Overpromise and Under-Deliver: Growth in Mexico

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..

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 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.

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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?

 

 

 

Democracy and Development in Pakistan: Where are we headed?

On June 11th, 2014 the Center for International Private Enterprises hosted a panel discussion entitled “Strengthening Democracy through Economic Reform In Pakistan: Challenges and Opportunities.” Last May, the Pakistani Peoples Party (PPP) became the first democratic government to serve out a full term in the country’s 66-year history of independence. This historic accomplishment created a great deal of optimism and speculation about democracy and development in Pakistan. In light of this accomplishment, it may be important to question how successful democracy has been effective in Pakistan and whether or not democracy has promoted development.

The recent terrorist attack at the Karachi Airport, the arrest of Pakistani political leader Altaf Hussain in the UK, and the Karachi Riots in 2010 only highlight a share of the complicated political, economic, and social issues shaking the country’s fragile security. According to the panelists, the outlook for Pakistan is very pessimistic, unless the government recognizes these issues and takes action as soon as possible. According to Dr. Ehtisham Ahmad of the London School of Economics, the Pakistani government must address two core issues: the financing of political parties, and the management of state finances. The PPP and PLMN have both neglected these major issues, hindering institutional and political development.

The lack of a formal mechanism for funding political parties has led to politicians looking for funding from wealthy groups and individuals. As a result, purchasing votes and favors has become a regular occurrence. These factors have created an inefficient and corrupt tax system that does not generate revenue or demographic information. In order for a democratic country to run properly, tax revenue and demographic information is heavily relied upon.  According to panelist Moin Fudda of CIPE Pakistan, the government missed its tax collection target by 77% last year, which indicates a need for major reform. The graph below displays tax revenue for Pakistan and similar countries in South Asia. The data shows the decline of tax revenue in Pakistan over the last sixteen years to one of the lowest tax revenue percentages in South Asia.

Tax Revenue Pakistan

 

The population living below the poverty line has been hit the hardest. The central government has given the provinces the responsibility of providing public services for its citizens, such as healthcare and education, but the inefficient tax system has left them without enough funding. The provinces have no way of providing viable public services unless they do not pay taxes, inevitably leading to a tax war within the government. This inability to provide basic services has also hindered development.

Dr. Ahmad stresses that these issues need to be tackled immediately, but Pakistan has quite shockingly done nothing to find a viable solution. If the Pakistani government won’t act, then what else can be done  to remedy the situation? Dr. Ahmad believes that foreign investors can press for a level playing field in order to incentivize reform. The Pakistani government needs to implement a strong corporate income tax and provide public services for the poor, especially education. Most importantly, these core issues must be taken seriously by the government, and the population must strongly push for reform and public services. Despite these issues, the economy has performed quite well and has seen solid growth in the past four years according to the data below.

 

GDP Growth Rate

 

 

Pakistan GNI

 

At a time when political and economic  unrest is very high, people are wondering whether this growth is due to the development of an informal economy that is quietly keeping the formal economy afloat . This question is of great relevance and will unfold in the near future as the political demographics of the country either stabilize or spin out of control.

 

Watch the Throne: Nigeria is Now leading Africa in GDP

Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/
Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/

Nigeria has catapulted ahead of South Africa for the title of largest economy on the African continent. On April 6, Nigerian government officials announced that they had revised their 2013 GDP calculation to the tune of $510 billion. But in 2012 the World Bank estimated Nigeria’s GDP at $262 billion. So what can account for this rapid change? The answer lies in how the Nigerian government did the math.

The process is called “rebasing.” To calculate any country’s GDP, economists must first set a base year on which to model the economic growth. Then economists try to paint a picture of the economy in that year by studying different industries like agriculture, energy, and manufacturing. In the years to come, economists look at how these industries have grown. All GDP calculations, sometimes many years later, are based on this initial point of reference. However, this system of measurement does not account for the informal economy. Nor does it account for rapidly developing sectors such as telecommunications and film—industries that have sprung up in Nigeria over the last 20 years.

