Banking on Acceptance: China and the Asian Infrastructure Investment Bank

The Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) opened in January 2016, establishing itself as the newest member of the multilateral development bank community. Commonly billed as “China’s answer to the World Bank,” the AIIB aims to invest in infrastructure and other productive sectors across the Asian continent. Concerns about China using the AIIB as a front for its strategic and economic objectives plagued the bank’s planning stages and initial months of operations, but such concerns were difficult to substantiate before the bank had funded any projects. The recent announcement of the AIIB’s first four funding projects suggest that, while China is using the bank to its advantage, it is also maintaining the bank’s legitimacy as a multilateral institution.

China officially proposed a multilateral infrastructure bank for Asia in 2013, an announcement that received an unenthusiastic response from the United States and Japan. Both countries were concerned that founding a new bank, not necessarily beholden to “international standards of governance and transparency,” could provide China with the opportunity to exert disproportionate influence over Asia’s development agenda.

These concerns were substantiated in 2015 when it was announced that China would be the largest stakeholder in the bank, with a 26% voting share, after funding $29.78 billion of the AIIB’s $100 billion capital. Given that major changes to the bank, including capital increases or alterations to the governing structure, must be approved by a supermajority totaling 75% of the voting share, China effectively possesses an informal veto power over many AIIB decisions. However, Beijing has been keen to assuage worries of Chinese dominance. The chief of the bank stated that China will not seek to increase its voting share – in fact, he alluded that China’s voting share may decrease over time as more members join. In addition, China will not possess a formal veto power, a stark contrast to the United States’ formal veto over structural changes within the World Bank.

That said, Chinese interests were clearly supported when the AIIB began to consider development project proposals, the first of which were approved in June 2016. They included revitalizing slums in Indonesia and upgrading the power grid in Bangladesh, as well as constructing and improving roads in Pakistan and Tajikistan. While these projects will undoubtedly benefit China, they also show that AIIB’s reputation as a multilateral bank will not be undermined to serve solely Chinese interests.

To understand how the AIIB benefits China, it is necessary to look at Chinese development in the larger context of the country’s One Belt, One Road (OBOR) initiative. Inspired by the ancient Silk Road, OBOR seeks to connect China with trading partners through Asia, the Middle East, and Africa via an “economic land belt” and a “maritime road” that links Chinese ports to those of other countries.

The AIIB, as a formal investment institution with international support to increase regional prosperity, is partly a way to fund OBOR. It is therefore unsurprising that the AIIB’s projects for Pakistan and Tajikistan are directly related to OBOR.  Both projects call for the construction and improvement of roads, which is critical to trade between China and other Asian countries.

But consistency with OBOR’s objectives does not mean that these projects are simply moves by China to increase its regional influence. Rather, the AIIB has chosen to co-finance all of these projects, except the one for Bangladesh, with other multilateral agencies including the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the World Bank. Co-financing mitigates the risk that the young AIIB and its stakeholders are accepting and eases concerns in the international community regarding the transparency and governance standards of the AIIB. Cooperating with respected multilateral agencies ensures that the AIIB will, at least for these projects, comply with accepted international standards. This compliance strengthens the bank’s standing among multilateral institutions.

Still, some are convinced that the AIIB is prioritizing Chinese interests at the expense of regional prosperity. In particular, there is concern that AIIB rejected a project for India in favor of a road construction project for its strategic ally, Pakistan. However, the president of the ADB, which is the lead financer of the project, stated that there are “so many projects in the list in many countries. It just happened that the Pakistan project was approved first because it could be done quickly.” That this statement comes from the ADB strongly suggests that financing for the Pakistan project was not a case of the AIIB favoring China’s regional allies. Given Japan’s tenuous relationship with China, the Japan-backed ADB would have little incentive to finance a project in Pakistan if it believed that it would solely aide Chinese interests.

The AIIB is increasingly perceived as an institution that complements other development efforts, as evidenced by co-financing and support from other multilateral banks and the membership of other global powers such as Australia and Germany. Such acceptance is beneficial to both the multilateral development industry and China. Increased membership could augment the capacity of the AIIB to contribute to infrastructure development, leading to greater prosperity for China and the rest of the continent. Such a prospect is certainly motivation for the AIIB to continue to seek success not only in its project outcomes, but also in the eyes of the global development community.

