The FCRA: Modi’s Secret Weapon

On April 30, 2013, the Indian Social Action Forum (INSAF)—an umbrella organization of over 700 civil society organizations—received a non-descript notice from the Ministry of Home Affairs that revoked the INSAF’s registration and froze its assets in an effort to allegedly protect “the public interest.” This was not the first time that the INSAF had encountered resistance to its activities. Both the INSAF and its member organizations had often sparred with the Indian government over issues of environmental policy including the construction of nuclear power plants and the legalization of GMOs. Thanks to an ambiguous new section of the legal code, however, the Indian government has the authority to freeze assets and rescind the registration of organizations that receive unapproved foreign funds and/or pose a threat to “the public interest.” The true motivation behind the deregistration of the INSAF was immediately obvious to the organization’s leadership: they were being targeted for their activism.

Prime Minister Narendra Modi addressing the 2014 UN General Assembly (UN Photo/Cia Pak)

The notice delivered to the INSAF in April was issued in accordance with Sections 13(1) and 14(1-2) of the Foreign Contribution Regulation Act of 2010. Based on an older 1973 law designed to shore up foreign currency reserves, the ambiguity of the amended FCRA allows for nefarious government overreach. Section 13(1) states: “Where the Central Government, for reasons to be recorded in writing, is satisfied that pending consideration of the question of canceling the certificate on any of the grounds mentioned in sub-section (I) of section 14…[it may] suspend the certificate for such period not exceeding one hundred and eight days.” Section 14 is more severe: “The Central Government may, if it is satisfied after making such inquiry as it may deem fit cancel the certificate if, in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate…”

Objecting particularly to the ambiguity of Section 14, and drawing significant support from the American Bar Association’s Center for Human Rights as well as the international CSO community, the INSAF filed a strongly worded petition with the High Court of Delhi. In September, five months after the Ministry’s notice had been delivered to the INSAF, the High Court finally dismissed the deregistration and thawed the organization’s accounts. The FCRA, however, was upheld.

The attack on the INSAF was just the beginning. In the last two years, Modi’s government has used the FCRA to target thousands of CSOs that have criticized government policies. On June 9, 2015, 971 organizations, including several prominent public universities and local chapters of international NGOs, were stripped of their registration for accepting unapproved funds. Greenpeace activist Priya Pillai, herself a recent victim of FCRA regulations, noted that “The issue is not related to the source of our funding or FCRA. It is a larger political issue under which NGOs are being targeted and persecuted for working, as well as, raising the voice of the poor, weak, and the deprived.” Ms. Pillai is partially correct. While the government’s use of the FCRA is, indeed, a reflection of larger political issues, repeal of the amended FCRA would be an appropriate first step on the road to philanthropic freedom in India.

In the 2015 Index of Philanthropic Freedom, India maintains a mid-range composite score of 3.2, but in the area of cross border flows it scores just 2.1 out of a possible 5. In his justification of this low score, Noshir Dadrawala of the Centre for Advancement of Philanthropy emphasized the onerous requirements of the FCRA: “It is important to note that no CSO operating in India whether registered or not can receive foreign contributions without first obtaining prior permission from the Home Ministry.” In order for civil society to thrive and international philanthropic funds to flow into India, the government must amend the FCRA and end its attack on the third sector.

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..

 In 2012, Enrique Peña Nieto took office as Mexico’s 57^th 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?

 

 

 

FIFA World Cup: Brazil’s Development Hopes

Around the world, Brazil is known as the mecca of soccer. The country is loaded with magnificent soccer talent and has an electrifying atmosphere that makes soccer fanatics feel at home. Not to mention that Brazil has won the FIFA World Cup a record five times, and is the only country to have qualified for the World Cup every year since the tournament’s inception. One could not dream up a more soccer obsessed nation to host the 2014 FIFA World Cup that began this week. However, the current tension in the political, economic, and social atmosphere of Brazil has given the rest of the world an apprehensive feeling about this year’s tournament.

Political tension in Brazil has risen in recent years, as a majority of the county is unhappy with the government due to inflation, corruption, and the massive investment of public funds in World Cup preparations instead of Public Programs for the poor, who are in dire need. The estimated cost of the 2014 FIFA World Cup is currently at $11.5 billion. All this unrest comes at a time when Brazil has one of the most unequal wealth distributions in the world, currently entertaining a Gini Index of 54.7, along with a struggling economy. Some Brazilians hope that the World Cup will promote progress, while others worry that the event will push Brazil’s economy over the edge. It also gives rise to the question of whether the World Cup will only benefit the wealthy and further increase the gap between the rich and poor?