Nigeria’s model year was 1990. The new base year is 2010. As we will see, much has changed in the Nigerian economy since 1990. New industries have emerged and historically strong industries have fallen. Thus far, the World Bank has supported Nigeria’s recalculation. It is recommended that a country rebase its GDP numbers every five years. Since Nigeria has held off for so long, the change was quite drastic. Nigeria saw the highest gains in the service industry. The agriculture, oil, and gas industries decreased in terms of percentage of GDP. Telecommunications shot up from less than one per cent to 8.7% of GDP. The Nigerian film industry, known as Nollywood, makes up about 1.2% of GDP.

Sadly, despite these good numbers, the average Nigerian citizen will not see improvements in their quality of life. South Africa, who Nigeria unseated from the throne, has a GDP per capita of $7,336, a long way from Nigeria’s $3,000 (and that is with the new rebased numbers). There is still corruption, terrorism, power outages, and vast inequality in Nigeria. Many have criticized the new calculations, saying that nothing will ultimately change for poor Nigerians. What the new numbers can do, however, is open the door to more Foreign Direct Investment. As Africa’s largest economy, Nigeria has put itself in an advantageous position in the world marketplace by calling positive attention to themselves. As Forbes recently reported, the country is full of potential. They have a growing educated class, energy reserves, and a spirit of entrepreneurship. But as of today it seems that there remains many political and institutional barriers to overcome.

Niger Delta Blues

The nickname “black gold” has always been apt when dealing with oil. But dreams of riches and development have been masked by the murky nature of money flows connected to it. Nigeria in particular has been blessed and cursed with its abundant oil supplies. With the second largest GDP in Africa, Nigeria still has 46% of its population below the poverty line. This is despite the oil and gas sector representing 35% of the Nigerian economy, according to OPEC. The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture has even asserted that the oil and gas sector has been distorting the Nigerian economy. Recent revelations have shown that corruption in the oil sector is still rampant. The question becomes what pressure can be brought on the industry.

Lamido Sanusi, former Nigerian central banker and whistle-blower

Recently, Lamido Sanusi, the Nigerian central bank president, was suspended and removed from his position by President Goodluck Jonathan. Sanusi’s suspension was prompted by the revelation that $20 billion in oil revenue was not accounted for by the Nigerian National Petroleum Corporation. The revelation created enough of an uproar that a forensic audit has been called for to try and account for the missing money. This is on top of the fact that a month earlier, the NNPC was selling kerosene to marketers at one-third of the international price, allowing them to mark up kerosene to Nigerian citizens 300-500%. The mark-up is the difference between 140-160 naira per liter ($.85-$.97) and 40 naira per liter ($.24).

In the past, Nigeria tried to tackle the issue of corruption and the lack of transparency in the oil sector by establishing the Nigeria Extractive Industries Transparency Initiative (NEITI) in 2007, which is the local adaptation of the Extractive Industries Transparency Initiative (EITI). NEITI is mandated to audit the extractive industries, and provide transparency and accountability. It is comprised of representatives from the government, oil industries, and civil society. While the cooperation of national governments and NGOs is a laudable achievement, the voluntary nature of the EITI has been criticized.

Shell and the Niger Delta

International NGOs, such as Oxfam and Publish What You Pay (PWYP), feel that the standard adopted by extractive industries should also be backed by a legal enforcement framework. EITI has also been criticized for the role of civil society organizations (CSOs) in the EITI framework. EITI can be considered a top-down reform, and the governments and extractive industries still have more power than the CSOs, creating pressure for the CSOs to go along with the EITI process, according to Kees Visser at the Focus on the Global South. There is also the question of which CSOs are chosen to be represented. EITI has also not been shown to reduce the Corruption Perceptions Index. In Nigeria, the NEITI has published audits, which have had no effect on laws,  because dissemination is not simple in a country with low internet access. There have also been representatives of NGOs who were actually single person self-promoters.

