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Regional integration in West Africa: Is there a role for a single currency?

19. Juli 2021 - 19:10

In early 2019, leaders of the Economic Community of West African States (ECOWAS) set a goal of achieving a monetary and currency union by January 2020. While the COVID-19 pandemic and a lack of macroeconomic convergence among member countries precipitated the postponement of this goal, ECOWAS leaders have continued to move forward with the project, with the new goal of launching the new currency—“the eco”—in the coming years. Proponents of the currency union argue that it would free businesses and visitors from the burdens of exchanging currencies and encourage intra-area trade, leading to a more deeply integrated and prosperous region overall.

However, the effort comes with significant costs along with operational challenges and transitional risks. As Europe has seen with the euro, even regions with strong institutions struggle to balance politics, public opinion, and monetary policy. Moreover, in Africa, it is uncertain whether the benefits of the eco will be spread evenly across the community given the disparate levels of development and various sizes of the national economies involved. Skeptics of the eco project also note that many of the hoped-for benefits of the shared currency will require an accompanying set of fundamental reforms, including stronger domestic institutional and macroeconomic frameworks.

On July 30, the Brookings Africa Growth Initiative will launch the new book, “Regional integration in West Africa: Is there a role for a single currency?” in which authors Eswar Prasad  and Vera Songwe explore the debates under way about how ECOWAS could achieve greater trade and financial integration, with or without a currency union, as well as the ramifications for the African continent. Panelists will explore whether the countries involved are ready for the effort, which obstacles should be addressed so that the currency can be successful, and alternative paths to enhanced economic integration on the continent.

After the program, the panelists will take audience questions.

Viewers can submit questions for panelists by emailing or via Twitter @BrookingsGlobal by using #WestAfricaIntegration.

Kategorien: english

Crony globalization: How political cronies captured trade liberalization in Morocco

16. Juli 2021 - 18:34

By Adeel Malik, Christian Ruckteschler, Ferdinand Eibl

Developing countries have been liberalizing their trade since the late 1980s. The establishment of World Trade Organization (WTO) in 1995 and the subsequent proliferation of free trade agreements (FTAs) furthered this trend. As a result, applied tariff rates have fallen by 66 percent since 1996. However, such tariff liberalization has not always translated into lower trade protection in developing countries. A key reason for this is that the fall in tariffs has been typically accompanied by an increase in nontariff measures (NTMs), such as policies and regulations that constrain imports.

Such trade policy substitution can be relatively innocuous because, unlike tariffs, NTMs do not generally have a discriminatory or protectionist intent. They are usually imposed to promote non-trade objectives, such as ensuring environmental, health, and safety standards. However, in practice, NTMs can shape both trade costs and market access. The implementation of NTMs can be complex and burdensome. The cost of following these regulations is typically higher for some products, sectors, and firms. Many firms in developing countries lack the capacity and resources to comply with required technical specifications and standards. Research shows that NTMs contribute to overall trade restrictiveness. In fact, their restrictive impact on trade is higher than that of tariffs.

Are technical considerations or larger political-economy factors at work?

While there is substantive work on the role of politically influential business groups in shaping tariff policies, we have limited knowledge of the institutional and political determinants of NTMs. Recent evidence shows how exceptional non-tariff measures, such as anti-dumping and safeguarding measures, were used in the wake of India’s IMF Agreement in 1991 to substitute for the fall in tariffs in politically organized sectors. Does this logic apply even to non-exceptional NTMs, such as technical barriers to trade?

In recent work, we examine the political economy of an important trade episode in Morocco. In 1996, Morocco signed an association agreement with the European Union (EU), which led to a dramatic reduction in tariff barriers. Driven largely by geopolitical objectives, the agreement was part of the EU’s Barcelona process that attempted to link “security and stability in the Mediterranean” with trade cooperation. Singularly focused on tariff reduction, the agreement triggered an across-the-board tariff cut that was followed by a substantial increase in NTMs. Given that the EU is Morocco’s largest trading partner, the EU-mandated tariff reduction represented a major trade policy shock.

Were sectors with prior exposure to politically connected firms more likely to receive compensatory protection in the form of NTMs? Our paper examines over 1,500 manufacturing firms and finds that previously politically connected firms received substantially higher nontariff protection after the agreement (see Figure 1). On average, the NTM coverage ratio was 9 to 11 percentage points higher in politically connected sectors relative to unconnected sectors where this ratio was 24 percent. Disaggregating the analysis by type of NTMs, we find that our results are principally driven by technical barriers to trade (TBTs) whose enforcement requires greater administrative oversight and is susceptible to political abuse. We also examined whether the compensatory trade protection in the guise of NTMs especially favored sectors with royally owned firms. Differentiating between different types of political connections, we show that the effect of cronyism on trade policy substitution is primarily driven by firms owned by politicians, royal advisers, and confidants rather than royal firms.

This is explained by two factors. First, the monarchy has a comparatively stronger presence in the services sector (e.g., real estate, banking, and finance) whereas nonroyal firms are mainly active in manufacturing. Second, even if sectors with royal firms witnessed a comparatively smaller increase in NTMs after the EU agreement, its protectionist impact was substantial. To establish this, we analyze the ad valorem equivalents (AVEs) of NTMs that measure the “additional costs” that NTM presence imposes on imports. AVEs are typically used to express the trade impact that an NTM would have that is akin to a uniform tariff. Our analysis suggests that median AVEs in 2009 were 65 percent in royal sectors compared to 49 percent in nonroyal sectors.

Furthermore, while the AVEs registered a general increase during the period 1997-2009, the increase was substantially higher in politically connected sectors. The percentage increase in median AVEs in crony sectors was close to 300 percent compared with only 100 percent in unconnected sectors. Overall, the wave of NTMs that accompanied the EU-mandated tariff reductions not only compensated for the fall in tariffs but actually led to an increase in overall trade protection in connected sectors. The connected sectors’ total trade restrictiveness, defined as the sum of tariffs and AVEs, increased from 54 percent in 1997 to 58 percent in 2008. Had the AVEs of NTMs in connected sectors increased at the same rate as those in unconnected sectors, median trade restrictiveness would have actually fallen to 33 percent instead.

Our work also sheds light on the political economy of trade policy in autocratic states. Prior research has mainly focused on democratic contexts where trade protection is typically exchanged for lobbying contributions by special interest groups. Political scientists emphasize that authoritarian rulers face a perennial challenge of survival in the face of threats, including those arising from within the ruling elite coalition. In the face of such threats, rulers frequently need to buy elite support by granting privileges and sharing rents. In this milieu, trade policy can be used to generate rents that can be selectively and strategically passed on to political powerful groups in exchange for their support.   

Kategorien: english

A golden opportunity to end destructive fishing subsidies

15. Juli 2021 - 18:19

By Ngozi Okonjo-Iweala

It is not often that trade negotiators get a chance simultaneously to protect vulnerable people and their livelihoods, promote healthier oceans, and fulfill one of the United Nations Sustainable Development Goals. But that is exactly the opportunity awaiting trade ministers as they gather at the World Trade Organization this week to discuss new global rules limiting government support for the fishing industry.

These public subsidies incentivize overfishing, and WTO members have been debating how to limit them for 20 years now. During those long two decades, global fish stocks have decreased sharply, and poor and vulnerable artisanal fishers have suffered along with ocean ecosystems.