Extreme Poverty and the Graduation Approach

Nearly 1.2 billion people are living below the extreme poverty line on less than $1.25 USD per day. Unfortunately, many of these individuals do not meet the qualifications of many poverty alleviation programs or are too consumed with meeting basic needs to apply for such programs. In partnership with the Ford Foundation, the Consultative Group to Assist the Poor (CGAP) set up ten pilot programs in eight countries (Ethiopia, Ghana, Haiti, Honduras, India, Pakistan, Peru and Yemen) to test and observe the “graduation approach” to poverty alleviation developed by the Bangladesh Rural Advancement Committee (BRAC). The graduation approach identifies individuals living in extreme poverty and provides them with basic resources, financial education, technical training, life skill coaching, and social support so that they can “graduate” from the program with food security and sustainable sources of income.

In September 2014, CGAP conducted evaluations of six programs that used the graduation approach. These evaluations were used to produce a detailed report that could serve as a technical manual for future programming. With the possible exception of the Honduran program, Mejoramiento Integral de la Familia Rural, five out of the six programs evaluated by CGAP had measurably increased their participants’ income, assets, food security, health, and happiness.

While CGAP’s evaluation supported the effectiveness of the graduation approach, it also identified some of the barriers to graduation. In order to achieve a truly sustainable income, participants needed to diversify their assets and income sources. This was particularly clear in Honduras where 83 percent of program participants had purchased chickens as a long-term investment. Unfortunately, many of these chickens contracted illnesses and died, plunging their owners back into poverty. Since illnesses and other acts of nature are often unavoidable, diversification of long term assets is essential.

Ultimately, the evaluations performed by CGAP and the Ford Foundation showed significant improvements for program participants. According to CGAP, pooled estimates of program participants’ per capita consumption increased 5.8 percent. In a true test of the graduation approach, per capita consumption continued to increase even after program support ended. The evaluations also revealed that participating families experienced fewer days in which a member of the household skipped meals or went a whole day without food. Finally, CGAP noted that the graduation approach had significantly and persistently increased household assets, improved psychosocial wellbeing, and increased self-employment income. By February 2016, 40 new programs had adopted the graduation approach. The success of the ten pilot programs established by CGAP and the Ford Foundation illustrated the efficacy of the graduation approach and ensured its use for decades to come.

Making Room in the Development Sandbox

The era of Western run foreign assistance is over. Throughout the history of foreign assistance, big development agencies like USAID have called the shots, touting stories of untrustworthy governments and issues of national security as justifications for entirely Western run development schemes.  The rise of South-to-South cooperation and support from developing economies has shifted power in the world of international development. There are many articles that either sing the praises of USAID or tear it down; this is neither. Policy makers must recognize a new wave in international development and consider alternative options to government assistance.

North-to-South aid relationships have been the status quo for as long as foreign assistance has existed. In the past, the North provided the funds, personnel and program structure, and the South provided the location and beneficiaries. But the dynamic is shifting.  Power blocs of emerging economies–like Brazil, Russia, India, China and South Africa (BRICS)–are the new frontiers of global development.  On the growing list of South-to-South programming, Thailand is granting loans to Cambodia, India has started technology sharing programs, and Brazil started infrastructure programs in Paraguay.

In terms of real numbers, the U.S. is still the global leader in ODA and money contributed to foreign assistance, but we aren’t very popular. A number of academics from “developing” countries recently criticized the heavy hand of the United States in foreign assistance programming and decried what they refer to as the “cycle of dependency.” Thinly veiled arguments against South-to-South programming have also emerged from Western development heavies like Jeffrey Sachs and Paul Collier. These practitioners are disputing academics, like Zambia’s Dambisa Moyo, who have called for an African run development plan.