With the doubt cast over the EITI, the question remains on what model civil society in Nigeria should use to ensure that all Nigerians benefit from their extractive industries. While there is a local chapter of Publish What You Pay, coalitions in Ghana and Uganda could serve as templates for counterbalances to the government and industries. The Civil Society Coalition on Oil and Gas (CSCO) in Uganda and the Ghana Civil Society Platform on Oil and Gas are both large coalitions of CSOs: 40 in CSCO and 120 in Ghana compared to 19 in PWYP. Both coalitions use the expertise from individual CSOs to issue media campaigns and community interaction to pressure governments to keep oil and gas taxes and concessions transparent. In Ghana, the Civil Society Platform on Oil and Gas issues “Readiness Report Cards” and actively contributes to the Public Interest and Accountability Committee and proposed laws through the committee. The Ghana platform is funded by various international donor agencies, such as USAID and the EU, and therefore have the backing of powerful partners. Both of these countries have only recently discovered oil, so it remains to be seen how successful these coalitions will be in exerting pressure. For the most part, there’s nowhere to go but up.

Rocking the Vote: Challenges in Election Monitoring

Counting votes in the 2009 presidential elections in Herat, Afghanistan.
(BEHROUZ MEHRI/AFP/Getty Images)
http://blogs.sun-sentinel.com/click/2009/08/off-the-wires-afghanistans-election-day.html

Election monitoring is commonplace in the world of democracy promotion today. The men and women who observe elections – hailing from NGOs such as the National Democratic Institute (NDI) as well as international organizations like the Organization for Security and Co-operation in Europe (OSCE) – aim to prevent election manipulation, fraud, and corruption. Short-term election observers arrive in the country under observation a few days before the election is set to begin. They meet with party members, police, election officials, and members of the general population to try to get a sense of what policies are at stake in the coming election and who the front-runners appear to be. On the day of the election, observers visit polling stations to make sure that the legitimacy of the election is not jeopardized in any way by government intimidation, closed polling centers, corrupt vote counters, and suspiciously low (or high) voter turnout. The team of election observers will report any unusual findings. If all is well, the election observers will watch the tallying of the votes, concluding that the citizens freely and fairly elected the winner.

A new report discussed at the Seventh Annual New York University Center for Experimental Social Sciences Conference on Experimental Political Science brings to light some interesting findings on the effectiveness of election monitoring. The authors set out to investigate whether or not election observation actually reduces various types of electoral manipulation. Their case study is the 2012 presidential election in Ghana. Specifically the authors examine “overvoting,” a phenomenon that occurs when more votes are cast in an election than there are registered voters. Secondly, the authors assessed “unnaturally high levels of turnout.” It is well known that even in nations under compulsory voting laws, such as Australia, voting rates rarely venture into the 90 per cent range.

Actors seeking to influence election results impose many complicated strategies for doing so. The authors list a number of methods by which voters can be turned away from the polls. Manipulators can do this by voter intimidation via government forces like the police or military. Political parties can have their own, separate, security forces that scare civilians away from the polls. Even worse, these strongmen can coerce civilians to vote for a candidate they do not support. A vote for the opposition candidate would put the lives and property of the voter’s family in danger. Fearing retribution, the average voter will not risk the lives of his loved ones for the sake of democracy.

The Kenyan presidential elections in December 2007 triggered a wave of violence.
The Kenyan presidential elections in December 2007 triggered a wave of violence.

In the opposite scenario, electoral manipulators seek to add “ghost voters” to the election, running up the vote count for a selected candidate. Ballot stuffing is a common tactic. Sometimes the final results are simply changed to suit a politician’s demands. High voter turnouts increase the victor’s claim to legitimate power, although most citizens recognize it as a sham. Thus, with this two-sided approach, the manipulation of elections can do a great deal of damage to democracy and liberty within a nation.