In 2017, the U.N. Food and Agriculture Organization (FAO) warned that an estimated one-third of global fish stocks were overfished, an increase from 10 percent in 1970 and 27 percent in 2000. The depletion of fish stocks threatens the food security of low-income coastal communities and the livelihoods of poor and vulnerable fishers, who must travel farther and farther from shore only to bring back smaller and smaller hauls.

In 2017, the U.N. Food and Agriculture Organization (FAO) warned that an estimated one-third of global fish stocks were overfished, an increase from 10 percent in 1970 and 27 percent in 2000.

Despite these disturbing findings, governments continue to disburse around $35 billion in annual fisheries subsidies, two-thirds of which go to commercial fishers. In doing so, they are keeping at sea many commercial vessels that would otherwise be economically unviable.

World leaders recognized the seriousness of the problem back in 2015 when they agreed to forge an agreement on fisheries subsidies by 2020 as part of the Sustainable Development Agenda. But while trade ministers reaffirmed this pledge in 2017, talks at the WTO have repeatedly stalled.

Over the past year, however, things have begun to turn around. Political leaders and trade ministers from around the world tell me they want to get an agreement done this year. In Geneva, the chair of these negotiations, Ambassador Santiago Wills of Colombia, has worked with WTO members to draft a negotiating text that I believe can provide the foundation for final-stage talks. But despite the political support voiced by government leaders, important divisions persist. Indeed, as matters stand, we are in danger of failing to conclude a deal before the WTO’s year-end Ministerial Conference.

This tight timetable is the reason for convening trade ministers this month. While no one expects a miracle, the meeting represents a golden opportunity to bring the negotiations within striking distance of a deal. WTO members need to conclude an agreement in time for the U.N. Biodiversity Conference in October, and no later than the end of November, when the WTO’s own ministerial begins. A failure to do so would jeopardize the ocean’s biodiversity and the sustainability of the fish stocks on which so many depend for food and income.

Yes, the talks are complex, because fish do not inhabit a single national territory or observe maritime boundaries. WTO negotiators must account for both the existing framework of international fisheries rules and the role of the regulatory bodies that govern many aspects of fishing around the world. They also must define how new subsidy rules would apply to far-flung fishing vessels.

By negotiating away harmful fisheries subsidies, WTO members will not just be honoring past commitments. They will also be lending momentum to other international efforts to address problems in the global commons—from climate change to the COVID-19 pandemic.

Compounding the challenge is the fact that the WTO is not a fisheries management organization. Still, the WTO has a longstanding framework of rules that curb trade-distorting subsidies for industrial and agricultural goods. That is why trade ministers agreed back in 2001 to come up with similar measures to protect marine fisheries.

Although there is still work to do, the current draft negotiating text would make an important contribution to the sustainability of our oceans. For starters, it would completely ban government funding for vessels that engage in illegal fishing. According to the FAO, these activities account for 11 million to 26 million tons of fish per year, or roughly 20 percent of the total global catch. The agreement would also rein in other types of subsidies that support increased fishing activity, by requiring that governments prove they have taken steps to ensure such support does not harm fish stocks.

One of the toughest issues in the negotiations is how to define and honor the original negotiating mandate guaranteeing special and differential treatment for developing countries—and especially for least-developed countries. Many of these countries rely on small-scale artisanal fishing, and they are seeking more policy space to develop their industrial fishing capabilities. But, because their fisheries management capacity is weak, they may struggle to implement new subsidy regimes as quickly and effectively as better-off members can.

Another tough issue is to ensure transparency, with requirements that a member offer notification when deploying non-harmful and non-distortionary subsidies to encourage its fishing industry. Tackling these issues will not be easy, but tackle them we must, because WTO members have pledged to protect the fisheries and ocean we all share.

By negotiating away harmful fisheries subsidies, WTO members will not just be honoring past commitments. They will also be lending momentum to other international efforts to address problems in the global commons—from climate change to the COVID-19 pandemic.

Let’s hope that the world’s trade ministers rise to the challenge.

Kategorien: english

South Africa after COVID-19—light at the end of a very long tunnel

13. Juli 2021 - 14:43

By Wolfgang Fengler, Marie-Francoise Nelly, Indermit Gill, Benedicte Baduel, Facundo Cuevas

In this time of crisis, we are often reminded of a famous quote attributed to Winston Churchill during World War II: “If you’re going through hell, keep going.” While South Africa is not in the middle of a physical war, it is battling the COVID-19 crisis in full force. Like most other countries, South Africa could not escape the pandemic. It suffered the loss of lives and livelihoods. At the time of writing, in early July 2021, more than 64,000 South Africans have lost their lives. The third wave is hitting the country very hard and infections keep rising every day. But there is also light at the end of a very long tunnel.

The government responded swiftly and strongly to the crisis while also spearheading an international alliance for the distribution of vaccines in Africa. If the South African government would carry out with the same determination long-standing economic reform as it was fighting the pandemic, COVID-19 could serve as a turning point in reenergizing South Africa’s economy and labor market. While South Africa is set to emerge from the crisis weaker than it was going into it, the World Bank’s South Africa Economic Update argues that the reasons for low growth and high unemployment do not lie in the government’s crisis response. Instead, the pandemic has exposed long-standing structural weaknesses that have progressively worsened since the global financial crisis of 2008–09.

For 2021, the World Bank projects a gross domestic product (GDP) growth of 4 percent, followed by 2.1 percent in 2022 and 1.5 percent in 2023. South Africa’s weak recovery is putting pressure on public finance. For the first time ever, public debt is now at almost 80 percent of GDP and under the current trajectory debt levels will not stabilize before 2026. However, the current global recovery is helping South Africa, especially the strong rebound in China and the United States—two of its key trading partners. As other emerging markets are recovering faster, South Africa’s economy could have benefited more in 2021 if integration with the rest of the world was stronger (Figure 1).

Figure 1. South Africa’s contraction in 2020 was deep, and recovery in 2021 will be moderate

The crisis has exposed South Africa’s biggest challenge: its job market. Even in the best of times, the labor market has been marked by high levels of unemployment and inactivity. Out of a working-age population of almost 40 million people, only 15 million South Africans are employed, which includes 3 million jobs in the public sector. The COVID-19 crisis has made a difficult situation worse because low-wage workers suffered almost four times more job losses than high-wage workers. In 2021, we saw a modest job recovery, but it is at risk due to the third wave.

Against the odds, there are also positive developments in the labor market, and young entrepreneurs are one of South Africa’s best hopes to solve the jobs crisis. There are an increasing number of startups, especially in the digital sector, which are growing fast and could in the future become an engine of jobs growth. Cape Town alone, the “tech capital of Africa”, has over 450 tech firms and employs more than 40,000 people. In 2020, a total of $88 million (1.2 billion rand) disclosed investments went into its tech startups.

A focus on young entrepreneurs would also help South Africa to close its large gap in self-employment (own-account workers with own businesses, freelancers), which represents only 10 percent of all jobs—compared to around 30 percent in most upper-middle-income economies such as Turkey, Mexico, or Brazil (Figure 2). If South Africa were to match the self-employment rate of its peers, it could potentially halve its unemployment rates.

Figure 2. Self-employment—South Africa’s biggest opportunity to create jobs

South Africa’s economy would benefit from measures to preserve macroeconomic stability, to revitalize the jobs market by improving the investment climate to build a better and more inclusive economy after the pandemic. There is a risk that the recovery leaves behind most of the potential economically active population, particularly young job seekers, which would mean that the pandemic permanently impaired the country’s long-term development prospects. Conversely, if South Africa were to engineer a broad-based recovery, this decade could bring new prosperity.