Internationally and domestically, USAID is no stranger to criticism. In 2011, 156 Republican Congressmen called for a drastic defunding of the agency. While defunding one of the largest development agencies in the world may seem brash and ill advised, it is clear that people are displeased with the current norm in development. Recently, USAID came under fire for poor financial accountability and low program achievement. In 2014, an audit of a $88.5 million program in Afghanistan detailed low objective achievement and possibly misappropriated funds. A financial audit, however, could not be conducted due to a lack of funds.

All of this is not to say that USAID is the enemy, the agency has achieved tremendous feats: 850,000 people have been reached through the HIV/AIDS prevention program and 15 million primary school children have been targeted and included in global literacy programs. The emergence of a new development dynamic is not a goodbye to USAID. As South-to-South Cooperation continues to grow, surely USAID will grow and change with it.

Burundi: Civil Society in Jeopardy

Burundi has recently raised some concern from the international community due to unrest between its largely Hutu government and the Tutsi opposition. This unrest stems, in part, from the government’s censorship practices. Over the last few years, these restrictive government policies have affected journalists, opposition leaders, human rights defenders, and civil society organizations (CSOs). More recently, the Burundian government has turned its attention towards CSOs and human rights organizations.

Like its neighbor Rwanda, Burundi has had a long history of political unrest and ethnic tensions. A little over twelve years ago, the country was engaged in a bloody civil war that resulted in the deaths of an estimated three hundred thousand Burundians. Since then, the country has attempted to ease these tensions by dividing political leadership more equally between the Hutu and Tutsi ethnic groups. Thanks in large part to this restructuring; Pierre Nkurunziza was elected to the presidency in 2005. The most recent conflict began when Nkurunziza ran for a controversial third term and won with 69.41 percent of the vote. Nkurunziza’s reelection violated Burundi’s terms limits. According to the country’s constitution, established in 1992, a president may only serve two five-year terms. As a result of the fierce opposition to Nkurunziza’s reelection, the government has engaged in a variety of  anti-democratic actions.

According to the Economist’s Intelligence Unit, Burundi is “on the cusp” of another civil war. Self-censorship (e.g. not reporting on certain topics and declining to speak on particular issues that concern the government) is reportedly common among citizens and the government has attempted to confiscate weapons in an effort to prevent a potential coup d’état. The president has stated that those who belong to the opposition party and who do not comply with these new measures will be considered “Enemies of Burundi and treated as terrorists.”

Burundi’s government has also carried out attacks and arrests on civil society leaders, journalists, and those who oppose the new repressive measures. At a time when watchdogs and whistle-blowers are needed most and at their most vulnerable, the government has approved a new law that requires journalists to disclose all of their sources. Bob Rugurika, the director of Radio Publique Africaine, was arrested for withholding a suspect from the authorities.  In addition, Welly Nzitonda, the son of prominent civil rights activist Pierre-Claver Mbonimpa, was arrested on trumped up charges and later killed by the police.

In addition to these high profile arrests, the government has also attempted to exert its control over local CSOs. Early last year, the government announced that it would freeze the bank accounts of local CSOs and the interior minister subsequently suspended the operations of such groups. According to a secretary in the interior minister’s office, these organizations were being led by civil rights activists who had fled the country and backed the “troublemakers.” Thankfully, these CSOs were given a chance to defend themselves after further investigation.

The unrest in Burundi goes beyond mere political tension. The government has attempted to silence its critics through arrests, financial restrictions, and the outright closure of human right organizations and CSOs, but Burundi needs civil society organizations now more than ever. As it stands on the brink of a constitutional crisis and an ethnic civil war, the Burundian government must communicate with its opponents and critics to ensure peace and stability in Burundi and the region.

The Economics of Migration

In the current debate surrounding refugee migration, most people seem to fall into one of two camps: those who favor hosting refugees, and those who oppose it. But many seem to have forgotten that human migration has supported human progress and contributed to global development for centuries.

For opponents of migration, the large influx of foreign born laborers seeking jobs, education, and security is something to be feared. They fear that refugees and other migrant groups are low skilled workers hoping only to benefit from social welfare programs and decrease the standard of living in their host country.  Evidence suggests, however, that on average over a third of migrants entering the workforce have completed post-secondary education, and that in most countries, migrants contribute more in taxes and social contributions than they receive in individual benefits.

