Manal al-Sharif: Empowering Women with the Roar of an Engine

Ms Manal al-Sharif was filmed in the commission of a crime as she was driving down the road. In fact, her driving of a motor vehicle constituted the offense. Ms Al-Sharif was driving in Saudi Arabia. The video of the outlaw was posted on YouTube and Facebook as part of the Women’s Right-to-Drive campaign; attracted close to a million views in the first few days; and resulted in Ms Al-Sharif (34) being duly arrested.

The place and role of women in Saudi society is determined by a conservative culture, vindicated by a narrow interpretation of religion, and enforced by law. A Saudi woman’s proper place would seem to be at home, subservient to – and legally dependent on – her male guardian.

There is but one place where Saudi women may escape marginalization and oppression: The virtual online world. The Internet has a delightfully corrupting effect in Saudi Arabia, as well as in other authoritarian societies, facilitating dissent by enabling the free, unencumbered flow and exchange of information.

“The struggle is not about driving a car. It is about being in the driving seat of our own destiny.”

The Right-to-Drive movement – inspired by the Arab Spring – calls on Saudi women to make a bold statement by getting behind the wheel of a car. Women drivers are asked to disseminate their acts of motorised defiance through Twitter, Facebook or any other of the social media.

At the time of her descent into delinquency, Ms Al-Sharif was employed as an Internet security consultant for Saudi Aramco. Ms Al-Sharif’s little drive landed her promptly in jail. She spent nine days behind bars for “inciting women to drive” and “rallying public opinion”. In June 2011, some fifty women took to the road in a sign of support for Ms Al-Sharif. One of the lady drivers was even issued a traffic ticket – the first woman to ever receive such recognition in Saudi history.

Saudi Arabia is an absolute monarchy and legislation comes into being by royal decree. However, all laws and executive decisions must comply with Islamic Sharia Law. A body of Islamic jurists and religious scholars – the Ulema – is charged with interpreting the Quran as a touchstone for any new legislation. Since most religious laws and customs are, in fact, unwritten, Ulema judges usually decide to uphold tribal customs instead.
Whether something is against the law or not often turns out to be a moot point in Saudi Arabia. If the Quran does not address the subject directly, the clerics will want to err on the side of caution. Women driving motor vehicles is such a subject.

Following a dispute over a trip to Norway where she received the Václav Havel Prize for Creative Dissent, Ms Al-Sharif was summarily fired from her job. However, Ms Al-Sharif remains the spokesperson for the Women’s Right-to-Drive movement even though she now lives, works and indeed drives, in neighbouring Dubai.

Compared to the many other injustices faced by Saudi women, fighting for the right to drive a car may seem a trivial pursuit. However, to someone expected to stay at home, the freedom driving brings is not short of exhilarating and empowering. Driving a vehicle allows women to access jobs otherwise unavailable and go about their daily routines independently and unchaperoned. Nothing adds greater weight to calls for equality than the roar of an engine.


Warren Buffett: Common Sense Billionaire - Please Tax Me More

The wizard, oracle or sage from Omaha: The world’s richest inhabitant, Warren Buffett (83), has been awarded a great many honours and names. However, Great Storyteller is the one that possibly describes him best.

Mr Buffett has a way with words and is able to effortlessly boil down highly complex financial data to plain, and at times witty, English. This bespeaks of a great, but also nimble, mind that grasps the essentials and rejects the superfluous fluff. It made him billions of dollars: $58bn, in fact.

Whenever Mr Buffett speaks or writes investors the world over pay close attention. Each year, some 20,000 of them embark on a financial pilgrimage to Omaha, Nebraska for the annual Berkshire Hathaway shareholder meeting to hear the company’s chairperson and CEO speak. Jokes, wordplays and off-the-cuff remarks are carefully dissected and thoroughly scrutinized in an attempt to find clues about the inner workings of Mr Buffett’s profitable mind.

However, common sense – consistently applied in liberal doses – would suffice for success: Mr Buffett just seeks out value in companies other investors have failed to appreciate. This is how he got his first break. In 1958, the then 28-year old graduate from Columbia University used his savings, and those of eleven partners, to buy the Sanborn Map Company at $45 per share. Mr Buffett later explained that he had valued the Sanborn investment portfolio at about $65 per share: “We got hold of assets at a steep discount with a map company thrown in for free.”

By 1962, Warren Buffett had become a millionaire. In that same year, he started buying shares in the Berkshire Hathaway textile company which he took over in 1965. It was to become his main investment vehicle and the holding company of future acquisitions. Over the next 48 years, Berkshire Hathaway was to enjoy an average annual growth of 19.7%, expanding its revenue to over $162bn (2012), controlling assets worth an estimated $430bn, while employing close to 290,000 people globally.

Famously, Mr Buffett kept his legendary cool throughout. He never moved away from his hometown of Omaha and still lives in the house he bought his family in 1957 for $31,500. Mr Buffett pays himself a base salary of $100,000 plus bonuses amounting to another $70K or so. He doesn’t believe in dynastic wealth and promised to leave 99% of his worth to charity upon his death. The giving has already started with the Bill and Melinda Gates Foundation receiving the largest donation in history valued at over $30bn in 2006.

Somewhat of a progressive in politics, Mr Buffett vociferously complained about his taxes being too low, noting that the federal government claimed only 19% of his earnings while most of his employees had to face a 33% rate on their much lower incomes. Mr Buffett went on to admit that the US is embroiled in class warfare: “But it is my class, the rich class, that’s making war. And we’re winning.”


