This past summer, the United States saw a dramatic increase in the number of unaccompanied children crossing the U.S. southwest border from the Northern Triangle nations of Guatemala, Honduras, and El Salvador. According to the U.S. Customs and Border Protection Agency, the present year has so far seen 51,705 unaccompanied alien children from this region, compared to 20,805 in 2013. This phenomenon has been attributed to discouraging economic prospects and violence back home, which in turn begs the question: what are the governments of Guatemala, Honduras, and El Salvador doing to address these issues?
The solution they’ve developed is the Plan of the Alliance for Prosperity in the Northern Triangle, an ambitious regional strategy that seeks to spur social and economic development in the region. Recently, presidents and dignitaries from Guatemala, Honduras, and El Salvador traveled to Washington, D.C. to present a draft of The Plan. On November 20th, 2014,the Guatemalan and Salvadorean foreign ministers were at the Atlantic Council discussing the key components of The Plan. Meanwhile, the heads of state of the three Northern Triangle countries, along with the U.S. Vice President, visited the Inter-American Development Bank (IDB) to formally reveal and raise support for The Plan.
The Plan of the Alliance for Prosperity in the Northern Triangle is framed as a medium-to-long-term solution to the outflow of illegal immigrants from the region, particularly children. It centers on four broad objectives: (i) creating economic opportunities, (ii) fostering human capital, (iii) tackling violence, and (iv) strengthening institutions.
In order to spur economic opportunities in the region, the governments of the three countries are betting on cheap energy and adequate infrastructure as the bait that will attract investors. But how will they manage to provide cheap energy? Essentially, the three countries plan to regionalize the production of electric energy through the Regional Electric Market (MER) initiative. In addition, the Central American Electrical Interconnection System (SIEPAC) that currently supplies energy to the three Northern Triangle countries, among others, is expected to operate at twice its current capacity. The idea of natural gas as an alternative source of energy that is both relatively more efficient and environmentally friendly is also gaining popularity among the three governments.
With regards to infrastructure, the focus will be on extending and improving transportation such as roads, ports, and airports. Investments in secondary and tertiary roads will be primarily focused on eight specific corridors that promise to facilitate inter-state trade and commerce. The clamor for infrastructure investments in the Northern Triangle region is validated by the fact that approximately half of the roads in Guatemala and El Salvador were not paved as of 2011.
Another important component of the economic development equation put forth is the promotion of specific industries and geographical areas. More specifically, The Plan seeks to advance the agriculture, textile, and tourism industries through policies that encourage the adoption of technology in production and business management processes, as well as policies that facilitate access to credit. In the case of the agro-industry, the regional strategy prioritizes investments in irrigation and storage systems, and mechanisms for producers to better access meteorological and pricing information. Insurance schemes against natural disasters caused by climate change are also included. Moreover, through the “special economic zones” initiative, The Plan promises to tap the economic potential of some of the region’s most impoverished areas, especially those that see the largest outflows of immigrants to the U.S. This will be done by courting the private sector with adequate public services and infrastructure in those areas.
But how much will the Plan of the Alliance for Prosperity in the Northern Triangle cost? And equally important, how will the bill get split and among whom? The answers are still unclear. First, when asked about The Plan’s price tag during the event at The Council last week, Guatemala’s and El Salvador’s foreign ministers circumvented the question by saying that too much focus on one (hefty) figure may compromise people’s optimism for The Plan. Their strategy is to first further develop The Plan step by step with the help of the IDB. At the same event, the two ministers said that they had not come to the U.S. just to beg for money. Rather, they are looking to create a sort of partnership with the U.S., as well as other countries like Mexico, under the premise that everyone in the region will eventually benefit from the Plan of the Alliance for Prosperity in the Northern Triangle.
The development community has long acknowledged the potential role of the business sector in social and economic development. To complement the efforts of governments and civil society organizations, impact investors have added a business approach to tackling the world’s social challenges, and are driving a revolution that could fundamentally change how people think about development and investment.
Even before the term impact investing was coined in 2007, the idea gained momentum and attracted the attention of major players across the private sector, civil society, and the public sector. Goldman Sachs and Morgan Stanley structured and issued bonds worth more than $100 million to provide financing for vaccine campaigns, and microfinance institutions. Philanthropists such as Bill Gates, George Soros, and Pierre Omidyar have also made impact investments with profits reinvested to their foundations. The International Finance Corporation of the World Bank Group has invested in private companies to seek both financial and social return ever since its inception in 1956. The Commonwealth Development Corporation (CDC) of the UK government was also an active impact investor even before the term was created.
According to the Global Impact Investing Network (GIIN), “impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” Impact investors and social entrepreneurs have become impatient with the traditional and bifurcated view that investors should only focus on financial returns, and that only philanthropists and civil society should devote themselves to the purpose of creating social good. Impact investors marry profit and purpose by financing profitable businesses that solve social and environmental problems.