Addressing structural constraints to growth behind and at the border could support exports and higher growth, and so preserve the sustainability of public finances. The experience of major emerging economies shows that the two most potent factors for reducing public debt-to-GDP ratios are economic growth and primary surpluses. The implied priorities are self-evident: a better climate for investment and trade, and prudent fiscal policy.

To generate employment, South Africa would have to address three chronic problems in its labor market: extremely high rates of inactivity, high rates of unemployment, and low levels of self-employment. Along with enacting carefully chosen regulations to improve the business climate and investing in the workforce through better education, the government can implement reforms to encourage self-employment and support the growth of micro- and small enterprises.

Kategorien: english

6 lessons from holding virtual focus groups during the COVID-19 pandemic

12. Juli 2021 - 21:24

By Damilola Iyiola, Laura Keen

Kategorien: english

COVID-19 and poverty’s impact on electricity access in sub-Saharan Africa

12. Juli 2021 - 16:04

By Tamara White

On June 14, the United Nations released its 2021 Sustainable Development Goals (SDG) Report, which examines the world’s progress toward accomplishing the SDGs. The most recent edition placed special emphasis on the COVID-19 pandemic given its role in reversing many SDG gains. More specifically, the authors note that years or even decades of progress have been halted or reversed due to the pandemic.

For example, countries have made major progress relating to SDG 7—ensure access to affordable, reliable sustainable and modern energy for all. While the electricity sector has increased and renewable energy has improved, millions of people still find themselves without power and many major improvements are under threat. While 46 percent of sub-Saharan Africa’s population now has access to electricity—up from 33 percent in 2010—the region is far behind the global average of 90 percent (Figure 1). Indeed, 97 million people in urban areas and 471 million in rural areas are still without access to electricity.

Figure 1. Proportion of population with access to electricity, 2010 and 2019 (percentage)

Source: The Sustainable Development Goals Report 2021, United Nations.

Moreover, according to United Nations Department of Economic and Social Affairs Statistics Division, the COVID-19 pandemic could reverse progress in some countries. In fact, in developing countries in Africa, the number of people without electricity increased in 2020 (after declining over the past six years) and basic electricity services are now unaffordable.  Moreover, the cost of electricity services in sub-Saharan Africa remains among the highest in the world—and those who can afford electricity often face unreliable service. As poverty levels increase, countries will be forced to scale back to basic electricity access because citizens will not be able to afford formal electricity bundles.

These persistent gaps in access to energy are also colliding with the increasing threat of climate change, forcing policymakers to navigate a complex, difficult policy environment. As such, many countries are looking to increase their reliance on renewable energy sources. However, least-developed countries receive only a small amount of international financing for renewable energy. In fact, that number is decreasing: In 2018, financial flows to developing countries for climate change and renewable energy were 35 percent lower than in 2017 (Figure 2).

Figure 2. International financial flows to developing countries in support of clean and renewable energy by type of technology, 2010-2018 (billions of dollars at 2018 prices and exchange rates)

Source: The Sustainable Development Goals Report 2021, United Nations.

According to the report, countries with the lowest levels of electricity access tend to be least-developed countries, which are largely found in sub-Saharan Africa, and these same countries receive far less energy funding than the global average. Moreover, not only did financial flows for such projects decrease overall in recent years, the financing that was given tended to be concentrated in specific countries. For example, 46 of the least-developed countries combined together received only 20 percent of commitments over this time while Nigeria, Turkey, Pakistan, India, and Argentina combined for 30 percent.

Experts maintain that increasing electricity access will have knock-on effects in terms of economic growth and overall well-being. Indeed, lack of access to electricity severely limits adoption of emerging and potentially transformative technologies in sectors such as banking, education, agriculture, and finance that could otherwise alleviate some of the core challenges facing Africans, such as low productive employment opportunities and limited health care.

For more on electricity access in sub-Saharan Africa see, “Figure of the week: Increasing access to electricity in sub-Saharan Africa.” For more on the debate around the role of the SDGs in Africa, see “The SDG’s are our compass for bolstering Africa’s long-term COVID recovery” and the opposing viewpoint,  “Africa faces a hard choice on the SDGs under COVID-19.

Kategorien: english

Bangladesh’s remarkable development journey: Government had an important role too

9. Juli 2021 - 20:07

By Akhtar Mahmood

This year, as Bangladesh celebrates the 50th anniversary of its independence, a plethora of writings have tried to explain its remarkable transformation from a country known for famines and natural disasters to one of the fastest-growing economies in the world. The narratives repeat the same themes, i.e., Bangladesh’s impressive performance on several social indicators, the success of its garment exports, remittances by migrant workers, the spread of microfinance, and the remarkable role of NGOs.

Lost in these narratives is the important role of government. In some writings, government is the villain—the impressive performance of Bangladesh is said to have happened “despite the government.” Those who do mention government, say government helped development by staying out of the way, by granting NGOs the space to deliver social services long considered the responsibility of government.

Government has been a major player in the development journey of Bangladesh since independence in 1971.

But government has been a major player in the development journey of Bangladesh since independence in 1971. By ignoring this perspective, most narratives on Bangladesh have missed an opportunity to demonstrate how a government, weak in many respects, can nonetheless make strategic contributions to development over a prolonged period.

Take, for example, the government’s investment in rural road construction in the late 1980s and the 1990s. By the mid-1980s, the country had a good network of roads linking the medium-sized cities to the larger ones, including the capital Dhaka and the major port city, Chittagong. However, rural Bangladesh suffered from poor connectivity. Most roads linking the villages with one another, and with the cities, were not paved and not accessible throughout the year. This situation was remarkably transformed within a span of 10 years, from 1988 to 1997, with the construction of the so-called feeder roads. In 1988, Bangladesh had about 3,000 kilometers of feeder roads. By 1997, this network expanded to 15,500 kilometers. These “last-mile” all-weather roads helped connect the villages of Bangladesh to the rest of the country.

The origins of this transformative road construction program may be traced to a 1984 paper by the Bangladesh Planning Commission. The paper, “Strategy for Rural Development Projects,” took a hard look at past rural development projects. It concluded that these projects had failed to achieve their professed goal of alleviating rural poverty. The reason: too much focus on agricultural growth, ignoring the importance of rural infrastructure. The strategy paper argued that future rural development efforts should also include physical infrastructure such as roads, storage facilities, and marketplaces. This helped catalyze the rural road infrastructure program mentioned earlier.

Something else was brewing at that time, which had a far-reaching impact in rural Bangladesh. After ups and downs in the 1960s, the production of rice, the country’s main crop, moved to a trajectory of modest, but sustained, growth from 1972. Use of high-yielding varieties (HYV) of rice, first introduced in the 1960s, expanded. Also, aided by irrigation, there was a significant expansion of rice cultivation in the dry winter months.

As the transformative potential of irrigation and HYV rice got recognized, the government started liberalizing agricultural input markets in the 1980s. It removed certain restrictions on the import of pumps and small diesel engines used for irrigation, and privatized the distribution and import of fertilizer, a key input for HYV rice cultivation. While experts recommended bolder reforms, the government initially moved slowly with small, incremental reforms. However, a slowdown of agricultural production in the mid-1980s led to a government review that recommended more substantial reforms. These started in the late 1980s and continued in the early 1990s.