IFC Champions Water Efficiency in China’s Textile Industry

China’s vast textile industry is a boon to the country’s economy, but consumes high volumes of water. This is a problem at a time when water pollution keeps deteriorating in China, with increasingly less clean water available for households, industry, and agriculture.

China produces around half of the world’s textiles and its exports are worth more than $200 billion per year, but the textile industry also uses three to four times more water than its counterparts in developed countries. Meanwhile, household water levels are suffering: China has about 1,730 cubic meters of fresh water per person, close to the 1,700 cubic meter-level the United Nations deems “stressed.”

In response, IFC is implementing an industrial water-efficiency advisory program in China and the textile sector is its first target. While the Chinese government and market pressures have strongly promoted energy efficiency, attempts to improve water efficiency have been hampered by low tariffs, lax enforcement of water quotas and a lack of awareness about the need to conserve resources in a country where water costs up to 20 times less than in developed countries.

Textile companies believe saving water will not improve bottom lines, so IFC is working to demonstrate the business case for saving water and develop water-efficiency projects. Similar to IFC’s water-efficiency program in Bangladesh, the China program shows factories how to cut production costs by saving water and energy, and make their businesses more competitive. The program has already identified about  47 cost-effective projects that can save more than 15 million cubic meters of water per year through water metering, process automation, using more efficient dyeing machines and chemicals, recycling wastewater, and other measures.

"This gets further complicated because the macro environment of low water tariffs and weak enforcement does not really encourage industry to voluntarily spend money to reduce water use."

“The large textile dyeing and printing sector in China is very exposed to water shortage risks, but these are not yet fully appreciated,” said Navneet Chadha, IFC’s principal operations officer, based in Beijing. “This gets further complicated because the macro environment of low water tariffs and weak enforcement does not really encourage industry to voluntarily spend money to reduce water use. Promoting water-efficiency projects is not simply about changing hardware, it also requires changing mindsets, which is much harder to do. We hope that the water-efficiency pilot projects that we have developed so far are a good start."

IFC is helping develop and finance these projects with support from Bank of Beijing in four leading textile-producing provinces: Jiangsu, Zhejiang, Shandong, and Guangdong. Several participating textile mills were nominated by global clothing brands concerned about the sustainability of their supply chain in China, while other mills mainly serve the domestic market.
The water advisory program eventually aims to develop $50 million in water-related capital investments, while some of the smaller projects will be financed by the factories themselves.

The program is focusing on building scale, and discussions are underway with more global brands, clean-technology-equipment vendors, energy-service companies, and nongovernmental organizations to find new areas for collaboration.

IFC is also beginning to work with provincial government authorities to promote sustainable economic growth for local businesses and address water shortage and quality problems using policy strategies such as enforceable water quotas.

With stories about China’s growing water shortage problems appearing almost daily in the media, these projects could help build the momentum needed to spur fundamental change in China’s water-efficiency efforts. Watch this space.

Source: IFC


EPC: A New Deal for Growth and Jobs in the Eurozone Revisited

By Fabian Zuleeg

At the EPC breakfast on 28 January, IMF Managing Director Christine Lagarde will launch a book on Jobs and Growth: Supporting the European Recovery[1], containing detailed policy analysis and recommendations. The book is a further sign that there is now wide-spread recognition that it is high time for Europe to take more action to deliver jobs and growth.

The Need to Focus on Growth and Jobs

With the immediate ‘euro crisis’ subdued by the substantially reduced danger of a country exiting the euro area, the actions of the European Central Bank (ECB) and a range of policy actions, including progress on the Banking Union, the EU and its members need to think more about the real economy. While there are undoubtedly flaws in the European Monetary Union’s (EMU) new governance structure and further steps are still needed (with complacency a real danger), the risk/threat of immediate and catastrophic collapse is off the table. This creates the much needed space to deal with Europe’s dual growth crisis: low aggregate growth and a divergent economic performance of some countries, which are falling further and further behind.

The need to focus on the real economy is a political and economic imperative if the EU wants to avoid getting trapped in a low growth/high debt scenario with deflationary tendencies, which would also imply, at best, a stagnating labour market. Not only would this be a loss of economic potential and a human tragedy for those trapped in unemployment but it would also favour political forces that will undermine European integration – as will be demonstrated by the populist anti-EU/euro vote for the European Parliament.

The Current Crisis Recipe

What can be done? So far, there has been a strong emphasis on fiscal consolidation and structural reform, with an asymmetric adjustment mostly carried out by the countries in crisis. This is not to say that there has been no support: the European Financial Stability Facility / European Stability Mechanism, the IMF and indirectly the ECB have provided plenty of support. However, the focus has been ensuring that countries can continue to meet their debt obligations and to ensure the stability of the financial system, rather than boosting economic growth. Of course, many have rightly argued that a stable macro-economic and fiscal environment with deficits under control creates conditions for growth and that reform of the financial sector is an essential step towards restoring bank lending which is crucial for investment. But while these actions are clearly necessary, they are not sufficient to restore growth.

"So far, there has been a strong emphasis on fiscal consolidation and structural reform, with an asymmetric adjustment mostly carried out by the countries in crisis."