The results of the case study, the authors write, were positive, though they exposed some new problems that the election monitoring community must address. In sum, while election monitors did reduce electoral manipulation at the polling place at which they were stationed, those seeking to manipulate the election simply moved to unobserved polling places: displaced but not disrupted. The authors explain:

We find that observers reduce fraud at the stations where they are deployed by about 60 percent. We also find evidence that observers displace fraud to nearby but unobserved polling stations. This displacement is concentrated in the historical strongholds of Ghana’s two major political parties. This suggests that parties are better able to relocate fraud in single-party dominant areas where the dominant party enjoys social penetration and where political competition is low. (Asunka et al., pg.3)

Moving forward, placing election monitors at polling stations at which fraud is more likely to occur (rather than randomly selected polling stations) would be a more effective way to prevent fraud. Working from strategic districts around a nation, election monitors can better combat the intimidation and ballot-stuffing that is all too common in today’s emerging democracies.

Picking up the Pieces

Typhoon Haiyan On November 8, 2013 the whole world watched as the most powerful storm in recorded history smashed into the Philippines.  Typhoon Haiyan, known locally as Yolanda, struck the central region of Philippines with sustained winds of 195 mph and wind gusts of up to 235 mph.  Since its landfall, Haiyan is believed to have affected around 12 to 16 million people – with millions displaced, more than 6,000 dead, and nearly 1,800 still missing.

Countries and organizations around the world quickly scrambled to deliver aid to the devastated area.  The relief effort has come in various forms; military aid, hospital ships, and millions of dollars from both organizations and countries.  While countries have been quick to respond to the catastrophe, the Philippines is not in the clear yet.  Three months later bodies are still being found, people are still missing, and aid is difficult to deliver to the islands that are only reachable via boat or helicopter.

Lack of electricity remains a huge problem in the Philippines.  Not only did the storm knock down power lines, but looters looking to make money have broken into transformers to take out the copper cores and sell them on the black market.  Additionally, looters have also cut open the downed power lines and have taken the copper inside.  With many people still missing, the lack of electricity poses a serious communication issue.  People are having a difficult time contacting their loved ones who live in different parts of the country, or even around the world, to let them know that they’re alive.

Corruption continues to be a constant fear in the rebuilding efforts.  There have been reports of local officials selling aid supplies for profit.  This type of post-disaster corruption is not new to the Philippines; $20 million in government funds meant for rebuilding towns in northern Luzon Island after a 2009 storm were allegedly stolen by local officials using fake non-government agencies.  Haiyan has revealed to the world the extent of Filipino corruption; money to maintain and build roads were diverted, hospitals have not received resources they needed, and many buildings have not been built to code – which is evident by the fact that cities like Tacloban, the city hit hardest, are flattened.

US Marines were among the many that aided in the relief efforts.
US Marines were among the many that aided in the relief efforts.

Filipino political officials are well aware that the Philippines is known for corruption, and many citizens have been demanding improvement for years.  President of the Philippines, Benigno Aquino III, has made it his mission to eliminate corruption, and has begun to deliver by establishing a new website called the Foreign Aid Transparency Hub.  FAiTH, as the website is called, is open to the public and allows people to track funds given to the Philippines by foreign donors.  On the website people can see how much a foreign country has donated and what kind of assistance was provided.  This website has helped the Philippine government and President Aquino gain some credibility in the battle against corruption, but many Filipinos remain skeptical.

In addition to foreign assistance, Filipinos are helping each other out.  Organizations like the Philippine Disaster Recovery Foundation (PDRF) and Philippine Business for Social Progress (PBSP) aim to help out communities ravaged by the typhoon.  PDRF has been able to deliver relief supplies such as food, water, clothes, satellite phones, mobile ATMs, solar-powered lamps, and tents to Haiyan survivors.  PBSP has been able to rally Philippine businesses to donate hygiene kits, blankets, clothes, food, and other forms of relief aid to those affected by the storm.