Meanwhile, in the industrial sector, two policy innovations in the mid-1980s—the back-to-back letter of credit and duty-drawback facilities through bonded warehouses—removed two major constraints for the country’s fledgling garment industry. The first allowed a garment manufacturer to obtain letters of credit from domestic ban4ks to finance its import of inputs, by showing letters of credit from foreign buyers of garments. The second reimbursed manufacturers the duty paid on imported inputs on proof that the inputs, stored in bonded warehouses, had been used to manufacture the exports.

These policy actions had a significant economic impact. The long-run trend in crop production shows a major inflection point around the late 1990s-early 2000s. Experts have attributed this to the agricultural input liberalization policies of the 1980s and early 1990s (see this and this), as well as to the rural road construction program (see this and this). Similarly, after modest growth in the early 1980s, garment exports accelerated significantly from the second half of the 1980s. The transformative policy and public investment actions of the 1980s and 1990s expanded the horizons of Bangladeshi entrepreneurs, from the small farmers to the garment exporters.

The acceleration in garment exports helped the country earn valuable foreign exchange and maintain macroeconomic stability. But, because the bulk of the garment workforce was rural women, this also resulted in a huge infusion of funds to rural Bangladesh. This was complemented by remittance inflows from migrant Bangladeshi workers, which increased sharply from the start of the century, from $1.7 billion in 1997 to over $15 billion in 2014. The increased incomes in rural Bangladesh also supported the growth of rural nonfarm activities, which expanded significantly alongside agricultural growth.

This story of policy actions leading to transformative change has continued in subsequent decades. For example, liberalization of telecommunications starting in the early 1990s has led to mobile phone subscriptions exceeding population size by 2019; a power sector program after 2010 has helped increase power generation capacity from 3,700 megawatts in 2007 to 13,000 megawatts in 2019; and a 2011 regulatory reform allowing mobile financial services has led to a fifteenfold increase in the value of mobile monetary transactions between early 2013 and the end of 2020.

The government in Bangladesh does not score well on conventional indicators of transparency or effectiveness. And yet, successive governments have shown an uncanny ability to respond to nascent developments in the economy with policy actions that triggered transformative change. In many cases, the liberalizing policy actions by an administration served to undo what previous administrations had done years, decades, or even centuries ago. For example, it was the government that took on the responsibility to procure and distribute agricultural inputs in pre-independence times, and it was the government that did away with this monopoly in the 1980s. Nonetheless, the willingness of different administrations to move away from well-entrenched policies that they had inherited is commendable.

Some policy actions of the Bangladesh government were influenced by development partners through their conditionalities, advice, and persuasion, but often not at the speed desired by the external actors. This had frustrated the latter and had created an image of a government that is slow to reform. However, successive governments in Bangladesh seemed to have been inspired by Frank Sinatra’s immortal song—they chose to do things their own way. There have not been any big-bang reforms in Bangladesh but no serious reversals either. The approach has been that of incremental, but steadily deepening, reforms. The government took some actions, saw what the market response was, and took further actions. This approach may not have been appreciated at all times, but its results are now being recognized.

What may set Bangladesh apart from many other developing countries is the supply response to policy actions. Such supply responses by a variety of economic actors, such as farmers, industrial firms, and traders, in turn, generated demand for further policy actions which were often forthcoming. Such synergy between public policy actions and the entrepreneurial activities of economic actors has played out again and again in the last few decades. This is an important, but underappreciated, part of the story of Bangladesh’s remarkable development journey.

Kategorien: english

Transnational governance of natural resources for the 21st century

7. Juli 2021 - 23:28

By Rabah Arezki

Natural resources—whether they are water, land, underground, or in the air—should be seen as common goods, meant to be shared by all. That means their governance arrangements—to be tailored according to the specific property of each resource—should be in harmony at the local, national, regional, and global levels to ensure they are used sustainably and in a way that protects the environment and the people who depend on them. This has proven to be very complex.

Throughout history, harmonious sharing of common goods has seldom been achieved. Today’s scramble for natural resources by major powers is far from new. It stems from a long-standing and fundamental asymmetry between advanced and less-advanced economies—not only in terms of access to and demand for natural resources, but in terms of advances in technology, military might, and state and private sector capabilities in general.

The race for natural resources to power the simultaneous energy and digital transitions the world is experiencing rages among the major powers.

A good example is the competition among 19th century European empires for natural resources such as copper, tin, rubber, timber, diamonds, and gold. The advance of steam engine navigation made access to and transport of these resources much easier for these empires. The resources were essential to powering industrial revolutions. People in the colonies where the resources were located, benefited little, if at all. As a result, former colonies have a complex history with which a number of countries, including many in Africa, continue to grapple.

Fast forward to today. The race for natural resources to power the simultaneous energy and digital transitions the world is experiencing rages among the major powers. Both transitions rely heavily on technologies that require such resources as rare earth metals for semiconductors, cobalt for batteries, and uranium for nuclear power. But the transitions also mean that historically valuable natural resources and their associated investments—prominently oil and other fossil fuels—will eventually become stranded, with severe consequences for countries almost totally reliant on those assets, especially those with weak state capacity. The last oil price super-cycle might already be underway, the end of which could herald an increase in the number of failed states.

That race for natural resources has become more acute as major powers have entered into strategic rivalries—especially between the United States and China, but also between China and Europe. This time an appropriate transnational governance of natural resources is essential to achieving an orderly, sustainable, and inclusive exploitation of natural resources so these transitions do not leave people, especially those in developing countries, behind.

Developing countries have had difficulties managing their natural resources—so much so that the term “resource curse” was coined describing the paradox of countries rich in natural resources performing worse than countries that are resource poor. Volatility, loss of competitiveness, excessive indebtedness, and internal and external conflicts are behind the poorer performance of resource-rich countries. Research has shown that good institutions, unsurprisingly, moderate that curse. But which ones? There are two key areas:

  • The policies and institutions that govern the opening of the resource sector to attract investment and hence generate revenues for the state.
  • The quality of redistributive institutions that govern how the proceeds from the exploitation of these resources are used and benefit people, including in terms of human capital.

Moreover, regulation at the national level has often failed to address issues of overexploitation of natural resources as well as displacement, environment degradation, and risk to biodiversity, which are often best managed by local communities. The work of the late Elinor Ostrom has shed important light on the design of self-organized user communities to achieve sustainability in the exploitation of natural resources.

An appropriate transnational governance of natural resources is essential to achieving an orderly, sustainable, and inclusive exploitation of natural resources.

Several international initiatives have focused mainly on transparency. They include the Extractive Industry Transparency Initiative and the Natural Resource Charter. A number of NGOs have been very active in the space. Legislation in the United States and the European Union (EU) strive to hold accountable their multinational corporations by mandating that those companies disclose their payments in countries in which they operate. It is more difficult to hold state-owned enterprises accountable because of a lack of transparency and a complex web of interests and cross-subsidies. The development of environment, social, and corporate governance norms (ESG)—with roots in the socially responsible investing movement that began in the 1970s—are means by which investors and others can gauge how responsibly a corporation behaves environmentally. But it is unclear whether ESG assessments are sufficient to force firms to internalize the complex sets of externalities at different levels required to achieve sustainable behavior. It is also unclear whether and how these norms could be enforced. One encouraging sign is that consumers in advanced economies appear to be changing their behavior concerning the environment. But investor behavior, especially in developing countries, may not be so amenable to change. The challenge with all these initiatives is the difficulty in translating them into the right context and fostering ownership, especially at the local and national levels. More needs to be done to integrate local, national, regional, and global actors to achieve better outcomes.