Ideally, structural reform should boost growth in the longer term. By removing product and labour market imperfections there will be a greater incentive to invest and employ. However, this does not necessarily happen: many structural reforms are, in reality, merely public spending cuts without a long term growth-enhancing effect. But even if these reforms are effective in raising the level of growth, they usually take a long time to work, especially with respect to employment. And if there is an absence of labour demand in the economy or a lack of available and affordable credit for private investment, even painful reforms might not bring the desired effect.

What remains? Monetary policy is another key factor, with the ECB continuing its low interest rates, as well as signalling that monetary policy will remain loose for some time to come. While the ECB is considering a more active stance, such as buying up packages of bank loans, it is difficult to imagine much more being done, given the institutional limitations of the ECB and the current political debate, especially in Germany. Tolerating higher inflation and European-style quantitative easing are likely to be a political step too far.

Improving export performance could help, and to some extent is already happening, with countries in crisis improving their external economic balance, albeit in some cases through import compression rather than better export performance. But becoming more balanced alone will not provide a positive growth impulse, especially if there is no adjustment towards a greater focus on domestic demand in the strong export-surplus countries, which is unlikely given their strong political resistance.

EU Actions: Effective and Sufficient?

In the long term EU actions can help. But, even if effectively implemented, most growth-enhancing actions often mentioned at EU level, be it trade deals, such as the Transatlantic Trade and Investment Partnership (TTIP) with the US, regional funds, industrial policy, further development of the Single Market or the digital agenda, will take time to implement and even longer to impact on growth. In addition, they are also likely to benefit mostly the strongest economies, which have the economic structures to maximise returns from more open and developed markets and can also access support more effectively.

The 2013 Compact for Growth and Jobs is supporting the recovery through, for example, the expansion of lending activities for the European Investment Bank (EIB) but the reality is that implementation is too slow and there is little in terms of new growth impulses. There is no convincing answer to the problem of high unemployment, particularly youth unemployment, risking the credibility and long-term stability of EMU. The Youth Guarantee has too little funding underpinning it and there are serious doubts about its practical implementation, especially in countries in crisis. In the end, only a recovery in growth can boost employment levels.

A New Deal for the Euro

It is time to revisit the idea of an EU-wide plan to boost growth: as the EPC has termed it, a New Deal for the Euro[2]. This could include a dedicated investment fund – a new Stability and Growth Fund (SGF) of around 0.5% of EU GDP, aiming specifically to deliver investment for growth in countries unable to make the necessary investments themselves. Funds from the SGF would not be a bail-out but long-term investment – not a transfer union, but an ‘investment union’. Such an ambitious public investment programme should go beyond current plans for frontloading European Structural and Investment Funds, project bonds and the Connecting Europe Facility. More public investments financed by euro-infrastructure bonds and new financial instruments should be complemented by boosting private investment, including through a European Investment Guarantee Scheme (EIGS)[3] to provide a form of insurance for excessive risks incurred when investing in crisis countries. The EIGS would create investment opportunities and help to boost sustainable growth and employment in Europe’s periphery, addressing the direct consequences of the crisis.

Of course such a New Deal would not come for free and additional money would need to be found. This will not be easy, especially since it will be difficult to reallocate any part of the EU budget now that the overall framework has been agreed. But the ongoing discussions around the fiscal capacity for the Eurozone could be an opening, if the willingness exists to see this funding as a means of investment rather than an instrument to incentivise structural reform.

A New Confident Beginning

Such a New Deal based on investment would help all of Europe. While targeted especially at crisis countries, it would also create opportunities for companies across the EU and attract global and European investments from pension funds, helping them to reallocate their investments more profitably, from companies which have amassed significant unused funds, and from globally mobile capital, which is looking for safe returns.

Most importantly, such a plan could create confidence in the EU’s longer-term future, triggering investment and consumption and thus truly setting Europe on a path of sustainable recovery. An ambitious New Deal could be Europe’s ‘Befreiungsschlag’ – a decisive move to create a new economic trajectory. However, to do this, a New Deal must go beyond small-scale action and repackaging of existing initiatives. Despite the positive long-term impacts structural reforms and policy initiatives may have, without such decisive short term action Europe’s recovery might never get off the ground, with economic, social and political consequences which would undermine the European integration project and peace and prosperity in Europe for years to come.

About the Author

[caption id="attachment_6428" align="aligncenter" width="275"] Fabian Zuleeg[/caption]

Fabian Zuleeg is Chief Executive of the European Policy Centre (EPC).

Disclaimer: The views expressed in this Commentary are the sole responsibility of the author.

References

[1] www.imf.org/external/np/seminars/eng/2014/EURbook/index.htm

[2] Janis A. Emmanouilidis and Fabian Zuleeg, ‘A New Deal to help save the euro’, 10 May 2011; www.epc.eu/prog_details.php?cat_id=4&pub_id=1277&prog_id=2

[3] Fabian Zuleeg, ‘Squaring the circle - A European Investment Guarantee Scheme (EIGS)’, 14 March 2013, www.epc.eu/pub_details.php?pub_id=3400&cat_id=4

 A new deal for growth and jobs in the Eurozone revisited


World Bank Group: Spurring Job Growth in the Western Balkans - Research and Innovation

By Paulo Correa and Christopher Colford

[caption id="attachment_6442" align="alignright" width="255"] The Mimara Museum, Zagreb, Croatia[/caption]

Promoting economic growth and job creation requires innovative industries that can make imaginative use of business opportunities springing from new technologies and research and development (R&D) activities. But not every economy can develop a Silicon Valley or a Silicon Roundabout – and some countries and regions have been slower than others in fostering an economic ecosystem that can inspire innovation and enliven economic growth.