We must rise above this seemingly instinctual reaction and consider the benefits that migration has had in those countries that migrants and refugees leave behind. Not only does migration increase wages for workers that stay behind, but migrant workers often remit money to their families back home. This supplementary income is, in turn, invested in education and health care, important indicators of a country’s development that can lift people out of poverty. The Migration and Remittances Factbook 2016 suggests that total remittances were estimated to have reached $601 billion in 2015, of which $441 billion went to developing countries, a total that is almost three times larger than official development aid flows. These remittance flows to developing countries have grown significantly in recent years, from $325 billion in 2010, to $372 billion in 2011 and $401 billion in 2012.

Nevertheless, the high financial costs of international migration and the transmission of remittances are inhibiting the benefits of migration. The 2015 Sustainable Development Goals (SDGs) address these issues. Target 8.8 notes that labor rights, including those of migrant workers, should be protected, and Target 10.7 calls for the facilitation of the orderly, safe, regular and responsible migration of people through the implementation of planned and well-managed migration policies. In addition, Target 10.c strives to reduce the costs associated with remittances to 3% by 2030. Taken all together, these innovative targets would reduce the cost of remittances and encourage sustainable and profitable international migration.

As the Sustainable Development Goals suggest, we need to recognize what technology can do today and use it to redesign the world for a more inclusive and prosperous tomorrow. Modern technology requires specialized knowledge, and the easiest way to gather such knowledge is to recruit from outside of the system. It is easier to move brains than it is to move knowledge and expertise. As such, migration is key to the diffusion of knowledge and its long-term positive impact on worldwide development. In short, we cannot have global markets, trade, products, and services without global migration.

The Scalpel before the Sword

The recent actions against non-government organizations (NGOs) by the Kenyan government reflects the necessity of implementing some protective measures in combating the use of NGO’s as a conduit for illicit financial flows (IFFs). In Kenya, the NGO Coordination Board is tasked with the difficult mission of finding and closing NGOs utilized for the finance of criminal and terrorist activities. This mission has been executed with more blunt force than precise control. The decision in 2013 to revoke the registration of more than 500 organizations, of which only fifteen were suspected of money laundering, demonstrates how the broad pursuit of terrorist funding can quickly impinge upon democratic freedoms. While the Kenya’s Ministry of Devolution’s cabinet secretary succeeded in directing the NGO board to reverse the decision that would revoke the registration of an additional 1000 NGO’s, Kenya serves as a marked example of the need to systematically address the issue of illicit financial flows.

The G8 and G20 have continued to urge countries to strengthen money laundering identification and the improve efforts to trace, freeze, and recover assets. This is reflected in the OECD publication that seeks to measure and combat illicit financial flows from developing nations that reach the “safe haven” of the OECD banking system. The Financial Task Force’s Recommendation 8 further requires that the laws and regulations governing NGOs be reviewed to prevent the abuse of these organizations to finance terrorism.  Combating illicit financial flows is a particularly critical mission for developing nations since this type of capital flight deprives fragile economies of their national wealth and resources. Strengthening  a country’s defensive capabilities against illicit financial flows does not and should not necessitate a restriction against the freedom of organization. Kenya’s sweeping action against NGOs, under the guise of anti-terrorist financing operations, is little more than a restrictive attack by a repressive government.

Kenya has had a tempestuous relationship with its NGOs. While running their election campaigns, political leaders Uhuru Kenyatta and William Ruto criticized the NGO community for relying on funding from outside sources in pursuit of interests that opposed Kenyan national interests. After a conference in 2011, Ruto stated that NGOs  should stop interfering in government matters, as it was not their business. This distrust of foreign funding is reflected in Kenya’s philanthropic environment. In the Center for Global Prosperity’s Index of Philanthropic Freedom, which compares nations on their enabling environment for philanthropy, Kenya ranked in the lower half of African countries surveyed and below the majority of the countries in the study. In the Index, Kenya received its lowest score in the treatment of cross border funding, a fundamental part of NGOs working in the developing nation