According to a recent survey by the Pew Research Center, 61% of Brazilians believe that hosting the World Cup will be detrimental to the economy as it diverts public spending away from public services. 67% also believe that the economy is in bad shape, which increased from 41% last year. Milton Hatoum, a writer from Manaus, asked: “Why does a city like Manaus need an expensive and luxurious stadium when a few meters away there’s a neighborhood, Alvorada, without sidewalks and treated sewage?”

The long-term social and economic effects of a mega-event such as the World Cup should be analyzed. To predict the path that Brazil may follow, it is helpful to take a look at the economic performance of similar World Cup host countries after the tournament. Their political, social, and economic atmospheres may vary, but this is the most direct and simple way to present the possible future outcomes for Brazil. The figures below display indicator data from the World Bank, showing the economic growth of  Argentina, Mexico, France, and South Africa since they hosted the tournament:

 

 

 

 

It’s worth noting that Argentina, Mexico, and South Africa are more similar to Brazil’s economy and social structure compared to France. Argentina, Mexico, and South Africa all show a sudden rise in GDP Growth Rates, GDP, and GNI following their host year. In all four cases, the indicators suggest a short-term rise in GDP growth, followed by a decline. This gives rise to the heavily debated question of whether or not FIFA World Cup host countries see sustained long-term growth or temporary ripple effect growth following the event.

As we look ahead past this year’s FIFA World Cup, it will be interesting to see how Brazil’s economy fares. Our hope is that the result is a positive one, as the country’s economy is in need of repair. Hopefully the World Cup this summer gives the country’s economy a much-needed boost. At this point, the world will just have to wait and see.

 

 

Deep Impact: Impact Investment in Pakistan

On Thursday, April 17, the Center for Global Prosperity had the pleasure of hosting an event, “Philanthropy for Civil Society in Pakistan”, with CEO of the Aga Khan Foundation, Dr. Mirza Jahani, Chairman of the Pakistan Centre for Philanthropy, Shamsh Kassim-Lakha, and CGP’s Director Carol Adelman. The panelists spoke on topics ranging from the recent growth of civil society in Pakistan to the impact of economic development on future philanthropy.

One very interesting point Lakha made was the pervasiveness of a giving culture in Pakistan and the importance of leveraging that community giving to strengthen civil society. He spoke about how Muslim culture has an ethos of giving that Pakistanis take very seriously. According to Lakha, approximately 80% of Pakistanis participate in some form of philanthropy, whether it be through monetary donations, volunteering, or both. These are levels equal to the US, one of the most philanthropic populations in the world. To further illustrate his point, he spoke of how 28% of those participating in philanthropy live on $2 a day.

Throughout the discussion, Lakha placed special emphasis on the growing role of civil society. He claimed that as Pakistani civil society develops, citizens would increasingly rely on it to fill the government gap in providing social services. Because of this, Pakistan must find a way to leverage the philanthropic culture to promote civil society growth. It is not enough to just participate philanthropy, Pakistan must find a way to develop and apply this philanthropic culture in a systematic and effective way.

Dr. Jahani made an intriguing comment on the current organization of philanthropy in Pakistan. He claimed that it fell into two camps: pure philanthropy and pure investment. He argued that in order to leverage the philanthropic culture, Pakistan must find a way to fill the gap between these two approaches. Both philanthropy and investment are needed in the development of civil society but often seem to be at odds. Philanthropy has the perception of being perfectly altruistic while investment is about the investor’s monetary returns. How can these two approaches that seem at complete odds work in conjunction with one another?

Some argue that impact investment could be the connection between pure philanthropy and pure investment. Simply stated, impact investment is strategic investments companies make for financial gain that also have a social or environmental improvement goal. Impact investment gained popularity last year when it became a focus at the G8 Social Impact Investing Conference and the Aga Khan Foundation has had an impact investment initiative since 2011. In 2012 alone, companies donated more than $8 billion to impact investment. It is a way for companies to increase profits while also earning public goodwill.

