owned enterprises. By 1994, Mexico joined the OECD, a sign that the country was on the right track. Despite these efforts, Mexico has seen capita income grow by an anemic 1.1% per annum over the past 25 years. Compared to other countries with similar economies (see below), Mexico’s relative stagnation seems all the more acute..
In 2012, Enrique Peña Nieto took office as Mexico’s 57th President, eager to tackle the country’s growth challenge. So far, President Nieto seems to be heading in the right direction promoting an ambitious reform agenda that seeks to not spur economic growth, but also develop and enforce anti-monopoly regulation. The President’s agenda highlights two main reforms: energy and education. His education reforms target the quality of working educators by introducing a series of rigorous tests that may cost teachers their jobs if they fail. The energy reforms aim to reduce the market share of Pemex , which will go along way in strengthening the energy sector through increased competition.
President Peña Nieto intends to have all reforms approved by the end of 2014, but this is just half the battle. The most challenging part of these reforms will be enforcing all the regulations once implemented and winning over the general population.
Early last year, Elba Esther Gordillo, the powerful leader of Mexico’s teacher’s union, was arrested on massive charges of embezzlement of over 2 Billion Pesos (159 Million USD). The arrest came the day after President Nieto signed the education reforms into law. Shortly after, thousands of teachers stormed the streets to protest the education reform package. This forceful disapproval of the president’s reform agenda is a much-needed reminder that optimism for growth in Mexico is far from reality, and that Peña Nieto still has much to accomplish.
According to researchers at the Wilson Center’s Mexico Institute, the principal cause of Mexico’s stagnant growth is misguided education reform and dismal worker productivity. Worker productivity in Mexico has failed to increase over the past three decades despite the steady increase in school enrollment over the past five decades (see figure below). Educational facilities in Mexico focus on teaching cognitive skills rather than the technical skills that employers demand. The lack of technical skill-focused education in Mexico has lead to disappointing levels of worker productivity. This will continue unless the government seeks further reform focused on increasing the quality of educators and the type of education, not just the amount of people who receive an education.
In the past, the government’s answer to dismal growth has been disjointed. The Mexican Government has managed isolated efforts with no comprehensive strategy to patch up the economy. This erratic policymaking has led to many conflicting reforms, hindering growth in an economy that has been dreaming of development for decades. President Peña Nieto’s aggressive reform agenda brings newfound optimism for growth in Mexico. In his four remaining years in office, Peña Nieto is expected to accomplish what many have failed to do. Is it finally Mexico’s time to shine?
An aging population can pose many challenges to both families and developing nations. In China where the dominance of traditional filial pieties have dictated social norms, manly elders fear having no warrant for filial support after retirement due to changing norms. At this juncture, a brilliant trend-spotter, Starcastle offers a promising alternative. Starcastle is a Shanghai-based joint venture company between a large Chinese conglomerate, Fosun Group, and an American hedge-fund giant, Fortress Investment Group, that caters to hospitable senior living communities for retired elders. A stereotypical life of quiet retirement is unheard of at Starcastle. Instead, classy, up-to-date activities like tai chi, calligraphy, dances, social media messaging, and gaming in open-air cafés invigorate the facility and the lives of its residents.
The vibrant scenes playing out in this “castle” reflect a prominent trend in China’s social service market. Attracted by the country’s aging population, major U.S. firms including Emeritus Corp., Life Care Services LLC, and John C. Erikson have broken into the Chinese market in a tight consultation with Chinese firms, developers, and government officials. Small-scale government sponsorship like tax incentives and direct financial support for private nursing institutions dates back to as early as the 1950s. The number of institutions established, however, was not even close to being enough to care for the country’s elderly population, and poor infrastructure, service quality, and prices never appealed to the Chinese people. Reflecting on its past failure to build up the senior services market, the Chinese government made some effort itself to increase participation by allocating a huge block of land in Beijing for senior housing, overtly relying on the private sector in developing senior care.
Services for the aging population in China do in fact need a serious overhaul. In 2000, China’s 60-year-and-older population reached approximately 10% of the total population. Chinese government officials project that one third of China’s population will be over retirement age by 2050. Many blame the demographic fallout on the 1979 One-Child Policy, which dramatically shifted population balance. Increasing life expectancy has also contributed to the problem. In 1980, life expectancy for both sexes was 64 years. In 2001, it rose to 78.1 years. When these numbers are tied together with the average retirement age – 55 for female and 60 for male – it turns out that the elderly have a significant portion of their lives left after retirement.