Yet a newly agreed-upon strategy for R&D investment and scientific collaboration – uniting the innovative resources of most of the post-Yugoslav countries and some of their nearby neighbours – holds the promise of strengthening technology investment and boosting employment in the Western Balkans.

The region desperately needs new sources of growth and job creation. The global economic crisis hit the Western Balkans especially hard, revealing the structural limitations of a model based on the expansion of domestic demand with little trade integration and stagnant productivity. Youth unemployment is particularly dire – often more than double the overall national rates.

Seven nations of the Western Balkans marked a milestone moment on October 25, 2013: An imaginative pro-growth, pro-innovation agreement was signed in Zagreb, Croatia by the seven governments’ ministers responsible for science and education. For the first time, the countries adopted a common strategy on how to jointly address the challenges of the region’s potentially powerful science, research and innovation sectors.

The economic momentum generated by the new Western Balkans Regional R&D Strategy for Innovation could prove to be transformative for a region that, in recent times, has been fragmented into small and sometimes warring territories. The seven countries that adopted the strategy – Albania, Bosnia and Herzegovina, Croatia, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro and Serbia – are now poised to jointly increase their investments in R&D and science, and to create closer connections among their universities, private-sector research facilities and entrepreneurial start-up companies.

"The R&D strategy will improve both the research base and the conditions for research excellence in the Western Balkans."

“The R&D strategy will improve both the research base and the conditions for research excellence in the Western Balkans – thus slowing the brain drain and supporting the brain gain; promote the research-industry collaboration and technology transfer; enable business investments in research and innovation; and, strengthen the governance of national policies with appropriate regional technical assistance facilities,” said Goran Svilanović, secretary general of the Regional Cooperation Council, at the signing ceremony in Zagreb.

The Zagreb event marked the culmination of a two-year process of consultations and negotiations, as the seven countries considered the innovation initiative – developed with technical assistance from the World Bank and the financial support of the European Commission. The innovation strategy gives new impetus to the efforts of young companies and ambitious entrepreneurs who have already started building a different economic landscape for the region – helping liberate the economic energies that have long been restrained by regional fragmentation.

The region’s difficult post-Yugoslav transition to a market economy has severely impacted the research and innovation sectors of the Western Balkans. Research capacity narrowed, and its links to the productive sector of the economy withered. Industry suffered from lower investment in research, while the business environment offered little promise of profitable investments in innovation. Efforts to revamp the research sector were often halting and short-lived.

[caption id="attachment_6446" align="aligncenter" width="582"] Figure 1[/caption]

The emigration of large numbers of scientists and engineers during the 1990s was one of the dramatic events for the region’s research sector. For example, according to a survey of more than forty research institutions and ten public universities in Albania, about half of all lecturers and researchers left the country between 1991 and 2005. With the exception of Croatia and Serbia, where these trends seem to be reversing, this brain drain may seriously damage the future of the Western Balkans’ research and innovation capacity.

Stark numbers illustrate the region’s plight. In recent years, the entire region’s level of investment in R&D has been roughly equal to that of just a single major university in the United States. Figure 1 plots the current and expected per capita levels of research and development in the Western Balkans, illustrating the region’s research gap. At the same time, very few investments have effectively generated wealth: For each invention in the Western Balkans that received a patent, the region had to spend, on average, three times more in R&D resources than the United States does.

Building on a continuing series of efforts to reform their national innovation systems, the Western Balkan countries in 2009 began developing their joint approach to a research and innovation strategy. The Sarajevo Ministerial Declaration of 2009 was the basis of the strategy signed in Zagreb in 2013.

After wide-ranging consultations among the region’s leading universities, research institutes, private-sector firms and government agencies, the seven participating countries have now, in effect, undertaken a science and research reform and investment programme that will unite the innovative resources of the entire region.

The programme’s primary objectives are raising research excellence and productivity; reinforcing the bonds between science and industry; encouraging investments in science from the private sector; and promoting better governance of sector policies and programs.

The ultimate goal is to spur growth and the creation of job opportunities – thus boosting shared prosperity, which is one of the central goals of the World Bank Group in its work with developing countries worldwide.

The vision for the Western Balkans initiative is not just to spend wisely on science, research and innovation, but also – simply – to spend more. The seven countries have committed to a regional target of committing 1.5% of GDP on R&D by 2020.

"The ultimate goal is to spur growth and the creation of job opportunities – thus boosting shared prosperity, which is one of the central goals of the World Bank Group."

That target may be too ambitious for some of the region’s smaller and more fragile economies, individually; however, increased investment by the larger economies will help achieve the region-wide 1.5% target. Yet all seven countries are convinced that more and better investments in research and innovation will be critical to the region’s future economic strength.

This comprehensive approach to research and innovation will also bring the sector closer to the European Union, easing the accession process in which most of the countries are still involved. It will spur the development of new, dynamic and globally oriented firms like the young companies UXPassion, Pet Minuta, Strawberry Energy and Teleskin – all technology-based start-ups founded by young researchers who became entrepreneurs. These businesses are now starting to change the Western Balkan’s economic landscape.

Croatia, the latest country to complete the accession process, joined the EU on July 1, 2013.

“Fostering regional cooperation is the greatest contribution that the Republic of Croatia can provide to the policies on which the European Union was founded,” said Željko Jovanović, Croatia’s Minister of Science, Education and Sports at the October ceremony in Zagreb.