Because impact investment primarily occurs through private corporations, the concept connects strongly to the economic development of Pakistan. During the discussion, Lakha pointed out that the economies of developing nations are growing at a faster rate than those in high-income countries. This means an increase in overall philanthropy and investment in Pakistan. He argued that corporate philanthropy is becoming increasingly important and will be critical to the development of a strong civil society. While an increase in philanthropy is a desirable trend, through impact investment Pakistani corporations could scale up the impact and returns of its investments through a single action. If Pakistani corporations catch on to the impact investment trend, Pakistan might see a large increase on its returns on investment, both on the economic and social ends. Now the country must figure out the best approach to encouraging impact investment.

If you would like to listen to the entire discussion on “Philanthropy for Civil Society”, please click here.

Watch the Throne: Nigeria is Now leading Africa in GDP

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.

When All Else Falls, Remittances Rise

After the recent military ousting of president Morsi by the Egyptian military, the US has decided to put a cap on military aid to the tumultuous country. This is not the first time. Back in August, the U.S. had cut some of its economic aid to the Egyptian government. Cutting off military aid may have a louder effect, considering military aid to Egypt greatly  surpasses economic aid. Thus far, the Egyptian government has been expectedly peeved in response to these actions.

With government aid in the news, it’s relevant to look at some of the other financial flows to Egypt. At CGP, we try to get a more complete picture of foreign assistance by looking at investment, philanthropy, and remittances.

With the recent turmoil, investment, the most fickle of the four flows, has subsided after the sharp rise in the spring of 2013. Much of this earlier rise came from neighboring Arab nations, after Europe and the US pulled out. Since the military takeover, sources suggest that all in all FDI has dried up and billions have been lost.

Pulled by Gravity: Brazil’s Investment Ventures to Africa

 

 As Africa is seen as the “next frontier of growth,” the world’s focus on their economic engagement with the region has tilted. Now, investment is the buzz word. Foreign governments and companies are venturing in this new race to what was once considered as an elusive development.

“Africa is no longer an object of our fears or hopes or pity.”

Brazil has emerged as one of the key partners of trade and investment with Africa since the Portuguese empire era. Their economic partnership has flourished as trade between this largest nation in South America and the African region expanded from $4 billion in 2002 to $20 billion in 2010. Although it remains a fraction of Brazil’s total international investment, the country’s investment outflow to Africa has significantly increased within the last decade. The African Development Bank reports that Brazil’s total investment in Africa surpassed $10 billion in 2009.

Building BRICS of Foreign Aid: Ushering in Russian Foreign Aid

Russia has finally found its stride again in the international donor community. After having been a massive donor as part of the Soviet Union – providing some 26 billion dollars in 1986 alone – Russia actually received more assistance than it donated through the 1990s. It was not until 2010 that Britain stopped its aid program to Russia (and China), and the US is now no longer a donor either.

Russia is now spending around 500 million dollars a year on foreign aid and has set up an agency for direct aid while also backing the creation of a multi-billion dollar crisis response fund to help its neighbors such as Belarus which is struggling through the economic crisis.

Morocco’s bold play at renewing their energy blend

As the winds of change blow through the MENA region, Morocco is pushing to harvest the energy of the sun and the wind. At a time when Western attempts at making renewable energy a success are only producing negative headlines (example here & here) Morocco is playing the hand it was dealt.

As the only country in North Africa that does not have oil resources, Morocco must import 95% of its energy. In 2009, Morocco spent $7.3 billion on fuel and electricity imports, and the demand is set to quadruple by 2030. This has left Morocco with a strong set of incentives to aggressively expand its renewable energy capacity, and the government set an ambitious goal of 42% of energy to come from renewable sources by 2020. That’s more than double the commitment made by the more traditional climate-friendly European countries.

Living with Drought: Testing Weather-Index Based Insurance

The Center for Strategic & International Studies hosted Dr. Shukri Ahmed on August 21, 2012 for his presentation Weather-Index Based Crop Insurance for Smallholder Farmers in Ethiopia: A Multi-Agency Pilot Project. Dr. Ahmed is a team leader for the Early Warning and Vulnerability Assessment and Analysis group with the Trade and Markets Division of the FAO. He is currently working on a pilot project in Ethiopia to see if weather- index based insurance can create an avenue for greater development in Ethiopia and allow for small scale farmers to reap more benefits from their hard work.