While it is good news that the decision to revoke the registration of a vast number of NGOs was prevented from taking effect, it is important that Kenya’s continued pursuit of illicit financial flows gains some clarity. Preventing a mass deregistration may have kept Kenyan NGOs open but it did not ensure their freedom. Two of the organizations that were suspended in April after being accused of supporting al-Shabbab were only recently granted access to their assets. Muhuri and Haki Africa, two human rights organizations working to counter violent extremism in Kenya, faced financial and work holds following this accusation. In June, the organizations were removed from the list of accused organizations, but their accounts remained frozen. It was not until November 12, after ruling that the government did not provide sufficient evidence linking Muhuri and Haki to terrorist activities that both NGOs were granted access to their funds by Kenya’s High Court. While the decision to lift the hold was well received, the protection of NGOs should not be an after-the-fact attempt to bring back to life falsely accused organizations. If Kenya is to combat the infection of terrorist financing, it must prioritize the scalpel over the sword or risk killing its NGOs.

 

Peace Day 2015 Highlights Growing Impact of Private-Sector Partnerships

International Day of Peace has been observed around the world on 21 September every year since 1982.  The United Nations (UN) General Assembly established this day to coincide with its opening session, which is held on the third Tuesday in September.  According to the UN General Assembly, September 21 commemorates “devotion to strengthening the ideals of peace, both within and among all nations and peoples.” In 2001, by unanimous vote, the General Assembly established September 21 as an annual day of non-violence and cease-fire.

The theme of this year’s commemoration, “Partnerships for Peace – Dignity for All,” aims to highlight the importance of collaboration between all segments of society and to strive for peace.  The theme also highlights a shift in the way the UN and other international organizations view the sources of foreign assistance. Over the last 30 years, private giving has surpassed ODA and now accounts for nearly 80% of development assistance. The work of the UN would not be possible without thousands of partnerships between the private sector and civil society.

2015 International Day of Peace Poster (Source: UN)
2015 International Day of Peace Poster (Source: UN)

Following this year’s International Day of Peace, several major multinational corporations from a variety of industries partnered with the UN’s World Food Programme (WFP) to help raise awareness about the vital role that food assistance plays in creating a more peaceful world.  These companies donated digital and television network time for a 30 second advertisement that shines a spotlight on WFP’s work. The advertising campaign, currently airing in 38 countries, is meant to show consumers how they can support the refugees and displaced people who are struggling to feed their families. According to WFP Executive Director Ertharin Cousin, “Food assistance plays a powerful role in times of conflict by saving lives and alleviating suffering. Food brings and keeps families together. Food security gives families hope during desperate times while eliminating the need for families to resort to extreme and harmful measures as the only option for survival.” The WFP’s emergency response fund will use the money raised by this effort to help its most critical operations, like those in Syria, Iraq, South Sudan and Yemen.

McDonald’s is spearheading the multi-million dollar Peace Day.  When the fast food corporation approached the UN to discuss a potential partnership, UN officials asked the company to raise awareness of the refugee crisis and encourage people to donate to the WFP.  McDonald’s CEO Steve Easterbrook did not hesitate and issued a statement: “If anyone can help an international effort to help feed refugees and the fight against hunger, it’s us.”  McDonald’s went on to enlist the support of global philanthropy leaders like Google, Facebook, DreamWorks Animation, United Airlines, MasterCard, OMD, and Twitter, as well as other food and beverage giants like Cargill, McCain Foods, and Burger King.

The WFP has been outspoken in its praise of McDonald’s and its partners for their efforts in the Peace Day campaign.  Jay Aldous, WFP Director of Private Sector Partnerships, noted that “The private sector has a significant role to play in ending hunger and promoting peace…And this global effort is a powerful example of brands coming together with one voice to make a tangible impact in the lives of vulnerable people.”  As conflicts in the Middle East escalate the refugee crisis and stretch humanitarian resources, McDonald’s can be commended for both the timeliness and scale of its campaign.

In collaboration with WFP, McDonald’s and its Peace Day campaign partners illustrate the ever-growing need and impact of private sector philanthropy in global humanitarian assistance. As Ms. Cousin noted, “Humanity has one future together. This effort provides a great example of people and companies joining forces to make sure we achieve the goal of a zero hunger future.”