“Croatia sees this cooperation – as well as that of European Union membership of all countries in the region, once the relevant criteria are met – in its national interest for the long term and as a foundation for its own security and development. We believe that we can be constructive in this regard, and that we can be true friends to all who are oriented toward promoting the values of the great project of European unity.”

Initially, the Western Balkans countries will jointly pursue four programs:

A research excellence fund to promote collaboration among Balkans-born scientists who have migrated overseas – as well as those who remain in the region. The fund will also support young researchers;

A programme to develop networks of excellence that promote the rationalization of research infrastructure and foster the concentration of resources in areas consistent with regional ‘smart specialization’;

A programme to help the countries promote collaboration between science and industry and to foster technology transfer; and

A start-up programme to provide financing and mentoring services at the early stage of the innovation process.

As both a practical venue and a historically symbolic centre for the regional effort, the programme will create a platform – the Western Balkans Innovation Strategy Exercise (WISE) facility – to promote continued policy dialogue, training and assistance on the oversight of its projects. In a poignant symbol of the past and future unity of Europe, the WISE facility will be located in the coastal Croatian city of Split – and will be housed within a UNESCO cultural heritage site: The renovated palace of the Roman Emperor Diocletian, the economic and administrative reformer who reigned from 284 to 305 AD and who retired to Split (then called Spalatum) after becoming the only Emperor ever to voluntarily retire from office.

By working together, the seven Western Balkan countries expect to benefit from the synergies of their shared history, heritage and geography. They also expect to serve as a sort of regional advocacy coalition to encourage the advancement of pro-growth reforms at the national level. The countries have pledged to mobilize EUR200 million over the next seven years to finance the implementation of the initiative.

Economic growth and job creation are the immediate goals of the Western Balkans initiative – and one of its outcomes may be greater stability and stronger security in that once-war-torn region. Envisioning shared prosperity, the scientists and entrepreneurs of the Western Balkans – backed by supportive governments in a new partnership reaching across national boundaries – are ready to build a thriving new Balkan future, based on the region’s historic strengths in science, innovation, enterprise and entrepreneurship.

About the Authors

[caption id="attachment_6450" align="aligncenter" width="150"] Paulo Correa[/caption]

Paulo Correa is a lead economist in the Financial and Private Sector Department of the Europe and Central Asia Region of the World Bank. Prior to joining the bank, Mr Correa served for four years as deputy secretary of state at the Ministry of Finance in Brazil.

[caption id="attachment_5165" align="aligncenter" width="146"] Christopher Colford[/caption]

Christopher Colford is a communications officer at the World Bank’s Financial and Private Sector Development Network. Mr Colford was previously a consultant at Hill & Knowlton Public Affairs Worldwide and a senior editor at McKinsey & Company.


José Piñera Echenique: Robbing the State of Its Piggy Bank

Chile owes a debt of gratitude to the Piñera family. This debt may not always be universally acknowledged but most Chileans would readily agree that the Piñeras have played a key role in the country’s politics and economics over the past sixty odd years.

Sebástian Piñera is the current president of Chile. His brother Pablo sits on the board of directors of the country’s Central Bank after having been president of Banco del Estado – the single state-owned commercial bank in Chile. Another of the Piñera scions, Miguel, made a name in show business and assumed the part of black sheep, ever so often landing in trouble. The family also boasts a bishop, a score of diplomats and a few noted academics.

However, it is one of the lesser-known Piñeras who left the most indelible of imprints on Chilean society. In the early 1980s, José Piñera Echenique was instrumental in the revamping of Chile’s underfunded and close-to-defunct retirement system.

As Minister of Labour and Social Security, José Piñera – together with his colleague at the Ministry of Finance, Hernán Büchi (see our cover story) – designed and implemented a radically new model of retirement financing centred on privately-run pension funds, taking the state out of the equation.

In a few years’ time, this model – simplicity itself – became the foundation upon which Chile’s ensuing economic prosperity was built. The pension funds – their deposits now safe from being raided by the insatiable state – soon provided a steadily increasing stream of funds that made the erstwhile dormant Santiago Stock Exchange into a vibrant hub of domestic finance and a dependable, and generous, provider of capital to Chilean business.

Economists the world over marvelled at the edifice José Piñera and Hernán Büchi planned and erected. Through its pension funds, Chile became one of the very first emerging economies to power its own, accelerated development via a domestic capital market. Other countries – such as the UK – took note and borrowed elements from the Chilean model for their own pension system reforms.

While at the head of the Ministry of Labour and Social Security, José Piñera also successfully privatized health insurance, redefined the role of labour unions and opened the mining sector to private operators and investors.
Though participating in a government ultimately run by the military, José Piñera frequently gave voice to his liberal leanings. In 1981, he famously and successfully intervened to safe labour leader Manuel Bustos from being sent into exile. During and after his time as minister, Mr Piñera published more than seventy articles and essays critical of the military junta’s human rights record and as such became one of the few dissident voices the censors did not dare silence.


PwC, South Africa: Entertainment & Media in Africa - On the Move, Changing Shape & Going Mobile

[caption id="attachment_6464" align="alignright" width="246"] Author: Vicki Myburgh[/caption]

Digitisation and mobile access are changing the landscape of the South African entertainment and media industry. In South Africa, as in other markets worldwide, consumers’ access to entertainment and media content are being democratised by the expansion of the Internet and the explosive growth in smart devices, according to a report recently issued by PwC.