Though this seems like an exciting and innovative way to address the world’s ills, two concerns quickly arise. First, how can we be sure impact investing is more than an advertising gimmick, and that it’s actually making a difference? To address this issue, the Rockefeller Foundation, J.P. Morgan, and USAID launched the Impact Reporting and Investment Standards (IRIS) in 2009 to provide a relatively comparable measure of the social performance of impact investments. Businesses that receive impact investment funds must have an intention to create positive social impact incorporated into the business strateg,y which then must be measured to determine the success of the investment. Furthermore, impact investors are supposed to adhere to the principle of additionality- investments should target businesses for which sufficient private capital could not be obtained on reasonable terms. Impact investments should be made in undercapitalized places, or undercapitalized sectors, or in an asset class that is not readily available.
A second concern that arises is how profitable businesses can intentionally generate a positive social or environmental impact. In practice, impact is usually generated by expanding access to basic services, such as education and housing for the poor, or through production processes that provide job opportunities, or create other forms of benefits to society. While CSOs might create the same impact, profitable businesses help make the impact more sustainable. CSOs face uncertainty in their funding, but profitable businesses can always turn to retained earnings and therefore are much less reliant on outside finance.
An example of impact investing done right is the story of the pioneering telecommunications company in Africa, Celtel. In 1998, an experienced Sudanese entrepreneur and engineer named Mohammed Ibrahim encountered a number of difficulties when he planned to build a telecommunications company that targeted Sub-Saharan Africa. Ibrahim had a hard time convincing mainstream investors for start-up capital because investors felt Africa was too unknown and risky, and there was virtually no infrastructure for telecommunications back then. The UK government’s CDC stepped in and provided $22.5 million of private equity in Ibrahim’s company. The CDC subsequently invested three more rounds of capital to help Celtel reach 6 million customers, and generate annual revenue of more than $1 billion. In 2005, Celtel was bought by the Kuwaiti mobile operator MTC for $3.4 billion, and the CDC received a handsome return on its shares.
Access to mobile technology has created enormous opportunities for the poor on the world’s least developed continent. Mobile technology has transformed Africa, and mobile phones have become an essential part of economic life. On a continent where most people do not even have a bank account, mobile banking has enabled millions of Africans to transfer money, pay bills, or even buy electricity with their cell phones.
Impact investing is still in its infancy, and is far from being mainstream. However, it holds the potential to unlock an enormous amount of private capital to meet the world’s pressing social and environmental challenges in a more efficient and sustainable way.
As 2015 approaches, so does the target date for the Millennium Development Goals (MDGs). It is undeniable that the MDGs have seen measures of success, if moderate – there has been an increase in primary education around the world, infant mortality has plummeted, and by 2010 the world had already met the goal to halve extreme poverty.
While the Millennium Development Goals have placed importance on community engagement, the gap between supranational goals and basic needs has been difficult to address. To address this gap, the community institutional platform for sustainable agriculture in Andhra Pradesh and Telangana, India was implemented. Creating similar community engagement initiatives in other projects could create sustainable methods of poverty eradication.
Case Study: Community Managed Sustainable Agriculture (CMSA) in Andhra Pradesh and Telangana
Agriculture is a predominant base in the economies of Andhra Pradesh and Telangana and, after the Green Revolution, Andhra Pradesh is one of India’s largest producers of cotton and cereals. However, in the 1990’s crops were failing and agriculture became an expensive and risky occupation. Conventional agricultural methods were labor intensive and required a large investment, often requiring farmers to go into debt to buy pesticides and chemical fertilizers. As farmers used chemical pesticides, the pests started to grow immune and required higher doses of treatment. Farmers were caught in a “pesticide trap”.
In 1995, NGOs such as the Center for Sustainable Agriculture started implementing Non-Pesticide Management to reduce the cost of growing crops and to help farmers get out of debt. Non-Pesticide Management was a system of agriculture that trained farmers in organic methods of eradicating crop pests. The village of Punukula was one of the first to adopt this initiative and, in 2004, saw an increase in both crop yields and profits. From Non-Pesticide Management grew the concept of Community Managed Sustainable Agriculture.
Community Managed Sustainable Agriculture (CMSA) was implemented by the Society for the Elimination of Rural Poverty (SERP) in three phases. The first phase was the creation of an education initiative training farmers in IPM (Integrated Pest Management) technologies – how to observe and understand the behavior and life cycles of crop pests. Farmers learned how to combat pests using physical and biological strategies, such as pheromone traps and bio-pesticides. They then began replacing the chemical pesticides they had previously used with these alternatives. The final stage in CMSA, and the one that separated it from Non-Pesticide Management, addressed issues of soil fertility as farmers gradually replaced conventional chemical fertilizers with composting methods, microbial formulations, and vermiculture (a composting process involving worms).