Even after the typhoon, Filipino resilience is strong.  Shops and markets in areas destroyed by Haiyan have begun to reopen.  Aid organizations, knowing that they need to make money, pay displaced Filipinos to clear debris and make repairs on buildings.  Tacloban even celebrated Christmas by illuminating a church and erecting a Christmas tree in front of city hall.  While it is apparent that Filipinos want to return to normalcy, it is clear that relief efforts will continue in the Philippines for the foreseeable future.  For now, many Filipinos are just happy to be alive.

Dark Clouds Hanging Over the Black Sea

Putin’s admiration for the Olympic flame

The Olympics have always been about stories and narratives. Athletes in sports, both obscure and relevant, represent their countries and play out the story of their nation, whether it be powerhouse nations raking in the medals or the simple story of the Jamaican bobsled team. The ability to host the event is also a story of the rise of a nation and the ability to show either one’s might or newfound brilliance on the world stage. Back in October 2013, we looked at how the story of the Sochi Olympic games were unfolding at that time. With the Winter Olympics beginning shortly, it was time revisit our intrepid heroes and villains.

One view of the Olympics has been as a giant vanity project, allowing Vladimir Putin and the Kremlin to evict Russian citizens from their homes, crack down on NGOs, gay rights activists, and roughly anybody that disagrees with the egregious cost of these games. To this list, it has recently been added that athletes will not be allowed to speak their mind, such as their displeasure at the anti-gay propaganda laws in Russia. OIC chair Thomas Bach has already stated that, though there is freedom of speech, athletes that speak their mind around the Olympic events will face punishment. The head of the Russian Olympics, Dmitry Chernyshenko, even contradicted this, saying that the athletes would only be able to express themselves at a venue far from the Olympic venues.

Skyrocketing construction costs for the Winter Olympics in Sochi

Censorship is not the only issue plaguing the Olympics. Despite seven years to prepare, and the assurances that 97% of the venues and hotels are prepared, there have been a large amount of pictures and tweets from journalists showing half finished rooms. One hotel didn’t have a reception area while another hotel wasn’t even completed. Considering that these games cost $51 billion, $11 billion more than the Beijing Olympics, the amount of corruption and ineptitude is starting to show more and more over the media. One road has cost $8.6 million, more than the whole Winter Olympics in Vancouver in 2010. This raises the question of whether or not these games are worth it. Supposedly, the infrastructure will stay and benefit the residents of Sochi, along with increased tourism. However, Allen Sanderson and Samantha Edds explored the question of whether Olympics have an economic impact, which they found that there is no evidence to support that.

A last branch in this narrative is a concern for the security of the event. IOC chair Thomas Bach has emphasized that these games will be safe. This mostly has to do with the massive amount of security surrounding Sochi. Roughly 40,000 security forces have been sent to the region around Sochi to prevent atrocities from happening. They have also erected a “Ring of Steel” around Sochi, with checkpoints and anti-aircraft batteries, to aid in this security. Part of the paranoia surrounding the events is that terrorist leaders in Dagestan and Chechnya located only 400 miles away, such as Doku Umarov, have already stated that they are going to target the Olympic games. The other cause for concern is the bombing in December 2013 in Volgograd, something that is considered to be a decoy to drag resources away from Sochi and make it more vulnerable. The Russians have gone so far as to contract out 400 unarmed Cossacks for the duration of the Olympics.

Security around the Winter Olympics in Sochi

Despite the lack of attendance by some world leaders, the world’s games at the Olympics will continue. One of the questions that will be asked is how much all this negative press hangs over the Olympics. What will be the effects of this event after the torch has been extinguished? This is a tale with many twists and turns, with more anti-heroes than heroes. At the least, everybody will be watching Sochi to see how the story unfolds.