South Africa’s entertainment and media market (E&M) is set to grow at a compound annual growth rate (CAGR) of 10.9% over the next five years, one of the highest in the world. Even though traditional, non-digital media will continue to dominate overall E&M spending in South Africa over the same period, much of that growth is expected to come from digital. The E&M market is also expected to generate overall revenue of R175 billion in 2017.

The fourth edition of PwC’s South African Entertainment and Media Outlook Report presents historical data for 2008 to 2012 and provides annual forecasts for 2013 to 2017 in twelve entertainment and media segments. The outlook includes historical and forecast data on the Internet, television, filmed entertainment, radio, recorded music, consumer magazine publishing, newspaper publishing, consumer and educational book publishing, business-to-business publishing, out-of home advertising, video games, and sports. It gives a detailed breakdown of these sectors.

“Aside from the Internet, the fastest growth is expected to also be seen in the video games segment.”

This year, for the first time, the outlook includes detailed information for Nigeria and Kenya in each of the twelve industry segments.

Mobile Users’ New Profile

Revenue from Internet access is expected to enjoy strong growth, increasing from R19.8 billion in 2012 to about R59.6 billion in 2017, at a CAGR of 24.7%. Mobile Internet access will form the bulk of this growth (if mobile Internet access is removed, then the CAGR falls to 5.9%) and growing mobile Internet penetration will help to drive growth in other segments.

The changes in the E&M sector in South Africa are predominantly affecting four groups of stakeholders: Consumers, advertisers, content creators and digital distributors. Led by the burgeoning middle class, South African consumers will continue to increase their spending on E&M as they migrate towards digital and, increasingly, mobile consumption across an expanding array of devices. Our research shows that the new mobile user is likely to be very different from the past: He or she will be poorer, younger, less educated and unlikely to have access to fixed broadband. Many African consumers tend to use their mobile devices for the purpose of entertainment, accessing information or transferring money.

This means that the quality of the customer experience will change from concerns around network congestion and coverage, to speed of the Internet, as well as the relevance of services on offer. The economy as a whole will benefit from mobile penetration.

According to the World Economic Forum’s Global Information Technology Report, 2013, a 10% increase in mobile penetration can lead to a 1% rise in low to medium income GDP. Similarly, research conducted by the World Bank has found that a similar increase in broadband penetration results in a 1.4% increase per capita GDP growth in developing countries. This may explain why there has been a concerted effort by policy makers to accelerate digitisation across many markets in Africa.

Smart Devices

Smart devices, including smartphones and tablets have also changed the way consumers access content and the way in which advertisers engage with them. Aside from the Internet, the fastest growth is expected to also be seen in the video games segment, states the outlook. Growth here will largely be driven by mobile gaming. Mobile gaming will be focused on smartphones, with tablets remaining a largely untapped market in the short-term due to their high purchase cost.

Revenue from filmed entertainment will also grow due to increased Internet access, with electronic home video (including box office) reaching R1,544 million in 2017 and accounting for 66% of the home video market (up from R816 million) in 2012 and 49% of the home video market. Over-the-top video services, which deliver video content by way of the Internet, are expected to become an important part of the filmed entertainment market in the next five years, despite broadband penetration remaining below 20%.

The survey shows that advertising accounted for 31% of revenue in the South African E&M industry, having fallen from 32% in 2008. This proportion is expected to continue to fall until 2017, when only 26% of revenues will come from advertising. This fall will take place largely due to expansion within the entire market.

The study shows that overall digital advertising revenues are growing, but some segments and territories are seeing more rapid growth than other. This is linked to the penetration of Internet access and mobile phone ownership. Although consumers globally continue to embrace content delivered across a variety of digital platforms, South African advertisers’ loyalty to traditional media will continue to dominate.

Newspapers Still Going Strong

The survey forecasts that newspaper advertising will grow by an estimated CAGR of 6.2% over the forecast period, with rising urbanisation and improving literacy levels increasing readership. Supplying newspapers to some rural areas is a challenge for South African publishers, as is finding distribution outlets and points of sale. In addition, tablets and smartphones are extremely expensive for many South Africans, meaning that newspapers still remain a major source of news in the medium term.

Revenue flow from advertising in consumer magazines will also benefit from rising urbanisation and low Internet penetration. Advertising spend on consumer magazines is expected to rise from R3.1 billion in 2012 to R4.2 billion in 2017.

Radio is also expected to see strong growth in advertising revenue streams, rising from R3.6 billion in 2012 to R5.5 billion in 2017. Since a substantial proportion of South Africans lack Internet access, radio remains one of the few advertising platforms capable of reaching a national audience. Furthermore, increasing levels of car ownership and urbanisation also benefit from the use of the radio as an advertising platform.

The survey shows that the sports market is the one of the largest E&M segments for consumer spending in the country, after Internet access and television. Revenues generated by the sports market will grow from R13.9 billion in 2012 to an estimated R19.5 billion in 2017, a CAGR of 7.1% as the economy prompts larger sponsorship deals and media rights packages. Gate revenues are down from their peak in 2010 when the country hosted the FIFA World Cup but an underlying growth trend remains. Television is the second-largest segment in terms of consumer spending, and revenues from it are projected to grow at a CAGR of 5.2% from R16.1 billion in 2012 to about R20.7 billion in 2017.