For example, the EU’s relationship with regions such as Africa and the Middle East—and especially with China—will be crucial to shaping the transnational governance of natural resources. Transnational governance should account for the interdependencies related to peace and stability, global health, and climate issues in a world increasingly organized into blocs. If externalities are to be internalized, it will require:

  • Technology transfers from advanced to developing economies to provide the tools to address the threat of climate change and meet climate goals.
  • Access to international capital markets through, for example, green, nature, or blue bonds instead of opaque resource-backed loans with nontraditional creditors such as China.
  • Ways to ensure that foreign direct investment (FDI) delivers on local contentment and jobs to address rising discontent in communities where mining or other extractive industries operate.

More generally, advanced economies such as the EU should acknowledge the shift in the development paradigm from one exclusively centered around extraction and exports of natural resources to that of promoting domestic productive capabilities locally and hence good jobs. Specifically, the process of deepening the African continental free trade agreement should be accompanied by coherent arrangements at the regional level on tax, trade, competition, and financial policies. The integration of the EU carries valuable lessons in that regard that could be shared and learned. Focusing on energy, agriculture, and mineral resource sectors as foundational elements of that integration and partnership will ensure the sustainability of these investments for all parties.

Kategorien: english

3 ways the international community can make gender equality work more transparent

7. Juli 2021 - 19:24

By Sally Paxton, George Ingram

The COVID-19 pandemic has underlined that granular and intersectional data is key to “leaving no one behind” and meeting the Sustainable Development Goals. In 2020, world leaders reignited the vision of the Beijing Platform for Action and committed to accelerate the realization of gender equality. This year, the G-7 leaders and countless others at the Generation Equality Forum emphasized that to “build back better” we must prioritize gender-disaggregated data and analyses to ensure that efforts are evidence-based and decisionmakers are accountable.

What the past 1 1/2 years has taught us

When we began our work in 2019, we already knew that tracking funding for gender equality efforts was a difficult task—and this was just funding from bilateral and multilateral sources of official development assistance (ODA). What was even harder to find were the other sources of funding for gender-related efforts, including from humanitarian, philanthropic, and development finance institutions. How are we to move forward to effectively meet the SDGs and COVID-19 inequalities with a fuzzy and incomplete picture of what is being funded, for what purpose, and with what results?

Our research started in Kenya, Nepal, and Guatemala. We wanted to understand the needs of a variety of gender stakeholders, particularly at the country level. Although there is a demand by national and local stakeholders for financial and programmatic data on gender equality issues—for programming, for coordination with other stakeholders, and for advocacy—there are many barriers to using this information. Most stakeholders are dissatisfied with the available data and information. Thus, while donors have spent considerable resources collecting and publishing gender equality data, the blockers to a robust uptake need to be addressed.

Our research, consultations, surveys, and discussions have led us to conceptualize that the road to better transparency requires attention to three interrelated but distinct concepts: data capacity, data engagement, and data quality.

Source: Making Gender Financing More Transparent.

It’s not enough, for example, to publish high-quality information if it is not accessible, in the wrong format, or costs too much to acquire. It is simply not enough to publish and believe that the job is done. Engaging with a range of gender equality stakeholders—especially women’s rights organizations and NGOs—is essential. Data is power and local gender equality stakeholders need to be empowered to use it for a variety of reasons and at different times in the program cycle.

Our report contains detailed recommendations to improve the transparency of gender financing and programmatic data. We have included a checklist at the end of the report that sorts these recommendations by both donors and by data platforms, which we hope is a helpful tool.

3 takeaways
1. High-quality data alone is not going to move the gender equality needle. Making data more accessible will.

We recognize that many donors have put significant effort into publishing gender-related data in several open data sources, most notably the Organization for Economic Cooperation and Development’s (OECD) Creditor Reporting System and the International Aid Transparency Initiative (IATI). But the uptake of this data by national and local stakeholders has been minimal due to a few important restraints. For one, most stakeholders don’t have the resources and/or data literacy to utilize the often complicated datasets and formats. Core funding for building data capacity is rare. As a result, either the data goes unused or local stakeholders depend on hiring outside—and often more expensive—staff.

2. Publication is just the first step. Engagement can shift power to local actors.

Data is the beginning of a conversation with relevant stakeholders—gender advocates, local and national governments, and international donors. If development is truly to be locally led, data is a means to shift the power and decisionmaking to those who should be at the heart of the work. That means involving gender equality stakeholders at all stages of the program cycle—from priority setting, program design, and implementation to evaluation. This will have a positive effect not only on data quality but should also increase trust in and use of the data. Ultimately, proactive engagement and coordination with gender equality stakeholders will lead to the most important goal: better gender equality outcomes.

3. Donors should do more than utilize the gender marker—they should tell us why.

Many international donors utilize the OECD’s Development Assistance Committee (OECD-DAC) gender marker, which indicates the extent to which a particular project is intended to support gender equality. As our report finds, not all donors apply the marker in the same way, and they don’t always apply it consistently across different platforms. We think the latter is something that can be fixed relatively easily. What would be a real step forward, however, is for donors to explain the analysis behind the specific use of the gender marker. OECD’s guidance for use of the marker outlines the gender analysis donors must conduct to determine which minimum criteria projects must meet before assigning any gender marker score. This underlying analysis, however, is not published, so there is no way for other stakeholders to understand why a particular score is published, who the intended target gender group(s) are, which of the project objective(s) aim to advance gender equality, and what indicators will measure progress. Publishing this information could have several benefits, including better coordination among donors, as well as a better push for gender-disaggregated results data.

As the global efforts to build back better hopefully take hold, especially for gender equality, let’s not underestimate the ability of good-quality gender financing and programmatic data to underpin these goals. To accomplish that, however, local gender stakeholders need a central place in that discussion, armed with accessible, useable, and comprehensive data.

Kategorien: english

How can education be the antidote to a world prone to fracture along environmental, social, and economic fault lines?

7. Juli 2021 - 18:03

By Christopher J. Thomas

Since 1960, the world’s population has more than doubled. Average life expectancy increased by 50 percent and income per person tripled. The share of people living in extreme poverty declined from 54 percent to 10 percent (data are available through 2018, pre-pandemic). Technology revolutionized how we communicate, how we travel, and even what we eat. For people in China and India, the changes have been especially dramatic.

This progress didn’t result from miracle—it was through investment in education, research, and development. It came because most governments dedicated themselves to the idea—framed in the Universal Declaration of Human Rights—that “everyone has a right to education.”  So, even as the world’s population grew quickly, so did educational attainment, and people’s capacity to produce, build institutions, invent, and adapt (Figure 1).

Figure 1. World population (in millions) by level of education, 1960-2020 1960

1990 2020

Source: Wittgenstein Centre Human Capital Data Explorer Version 2.0, Wittgenstein Centre for Demography and Global Human Capital.

At the same time, we have been living hard on the planet. In 1960 about 60 percent of the earth’s surface was wilderness, and today it’s only 35 percent. The rate at which biodiversity is being lost due to human activity rivals the five mass extinctions in the earth’s history.  Annual C02 emissions have quadrupled. Inequality has reached intolerable levels. And tragically, the number of armed conflicts has risen, many of which are driven by extreme ideologies or competition for resources.

Can education be the antidote to a world prone to fracture along environmental, social, and economic fault lines? Can education systems incorporate new insights into how children learn, cultivate scientific thinking, and become more inclusive of people pushed to the margins?