What has made CMSA so successful has been the community-oriented institutional structure. There are three levels in Community Managed Sustainable Agriculture – Village Organizations (VOs) and Farmer Self Help Groups (SHGs) that allow farmers and community members to collaborate, Sub-District Federations, and District Federations that provide support and assistance. Beyond that, various community based organizations, NGOs, women’s groups, government agencies, and private firms participate in funding and supporting CMSA. After 2005, the World Bank also invested in CMSA, enabling them to expand.
With input costs low and profit potential relatively high, farmers had more flexibility to experiment. When they found a specific practice or technology successful, they would collaborate with other farmers and, eventually, technical specialists to create a plan to standardize it. Farmers would then create a micro-plan to present to a commercial bank and, due to CMSA’s reliable framework, investors were willing to participate. Seeing this success, the national government implemented similar structures, emphasizing the inclusion of the Poorest of Poor households and women. Organizations throughout India and other countries, encouraged by this success, introduced their own initiatives – Pro Africa has implemented CMSA projects combined with irrigation in South Matabeleland, Zimbabwe.
Where conventional agriculture was labor intensive, organic agriculture and non-pesticide management was knowledge intensive, requiring comprehensive community-based institutions and means of knowledge transfer. As this knowledge was transferred, the low input and investment costs created access for the poorest in the region to begin working in agriculture. Farmers who had previously gone into debt were able to profit and reduce their debts. Farmers were also able to tap into the organic and pesticide-free markets, drawing higher prices for goods and, thus, higher profits.
CMSA addressed the causes of environmental vulnerability while adapting methods to benefit the people and the environment. Pesticide-related health concerns dropped and there was a 7-9% state-wide reduction in pesticide use. Even gender inequality was confronted – as women became involved through women’s-only SHGs, understandings of gender roles changed and women became active in leadership.
While the MDGs have taken the first step, implementing structures like CMSA in the post-2015 plan would create a more thorough understanding of needs and how to address them. Going beyond participation and creating inclusive frameworks not only engages communities, but also creates a sense of ownership and a drive to propagate best practices.
The first week of August marked the inaugural U.S.-Africa Leaders Summit, a meeting of nearly 50 African leaders and American businessmen in Washington, D.C. Though taking place nearly six years after President Obama’s first inauguration, the Summit manifested the President’s longstanding interest in stronger U.S.-Africa ties. During his time in the Oval Office, however, President Obama has often been criticized for his lack of serious involvement in Africa.
At the tail end of the Obama Administration, the Leadership Summit briefly silenced critics who claimed the President Obama has ignored Africa. The Summit, the first meeting of its kind, was an opportunity for African leaders, most of whom are heads of state, to convene in one place with a sitting American president. After 3 days, the Summit unveiled its greatest initiative: a $33 billion investment plan to catalyze economic activity on the continent.
Unlike previous financial flows to Africa, the Summit’s investment plan is a departure from traditional Official Development Assistance (ODA), usually in the form of bilateral loans. Instead, the investment plan is set to take three forms: $7 billion to encourage trade and investment in Africa, $14 billion from American multi-national corporations (MNC), and the remaining $12 billion for infrastructure development through the USAID Power Africa initiative. The investment package is designed not only to reduce poverty across the continent but also to encourage investment beyond Africa’s primary resources. As such, the investment package may signal a swing of the economic development pendulum from aid to trade.
This marked shift, though a step in the right direction, is only a step. In comparison to the United States’ previous financial flows to Africa, $33 billion is small. In 2013 alone, the U.S. imported $39.3 billion from Africa and exported $24 billion to the continent. Outside of trade, ODA claimed nearly $7 billion to the continent in the same time period. Despite comparatively meager figures, the forthcoming investments could embody a new trend in development assistance for Africa. By shirking traditional bilateral loans, the new investments emphasize the importance of private sector activity rather than corrupt governments.
Only a few countries will benefit from the package’s key investments. The Power Africa Initiative’s newest investment will only benefit six countries, meaning that each country will receive $2.4 billion over the course of five years. While not a small number, the Power Africa investment will close a small section of the continent’s infrastructure gap, worth an estimated $38 billion annually for the next decade. Some critics are further puzzled by the initiative’s strategy of distributing the money for various projects such as mini-grid and off-grid expansion throughout six counties (Ethiopia, Ghana, Kenya, Nigeria, Tanzania, and Liberia) when it could make a greater impact by devoting the money to one project. The Grand Inga Dam, the Trans-African Highway, and the Lesotho Highlands Water Project are all far-reaching projects aimed at improving infrastructure beyond a limited geographic area. Instead of distributing funds to six countries, Power Africa could focus its invest in one of the aforementioned projects, and perhaps even further reduce the Infrastructure Gap.