The survey shows that the slowest growing segment in the E&M industry will be consumer and educational books, with a 0.4% CAGR over the next five years. Comparatively low literacy levels in the country, and the fact that there are multiple languages in use in South Africa, continue to act as a barrier to further growth in this segment. Books are also subject to higher Value Added Tax (VAT) – 14% - than is applied in most other countries, which means that retail prices remain too high for the majority of South Africans. Music is also a slow-growing segment (0.4% CAGR), with physical sales dropping quickly, but not yet being replaced by digital sales, despite the emergence of a number of new digital music services.

Nigeria

Nigeria is one of the most vibrant markets in sub-Saharan Africa. The power of the mobile device as a communications enabler is transforming the continent, and with this transformation in communications, the potential for Nigerian consumers to access entertainment and media in new ways is significant and exciting.

Total E&M expenditure in Nigeria will exceed US$9 billion in 2017, representing a 23.7% CAGR between 2013 and 2017. Of this, consumer expenditure will account for 82%, while advertising expenditure will be worth just over US$1 billion in 2017.

Internet access in Nigeria, as in all African countries, will be dominated by mobile Internet access. Not only will the Internet be the fastest growth areas for expenditure, but it will also be the largest market, worth US$5.6 billion in 2017, ahead of TV (US$1.1 billion) and sports (US$722 million).

Kenya

Kenya, like Nigeria, is also a vibrant and dynamic market in sub-Saharan Africa. Total E&M expenditure in Kenya will exceed US$3 billion in 2017, representing a 16.3% CAGR between 2013 and 2017. Internet access in Kenya will also be dominated by mobile Internet access. Furthermore, the Internet will be the largest market, worth approximately US$961 million in 2017.

TV remains the single most effective channel for advertising in Kenya, accounting for just over 40% of advertising revenue in 2012, a figure likely to increase to about 50% in 2017.

The entertainment and media industry in South Africa is well placed to benefit from the economic growth the country will experience in the next five years. While many mature economies – such as those in Western Europe – are seeing low levels of growth, the outlook for the country is more positive. As a result, with more consumers becoming connected to the Internet (particularly via their mobile devices) and with more disposable income available, the opportunities for those selling products and services both digital and physical will be significant.

All stakeholders in the industry must ensure they understand the needs and expectations of audiences, so that their engagement with this consumer base remains relevant. What is needed in all cases is not necessarily a digital strategy per se, but a strategy that’s fit for a digital and connected era. i

About the Author

Vicki Myburgh has been with PwC for 20 years. She is a partner in the Assurance Practice and has been the Southern African Leader for PwC’s Entertainment and Media practice for the last five years. She spent a few years in London in the late 1990’s with the PwC practice there.

Vicki has worked with many local and international media companies throughout her career and manages large cross border assurance engagements. She has contributed to many thought leadership publications.

She is an avid reader and enjoys travelling – she has two sons who enjoy being outdoors as much as possible..

The South African Entertainment and Media Outlook was born from her passion for the industry and the need to have more relevant South African and indeed African information to complement the global information that is available.


Fata Morgana in the High Alps: Musings on Davos

[caption id="attachment_6478" align="alignright" width="161"] AFP Photo/Johannes Eisele[/caption]

While currencies crumbled in emerging markets ranging from Turkey to Argentina, the world’s mostly self-appointed leaders and assorted hangers-on gathered in Davos, Switzerland to assure global audiences that the future looks bright and promising indeed. Keep Calm and Carry On.

Over a three day span, global issues – even the most pressing ones – were summarily dealt with in ninety minute sessions at the end of which participants unfailingly reported that exciting solutions are at hand or in the works.

With the recession waning at long last, the 2014 World Economic Forum – billed as a global “solution space” – was an attempt to move from cause to effect. Past editions of the forum tried, rather desperately, to identify the root causes of the global financial crisis. This one asked “what next?”

After all was said and little done, central bank governors, finance ministers, bankers and other financial geniuses were unanimous in their verdict: All are “cautiously optimistic”. In politics this phrase usually implies that whoever employs these words has no clue as to what the future actually holds in store.

While climate change, land use, green investment, and countless other serious issues passed review, the only true shocker to appear on the Davos stage was largely hushed over. Making clever use of tricky statistics, British development charity behemoth Oxfam unveiled a report that showed the world’s 85 richest people holding assets equal to the combined wealth of the 3.5 billion poorest of the earth’s inhabitants.

"Over a three day span, global issues – even the most pressing ones – were summarily dealt with in ninety minute sessions at the end of which participants unfailingly reported that exciting solutions are at hand or in the works."

Extrapolating these numbers, Oxfam also showed that the wealthiest 1% of the globe’s population is worth 65 times as much as the poorest half of the world. Historically, revolutions have occurred over a lot less.

Insofar as these uncomfortable numbers were discussed at the forum, comments were dismissive. Pundits, of whom there were a great many in Davos, drew attention to the fact that most wealth takes the form of stocks. These cannot be instantly monetized lest their value evaporates. Then, predictably enough, the shipwrecked sailor made an appearance – throat parched by thirst amid an ocean of water. Billionaires may assuage their conscience with the notion that they may look at their paper wealth, but cannot actually spend it. One might even feel sorry for them.

It is no fun to rain on anyone’s parade, but this year’s gathering in Davos – marked as it was by faux optimism and self-delusion – must surely rank as a low point. As the severely battered European economies slowly emerge from their US inspired financial crises, the emerging economies seem headed in the opposite direction. It’s the changing of the guard.