In considering these questions, it is important to note that investments in education have a delayed effect. Children entering school today will be fully functioning adults only 15-20 years from now. To shape the world of 2050, we need to act now.

The stakes are high. As challenges of sustainability become obvious, so does the need for better education. An increasingly large fraction of the decisions people will need to make involve science and technology. They need to “think like experts,” as Stanford University Professor Carl Wieman says, on the day-to-day issues raised by global warming, public health, and technology. Education is the first best way for people and societies to thrive.

It’s also important to note that the majority of the next generation is growing up in the most resource-constrained countries in the world. By 2050, 57 percent of the world’s youth will be in sub-Saharan Africa and South Asia. Many countries in these regions are struggling to build a qualified and motivated teaching force, create a rich learning environment in schools, and develop the infrastructure for technologies that could enhance learning.

Achieving a “rapid development scenario” for the next generation

With startling effect, Wolfgang Lutz and Claudia Reiter at the Wittgenstein Centre for Demography and Global Human Capital simulate what the world’s population might look like in 2050 under various scenarios in a human capital data explorer. In a “stalled development scenario,” where there would be very limited new investment in education and health in the poorest parts of world and high barriers to migration, world population would likely top 10 billion by 2050 (Figure 2). A substantial number of people would have no education or only a primary school education—insufficient to sustain growth and development. In a “rapid development scenario” where countries make substantial progress to meeting the Sustainable Development Goals on education and health by 2030, world population would likely be 8.6 billion by 2050. And perhaps more significantly, younger adults would be substantially better educated and prepared to face the challenges of their time. It would be a different world—one with more opportunities for people to thrive and potentially less pressure on the planet.

Figure 2. World population by level of education in 2050 Stalled development

Rapid development

Source: Wittgenstein Centre Human Capital Data Explorer Version 2.0, Wittgenstein Centre for Demography and Global Human Capital.

How do we increase the chances of achieving the rapid development scenario? A new report by the Wittgenstein Centre, commissioned by the Yidan Prize Foundation, suggests a few priorities:

  1. Recognize that education begins before schooling. Focusing on the learning experience of early childhood can have profound and lasting impact on a child’s physical and intellectual development.
  2. Provide at least 10-12 years of schooling for all. Primary education alone is not enough to bring a poor country out of poverty.
  3. Employ more and better trained teachers. No other factor will increase the learning success of children more than good, motivated, and motivating teachers.
  4. Make use of technological innovations that can help teachers provide good education almost for free, even in the most remote corners of the earth.
  5. Encourage lifelong learning. Recognize that education does not only happen during school and job training, but that it is a lifelong necessity to help people remain physically, mentally, and economically active as they live longer lives.

In an increasingly complex and globalized world, the education of the next generation in all corners of the globe needs to be everyone’s concern. We should support education like our lives depend on it.

Kategorien: english

How to balance debt and development

6. Juli 2021 - 22:52

By Homi Kharas, Meagan Dooley

The COVID-19 pandemic is, we hope, only a temporary shock to economies everywhere. The appropriate policy response to such a disruption is to borrow to cushion the impact on consumption and investment. But for many emerging markets and developing countries, borrowing could result in debt-servicing difficulties that require years of austerity to overcome. Yet, if they do not borrow, they will have to cut public spending, which could mean major health crises, children out of school, job losses, and prolonged recession.

What to do? Borrow and risk a debt crisis, or choose austerity and risk a development crisis?

In 2020, countries took very different approaches, largely linked to their income. Governments in advanced economies provided trillions of dollars of direct and indirect fiscal support, equivalent to 24 percent of GDP, while those in emerging and developing economies provided just 6 percent and 2 percent of GDP, respectively.

Because private capital markets are procyclical, the risks of debt distress are large and growing. Global foreign direct investment fell by 40 percent in 2020 and is expected to decline by another $100 billion in 2021. Greenfield investment projects and cross-border mergers and acquisitions were likewise down 50 percent last year.

What to do? Borrow and risk a debt crisis, or choose austerity and risk a development crisis?

Half of all low-income countries were in debt distress or at high risk before the pandemic, according to the International Monetary Fund, and six have defaulted in the past year. In addition, 36 developing countries have had their sovereign credit rating downgraded by one of the three major ratings agencies, and 28 others have had their outlook downgraded. While many middle-income countries have returned to international bond markets since the pandemic began, only two Sub-Saharan African countries (Ivory Coast and Benin) have accessed the market.

The risks of widespread development distress are also growing. The IMF estimates that low-income countries need $450 billion through 2025 to respond to the pandemic and accelerate sustainable investments. Total investment in developing countries (excluding China) fell by 10 percent in 2020, and is likely to remain below 2019 levels this year and next. And if growth slows, creditworthiness will deteriorate, making debt distress even more likely.

The debt dimension

Preventing this vicious circle will require policymakers to address two collective-action problems that markets cannot resolve on their own. First, they must ensure that private creditors’ procyclical behavior does not trigger liquidity problems and debt crises. Most developing countries, especially middle-income countries, were growing fairly well before the pandemic, with stable long-term debt dynamics. If they can refinance their debt on reasonable terms, they should be able to avoid default. This will require additional financing from official and private creditors.

In May 2020, the G-20 paused bilateral debt-service payments by World Bank International Development Association (IDA) countries under the Debt Service Suspension Initiative (DSSI), which has been extended until the end of 2021. The DSSI has so far deferred $6 billion in debt-service payments—resources that developing countries have used to advance economic recovery and procure COVID-19 vaccines and personal protective equipment.

But given the pandemic’s ongoing nature, and the time needed to roll out mass vaccination campaigns in developing countries, this is not enough. The G-20 should expand DSSI eligibility to all vulnerable countries, including small island developing states and tourism-dependent economies. Middle-income countries account for the bulk of developing-country debt service due in 2021-22, but have had access to only limited fiscal support until now.

Because debt crises typically reflect poor government spending decisions, debt programs are often accompanied by a temporary lending pause. But this time is different, because most countries are suffering from a short-term liquidity squeeze rather than a long-term solvency problem. The World Bank and the IMF need to ensure that the macro framework and their own lending to DSSI countries supports strong increases in public investment in the near term.

Some have called for larger-scale debt restructuring and relief efforts, including swaps of debt for investments related to achieving climate objectives or the Sustainable Development Goals. The G-20 has agreed to a common framework for debt treatment, with three countries (Chad, Ethiopia, and Zambia) requesting relief thus far. Such efforts must transparently link debt relief to incremental investments in health, climate, or SDG projects, in order to connect the debt crisis with larger development financing needs.

Investment imperatives

This points to the second collective-action challenge: providing developing countries with sufficient fiscal space to tackle the pandemic and embark on the sustainable investments needed to build green, resilient, and inclusive economies.

Even before COVID-19, the world was not on track to achieve the SDGs and meet the targets set by the 2015 Paris climate agreement. In 2021, the international community needs to devise a sound program of public investments, based on country-specific needs and current spending levels, in order to jump-start recovery efforts and enable longer-term progress on the 2030 Agenda for Sustainable Development.

Several financing proposals are on the table. Developing countries have received $150 billion in COVID-19-specific funding from the major multilateral development banks (MDBs), and another $100 billion in ongoing project financing. But much more is needed. G-20 finance ministers support an early conclusion of the World Bank’s IDA20 replenishment, as well as a new $650 billion allocation of special drawing rights (SDRs, the IMF’s reserve asset).