Additionally, MNC investment is unlikely to go to the continent’s poorest countries. One of the investment package’s most notable companies Coca-Cola already has offices is Kenya, Nigeria, and South Africa, making it more likely that these countries will receive greater investments. Targeted investment, however, might not be such a bad thing. Countries likely to receive the majority of the investments are those with more stable governments and more trade-friendly economic policies. If anything, investments toward these countries could incentivize countries to improve their own investment climates.
Perhaps the most prominent of the criticisms of the investment package is that these efforts are too small and too late for lasting impact. Such criticism is well-taken, but the U.S.-Africa Leaders Summit’s investment plan could signal a transition for further U.S.-Africa investments. Unlike traditional ODA, the Summit’s forthcoming investment recognizes the African continent as a legitimate investment location, corresponding to the continent’s impressive GDP growth rate. The Obama Administration cites Africa’s 5.4% growth rate as a promising sign of Africa’s investment potential. With the upcoming investments, the African continent can sustain an upward growth trend. Though the dust has settled on the U.S.-Africa Leaders Summit, the investment’s real work, still lies ahead.
The “hermit country” is one of many apt descriptors for the Democratic People’s Republic of Korea (also known as North Korea). A recent string of iron fist moves by the new supreme leader, Kim Jong-Un –including the public execution of some eighty citizens (including his own uncle) and inveterate attempts for developing missiles and nuclear weapons – has reaffirmed its path towards isolation. There have been tantalizing signs, however, that this regent is considering something of an open-door policy. Since 2011, Chairman Kim has pursued the establishment of over a dozen of economic development zones, encouraged family-based farming, and invited in foreign investors by normalizing the exchange of foreign currency in private markets.
Such seemingly aberrant policies from the last remaining communist dynasty are in fact a recommencement of the economic reforms that were alight from 1999 to 2003. And to most people, it was already a decided fate due to the disintegration of the Eastern-bloc, a stronghold for the North’s industrial architect, and the clobbering by natural disasters that led to the de facto collapse of the North’s state-socialist economy.
Much remains unclear about how far North Korea wishes to walk the fine line between a market economy and a planned socialist economy. To some, the country has followed, or at least attempted to follow the classic equation of a market economy – decentralized resource allocation, price arbitration by supply and demand, free market entry, and competition. Throughout the varying stages of reform, the government restructured much of the administrative structure of state-owned enterprises (SOEs). The “socialist goods exchange market” was introduced to permit SOEs to independently decide the means of exchanging goods at the market price, the self-accounting system was enacted to warrant SOEs’ greater autonomy. As a result, SOEs are now evaluated based on their profits than the execution of state plans. Farmers’ markets, the centrifugal force to the country’s marketization, too, were legalized, and even unleashed the birth of other municipal markets. As previously mentioned, efforts to recruit foreign investors to generate vibrant economic environment are swirling as well.
On the other hand, the new administration still has not let go of certain desires that would put a serious halt to marketization. In 2009, the North Korean government introduced a new currency, allowing the people to exchange their old money for new at a rate of 100 to 1 as a deliberate attempt to revamp the state planned economy by collecting money from the non-national sector. Even more telling is that the government budget takes up over 60% of the national GDP, and the Central Bank in charge of the supply and demand of money operates largely under the commanded plan.
Unsurprisingly, the North has chosen to focus on export-oriented growth by employing its cheap, disciplined labor and rich natural resources for realizing a successful transition to a market economy. This requires strong international cooperation which the North probably cannot cultivate in the current political atmosphere. Its obstinate stance on nuclear weapon development has triggered international criticism and severe sanctions. China no longer serves as the North’s safe haven as China’s own standoff with the U.S.-Japan alliance has pushed China to pursue a friendly relation with South Korea. In a nutshell, despite Commander Kim’s currency reform and semi-free market formation to attract foreign capital, a political environment with high security risks and low incentives for investment is probably detrimental enough to shoo capital inflows.
One stroke of luck for North Korea lies in that it is located at an economically dynamic center, having China, South Korea, Russia and Japan as its neighbors. As the North has an economically and politically deficient position to start with, the reform will presumably come slowly and with much confusion, and thus in desperate need for external assistance. Amidst the ever intensifying political tension in East Asia, the North’s construction of a healthy economic system could build momentum for breaking this tension and building more cooperative relations. It is unclear what North Korea will choose to do at this crossroad. Its commitment to impartial economic reforms through relatively loose foreign policies could be a cornerstone for upending its infamous history, and realizing peace both at home and abroad.
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.