The developing senior care sector is also in response to another noteworthy demographic trend – the rise of the urban middle class. The increase in China’s middle class population has been extraordinary. By 2022, more than 45% of the population is expected to be categorized as middle income earners. Right now, the mass middle class accounts for more than half of that number, but many expect the upper middle class, who can pay a premium for quality products and discretionary services, to become the new mainstream. Senior care does not come cheap. Starcastle primarily targets wealthy business owners in Shanghai who are capable of paying high costs for independent-living apartments, nurse care, housekeeping, and healthy meals. Rising labor and service costs, prices for land-use rights, and costs involved in the overall process inevitably drive the industry to target the rich for profitability. Senior care communities are attainable only for the powerful middle class, at least for now.
Of course, current efforts by foreign firms and domestic developers are not enough to entirely fend off the burden of caring for the aging population. There is still a large chunk of the population, mostly in rural areas, who cannot take part in this upmarket industry. China’s remarkable economic growth may also stall, dragging down middle-class ambitions with it. Chinese government’s ambiguous guidelines on its censorship and regulations on private, especially foreign, firms may put a halt to the deluge of development efforts in elderly care, as well.
In most developed countries, social benefit programs along with the long-lived culture of planning for post-retirement have been a cornerstone for caring for the elderly. China’s unique social, economic, and cultural environments requires a new or revised development model that suits China’s characteristics. Amidst many uncertainties, one thing seems to be clear though; greater government participation and subsidies beyond allowing foreigners to participate is needed, so that all can comfortably live out the twilight of their lives.
Nearly one month after the landmark 2014 Lok Sabha election, India waits for newly-elected Prime Minister Narendra Modi to make good on his election promises. During his campaign, former Chief Minister Modi vowed to catalyze economic growth, curtail corruption, and defend the poor, a platform that surely helped him earn the largest margin of victory in the country’s history. Now, in the face of slowing economic growth and rising income inequality, Modi is expected to apply his development prowess for the rest of India.
The answer is simple: subsidy reform.
Since India’s independence from Britain, subsidies have had a major presence in India’s budget. India’s 2014-2015 interim budget estimated $21.2 billion in subsidies for food and petroleum alone. Until Modi’s election, this trend showed no sign of changing.
Next month, the Modi government is set to unveil its first budget, the first likely indicator of Modi’s fulfillment of campaign promises. Recently, Mr. Modi has hinted that his economic policies and corresponding budget will be unpopular with India, most likely due in part to the diminishing role of petroleum and agriculture subsidies.
India is host to a myriad of subsidies. From petroleum to education, India even subsidizes Muslim citizens to make the Haj. Of these, some of the most controversial are food subsidies. Within this broad scope, there are subsidies for fertilizer, irrigation, and electricity as well as in-kind food subsidies. The Government of India has barely reformed its food subsidy policy since the mid-1970s, with the exception of the 2013 National Food Security Act. The National Security Act provides food to two-thirds of India’s population, though only 22% live beneath the poverty line.
Designed with combating poverty in mind, subsidies are expected to boost production and increase efficiency while bolstering India’s recently declining growth rates. However, in reality, the inverse is true. Indian subsidies in agriculture are distributed unequally across the states. For example, the states of Assam and Madhya Pradesh, receive disproportionate agricultural subsidies, with the former receiving 600 rupees per agricultural person and the latter receiving 40 rupees per agricultural person. Both states, with active agricultural sectors, receive unequal subsidies for their efforts, leaving Madhya Pradesh to be one of the country’s more prosperous states and Assam one of the least developed.
Further, it is unlikely that in-kind food subsidies even reach India’s poorest. As early as 1985, the public distribution system was responsible for a mere 15% of the allocations meant for the poor, a track record that has worsened over time.
Though it may seem that business-centric Modi has neglected the poor in lieu of increasing foreign investment and freeing the labor markets, the new Prime Minister ’s policy reforms could be a key to reducing poverty. In a recent speech to Parliament, Modi alluded to administrative changes to increase the efficiency of the state-run Food Corporation of India. These reforms could come in the form of a nation-wide cash transfer system that could increase distribution efficiency and restore foodstuffs to market prices. With demonstrated effectiveness in neighboring Indonesia, cash transfers allow more targeted assistance and more effective poverty reduction. Though it is unlikely that Modi will eradicate subsidies altogether, it is clear that he is dedicated to their reform.
For better or for worse, Narendra Modi’s victory is a sign for changing times in Indian politics. The Modi government’s new budget is expected to be introduced in early July, but the transition from planning to implementation will be a challenge. Parliament must review and approve the budget, meaning that the Modi’s budget could be met with opposition before it even reaches the Rajya Sabha. Though scaling back subsidies and bolstering growth are ambitious, the greater obstacle could be a lack of political will.