Because new SDRs would be distributed based on existing IMF quotas, which reflect countries’ relative economic importance, the bulk of them would go to advanced economies. There are thus concurrent proposals for a reallocation mechanism so that countries with excess SDRs can lend them to others in need of additional liquidity. The IMF’s Poverty Reduction and Growth Trust (PRGT), which has been used for this purpose before, is a potential vehicle. But because only low-income countries are eligible for PRGT funds, there would need to be other efforts to expand lending to middle-income countries.

Beyond one-off proposals designed to address immediate short-term financing difficulties, policymakers need to establish an international financing system that can support much higher levels of public investment in the medium term. MDBs are the natural vehicles for providing this finance, because they can offer better terms with longer maturities than other lenders, and they can combine loans with grants and technical assistance.

Moreover, the MDBs could increase lending by $750 billion to $1.3 trillion by making greater use of callable capital and tolerating more risk. They could also do more to mobilize private capital, both by using their guarantee authority and by developing platforms for blended financing in specific sectors. But these institutions need a strong push from major shareholders to be more ambitious.

Developing countries need financing for public-health spending, vaccine rollouts, and green investments. Much of it (except in the case of the poorest countries) will have to come in the form of debt, but this is getting more expensive for many. Given the need to avoid the debt-development trade-off, mobilizing additional development finance, especially for middle-income economies, and linking it transparently to sustainable investments are thus urgent challenges.

In 2020, policymakers focused on domestic recovery efforts. In 2021, they must invest in global collective action to avert a vicious cycle of debt and development distress.

Kategorien: english

City playbook for advancing the SDGs

6. Juli 2021 - 18:15

By Jeannine Ajello

This “City Playbook for Advancing the SDGs” compiles a series of how-to briefs and case studies on advancing sustainable development and social progress locally. These short, digestible, and practical briefs are written by city government officials for other city officials, based on their direct experience.

This playbook responds to significant appetite expressed by city leaders for capturing and sharing the “how” of innovations and practices to achieve the Sustainable Development Goals (SDGs) locally. These briefs come from cities participating in the Brookings SDG Leadership Cities community of practice and others to elevate innovations or processes with concrete positive outcomes for equity and sustainability. These best practices and tools help disseminate recommendations to a wider range of communities and stakeholders eager to play a pivotal role in achieving the 2030 Agenda.

Co-edited by Anthony F. Pipa and Max Bouchet, these briefs are published in collaboration with the global learning platform for government innovators We intend to add content to this collection on a rolling basis throughout 2021 and 2022.

If you’re using this playbook to apply an innovation locally or have questions or suggestions, please fill out this short survey.

This playbook is part of the Local Leadership on the Sustainable Development Goals project.

Kategorien: english

How should the G-7 respond to China’s BRI?

6. Juli 2021 - 12:56

By Howard W. French, David Dollar

When the leaders of G-7 countries met in Carbis Bay last month, they announced a new Build Back Better World (B3W) plan to support infrastructure projects in low- and middle-income countries and respond to China’s Belt and Road Initiative.

There are few details of exactly how the B3W partnership will work, and there are questions about whether focusing on infrastructure is the best way for the United States and its partners to counter China on the global stage. In this episode, Howard W. French joins David Dollar to discuss the challenges B3W will face and why the West would be better off competing in areas where it already has relative advantages.

Read more 

Leave Infrastructure to China and Compete Where the West Has More to Offer

Is a Belated Western Rival to China’s Belt and Road Too Late?

Seven years into China’s Belt and Road

Understanding China’s Belt and Road infrastructure projects in Africa


Kategorien: english

Middle-class lifestyles start with $ 10 per person and day

2. Juli 2021 - 19:39

By Homi Kharas

Kategorien: english

Protecting forests: Are early warning systems effective?

2. Juli 2021 - 19:07

By Eiji Yamada, Hiroaki Okonogi, Takahiro Morita

Forests play an indispensable role in bolstering biodiversity, supporting a stable climate, and providing sustainable livelihoods. Yet, the earth is rapidly losing its forests. In the last 30 years, the world has lost 180 million hectares of forest—greater than the total area of Libya. Forests, especially tropical rainforests, are often cleared by illegal operators to acquire open land for large-scale farming and mining operations, which poses a serious threat to global efforts to reduce deforestation.

Early detection is a critical element of deforestation control efforts. Artificial satellites have played a crucial role here. Using regularly updated optical satellite data, such as LANDSAT, which captures the reflection of sunlight from the ground surface, several early warning systems (EWS) for deforestation have been launched since the 2000s to provide timely information on forest changes for regulators and civil society groups. EWS are now widely used in tropical countries to monitor forest protection. The Global Land Analysis and Discovery (GLAD) laboratory in the Department of Geographical Sciences at the University of Maryland maintains one EWS with publicly available deforestation data. Unfortunately, there is a severe drawback to optical satellite data. As we discuss in our chapter in the forthcoming book “Breakthrough: The Promise of Frontier Technologies for Sustainable Development,” detecting deforestation by optical satellites is substantially harder during the rainy season when cloud coverage is high. This is a serious problem because most of the illegal destruction takes place during the rainy season in the Brazilian Amazon to avoid detection, according to the Brazilian regulatory agency for illegal deforestation.

One solution is to use “radar eyes” in place of “optical eyes.” Radar satellites capture the image of the earth’s surface by catching the reflection of radar waves that the satellite itself generates. These waves can penetrate thick clouds, allowing researchers to identify whether trees exist on land regardless of cloud coverage. Japan’s ALOS-2 radar satellite, for example, can detect 1.5 to 10 times more deforestation than optical satellites during the rainy season in the Amazon area (November to March). Building on these technological advances, a new EWS called JJ-FAST (JICA-JAXA Forest Early Warning System in the Tropics), utilizing the ALOS-2 radar data, was launched in 2016 to provide data on deforestation in tropical countries.

While radar-based EWS can capture deforestation more timely and accurately during the rainy season, has it reduced tropical deforestation? To answer this question, we look at data from the Brazilian Amazon, the only county to date which has used radar-based EWS for deforestation monitoring. We hope that the quantitative evidence provided here will motivate other countries to employ this method to help combat deforestation.

Figure 1 conceptualizes how radar satellite EWS can help prevent deforestation. Suppose there are two forest areas of similar size in the Amazon. In the last three months, say February to April, Area 1 and Area 2 had the same amount of deforestation, measured by area, according to optical data (GLAD). However, images provided by radar data (JJ-FAST) indicate that Area 1 had more extensive deforestation than Area 2. When forest agencies analyze the data, Area 1 is likely to attract more attention, which means that the illegal operators in Area 1 face a higher probability of arrest, incentivizing illegal operators to stop logging and escape. As a result, the deforestation of Area 1 should be smaller in May. Therefore, if radar-based EWS reduces deforestation, there should be a negative correlation between the amount of deforestation detected by radar (JJ-FAST) and deforestation in the subsequent months.

Figure 1. Early warning systems and legal enforcement

Source: Authors

Our data comes from three raster images covering the Brazilian Amazon in 2019—monthly radar data (JJ-FAST), monthly optical data (GLAD), and average monthly cloud cover.

Figure 2.1. GLAD Alerts raster image

Figure 2.2. JJ-FAST raster image

Note: Two images above show the raster data of deforestation by GLAD and JJ-FAST for the same part of the Amazon in February 2019 (rainy season). Cells with darker colors contain larger detected deforestations.
Source: Authors

To investigate whether we can observe a statistically significant negative correlation between the deforestation detected by radar satellite and the deforestation in the following month(s), we estimate the following equation using OLS (ordinary least squares):

Where Yjt is the deforestation area in cell j in month t, reported by GLAD. JJjs is the deforestation detected by the JJ-FAST in the month of s in cell j. GLADjs is the deforestation recorded by GLAD. CLOUDjt is the cloud coverage. Our coefficient of interest is β, which is the correlation between JJ-FAST’s deforestation during three preceding months of t and Yjt. If β is negative and statistically significant, this means that the cells with higher deforestation recorded by JJ-FAST in the past three months have systematically lowered the deforestation record in the current month.

Table 1 reports the results. In sum, we observe that JJ-FAST monitoring significantly reduces deforestation in the Brazilian Amazon. The first column shows the results of the OLS estimation. As expected, the estimate on the effect of cloud coverage, δ, is negative and significant, indicating that higher cloud coverage is associated with a lower record of deforestation by GLAD. The estimate of β implies that a 1 km2 increase in deforestation, as detected by JJ-FAST, in the preceding three months reduces deforestation in the current month by 0.024 km2. To confirm the robustness of these results, we also report fixed effects results at the cell in the second column. With the fixed-effect estimation, the magnitude of the impact of JJ-FAST increases to 0.120.

Our quantitative investigation suggests that radar based EWS effectively reduces deforestation in the Brazilian Amazon. Although further analysis using data from other geographies is needed, our results highlight the important role new technologies can play in protecting global public goods.

Kategorien: english

Capturing Africa’s insurance potential for shared prosperity

2. Juli 2021 - 16:39

By Landry Signé

Among the drivers of economic growth and development in emerging countries, insurance is often overlooked in favor of flashier sectors like technology or infrastructure. In fact, though, insurance is a behind-the-scenes factor driving growth at all levels of society, from family life to massive infrastructure projects to technology development. As discussed in my new report, expanding Africa’s lucrative insurance market may be key to creating inclusive prosperity in the region.

Notably, increased penetration rates for insurance throughout African markets are directly connected to Africa’s overall development: Indeed, as Das, Davies, and Podpiera (2003) show, insurance can have positive effects on growth through six mechanisms: improving financial stability for businesses and households; mobilizing savings for public and private investment; reducing pressure on the government to provide public goods such as pensions; encouraging trade and entrepreneurship; mitigating risks and enhanced diversification; and improving social living standards. Other scholars have identified insurance premium thresholds associated with positive economic growth in Africa. Studies of Rwanda’s Universal Health Coverage (UHC) found that increased enrollment was accompanied by higher utilization of health facilities as well a higher presence of skilled-birth attendants.

Expanding Africa’s lucrative insurance market may be key to creating inclusive prosperity in the region.

Despite these advantages, Africa’s aggregate insurance penetration rate in 2019 was only 2.78 percent, compared to the global average insurance penetration rate of 7.23 percent. With increased entry, participation, and expansion from traditional insurance companies and new microinsurance companies (as well as reinsurance companies), the potential for growth across the continent is immense. Recent disruptive events—including an increasing number of natural disasters, political upheavals, and economic disruptions from current and future pandemics—will continue to increase demand and foster rapid growth throughout this sector, particularly of digital insurance platforms.

What does Africa’s insurance market look like now?

The insurance sector is comprised of three subcategories: life insurance, nonlife insurance, and reinsurance. African countries have grown in each of these market segments at varying paces, following their own diverse growth patterns. For example, South Africa’s market is dominated by life insurance premiums, while other countries, like Kenya, Nigeria, and Tunisia, have a much higher volume of nonlife insurance premiums than life ones.

These patterns are suggestive of future trends and point to vast, untapped markets for companies seeking to deliver insurance products that are both affordable and well suited to the mass market. Indeed, just five countries house about 84 percent of the estimated $68.15 billion total value of the continent’s insurance market. South Africa is the leader with about 70 percent of the total market share, followed by Morocco, Kenya, Egypt, and Nigeria. In most other African markets, though, the penetration rate remains below 2 percent.

More specifically, life insurance market penetration has been slow because of the demand for specialized risk-management capacities and heavy investment in security and information gathering, which has left the sector fragmented and dependent on foreign investment. Five countries (South Africa, Morocco, Namibia, Kenya, and Egypt) comprise 92 percent of the life insurance market on the continent. Although McKinsey expressed concern about South Africa’s life insurance market losing ground given the COVID-19 crisis, low market penetration combined with expected increased consumer and business spending by 2030 will continue to create plenty of opportunities in less developed markets across the continent.

Key to the sector’s growth and expansion is the region’s rapidly growing middle class, who can particularly find greater household stability with life insurance. As this segment of the population becomes increasingly aware of the value insurance provides to their households and businesses, they will be more inclined to spend more of their disposable incomes on insurance: In fact, according to an Ernst and Young 2016 survey of African insurance companies, increased earnings in households and businesses were the leading driver of increased insurance premiums.

The pandemic affords an opportunity in the form of consolidation: Unsustainable and inefficient players may be forced out of the market, facilitating innovation, healthy competition among thriving companies, and better coverage. Other experts suggest that commercial insurance for businesses will outpace the growth of individual insurance coverage over the next year, partly because of increasing reinsurance rates. The pandemic has also accelerated the digitalization of local insurance companies, opening the door for a more accessible and inclusive insurance industry in the long term, which could be fostered by a conducive policy environment.

Technology adoption and innovation are the keys to growth in the African insurance industry. Microinsurance could also change the name of the game, as it can reach Africa’s rising middle class through small-scale, low-cost, low-risk products. MicroEnsure, which partners with telecommunications firms, is an example of a successful microfinance venture that offers basic health and life insurance coverage through a free add-on to customers’ existing mobile phone services. Furthermore, micro-health insurance products like Jamii have also entered the market, bringing affordable coverage to low-income populations. Similarly, health financing has been radically changed by mobile and online platforms: M-Tiba facilitates digital management of both public and private health insurance policies through partnerships with governments and providers.

Policy recommendations for managing risks

Recognizing the role the insurance market can play in development, African governments are also working to improve the regulatory climate for insurance investors. Diversification, partnership, and cross-collaboration among insurers and banks is the foundation required to create economies of scale and increase revenues for both sectors. These partnerships, coupled with accelerated digitization to online and mobile platforms, have the potential to increase cost efficiencies and profit margins throughout Africa’s insurance sector—completely transforming the insurance industry.

Africa’s underdeveloped insurance market represents an opportunity both for players in the insurance sector and for African societies in general.

While opportunities abound, there are also risks and challenges for the industry to overcome, including COVID-19 and future pandemics; a decentralized cross-country market with regulatory barriers; gaps in regulatory enforcement; a shortage of technical human capital; low demand for insurance; and market volatility. Thankfully, investment mitigation strategies can help overcome these hurdles: For example, companies will need to invest in both human capital (training and developing qualified staff) and information technologies, adapt to trends in the market, and pursue innovative strategies. Partnerships between companies need to be focused on improving product differentiation, working with government to fill regulatory gaps and barriers, and increasing product awareness in the marketplace.

Africa’s underdeveloped insurance market represents an opportunity both for players in the insurance sector and for African societies in general. The first credible and convenient insurance providers will reap enormous rewards as this sector develops—becoming pioneers in the region. Moreover, African households and businesses can benefit from the reduced risks and increased stability that insurance products can provide.

Kategorien: english