Argentina may be cried over yet again. An impressively inept government seems hell-bent on wrecking the economy. The Argentine peso is now on a downward slide to depths unfathomable, capital controls notwithstanding. Venezuela is not doing any better while the continent’s erstwhile star-performer Brazil is creaking at the seams. In Turkey, the suffering lira is being propped up by high jump in interest rates. However, this week the lira resumed its slide over inflation concerns.

Disconnected from these developments, but worrying all the same, is the news from Great Britain and the United States that most bankers insist on handing out insane sums of money in bonuses – now often called “role-based allowances”. It gets worse. The role-based allowances now in vogue count towards fixed pay, even though they are adjustable. By increasing the fixed pay level, the bonus cap goes up as well, allowing banks to hand out yet more money.

The interesting question the World Economic Forum did not answer – or even ask – is why we collectively insist on not learning from past mistakes.

By now banks should know better than to excessively reward those who peddle in hot air packaged as exotic investment vehicles.

By now countries such as Argentina and Venezuela should know that solid governance is not served by engaging in flights of fancy. Brazil might be expected to remember that corruption is evil and sustainable development requires more than cosmetic change (para inglês ver).

Now that the powers that be, and those that long to be, have returned home from Davos – after duly expressing their “cautious optimism” – it’s back to the grindstone: The world’s poor may continue to rally for the few crumbs while those 85 exceedingly rich folks stare some more at their vast wealth no doubt wondering how to add to it before the rainy season arrives.


The Changing Face of Foreign Direct Investment (FDI): A Greater Focus on the Emerging Markets?

The theme of this year’s Annual Investment Meeting (AIM), which will take place in Dubai on the 8th – 10th April 2014, is Investment Partnerships for Sustainable and Inclusive Growth in Frontier and Emerging Markets.  If representatives of 165 countries have been invited and a total of 10,000 visitors are expected, it is because this is a hot topic.

The opening day of the congress will see the presentation of the first AIM FDI report, with a special focus on FDI flows to and from frontier and emerging markets.  Produced in conjunction with the fDi Intelligence unit of the Financial Times, the report will look at the key opportunities and challenges in these fast growth markets.

So what figures do we have at present for global FDI flows and investment into emerging markets?

According to the UNCTAD World Investment Report 2013 (released in June 2013), global foreign direct investment inflows fell by 18% in 2012 to US$1.35 trillion and their predictions for 2013 show little sign of a great increase with an upper range estimate of US$1.4 trillion.

"For the first time ever, developing countries absorbed more FDI than developed countries, with a 52% share, even if these inflows declined slightly by 4%."

So is our perspective of global FDI changing?

According to Dr. Karl P. Sauvant, Resident Senior Fellow at the Vale Columbia Center on Sustainable International Investment (VCC) at Columbia University, New York, and moderator of the ministerial roundtable and a plenary session on the evolving regulatory framework for FDI at this year’s AIM congress:

“The rise of the emerging markets requires us to revisit our perspective on global FDI.  Whereas the pattern shifted some 20 years ago from bipolar (dominated by the US and the European Community) to tripolar (entrance of Japan into the world FDI market and the notion of the FDI Triad), we can no longer use this characterisation.  I am not sure however whether emerging markets will be able to maintain their share in world FDI flows in 2013. Their share, whilst remaining important, might drop as growth in developed economies continues to pick up.”

What type of investment are we seeing in the emerging markets?

Those emerging markets that are receiving most inward investment are those that participate in the manufacturing global value chains (GVCs).  These are to be found mostly in Asia.  Investment into Africa and South America is predominantly infrastructure and natural resources investment, with the exception of Mexico.

GVCs have increasing importance in terms of global trade, representing 80% of the total value, according to UNCTAD.  These continue to represent a real opportunity for developing and emerging economies, contributing on average 30% to individual countries’ GDP.  It is not just an increase in GDP that participation in these GVCs can add, but they can also positively influence aspects such as skill building and industrial upgrading in the host countries.

If we take the subject of GVCs, it cannot be denied that participation in these value chains does not come without certain risks for emerging and developing economies.  The risks lie in the host country capturing only a small proportion of the value within that chain, and this engendering a negative environmental and social impact in terms of working conditions, low wages, job security and health and safety.

In terms of these risks, although it will not eliminate them totally, Dr. Sauvant believes that this crystallisation of multiple FDI poles will more than likely influence international rule-making and will engender changes in the way that developed countries and emerging markets both see the responsibilities of host countries and multinationals.  This will encourage them to be more aligned, particularly as these emerging markets are becoming significant outbound investors in their own right.  He states:

“The new players and established investors will have to understand that countries no longer look for more FDI, but sustainable FDI – investment contributing as much as possible to economic, environmental and social development in the framework of mechanisms that ensure a fair distribution of FDI benefits.”

[caption id="attachment_6523" align="aligncenter" width="628"] His Highness Sheikh Mohammed bin Rashid Al Maktoum, pictured center, at AIM last year[/caption]

And what type of investment do we expect to see in coming years?

Dr. Sauvant voices the opinion that the real growth for emerging markets will come from the service sector rather than manufacturing GVCs.  This is not a surprise in the sense that the service sector is the largest worldwide. Heopines:

“Services have traditionally had to be produced when and where they are consumed.  Information technology has however changed the rules of the game, and indeed continues to do so.  Anyproduct that has a high information content and can hence be computerised, can also be outsourced.  GVAs in the service sector in emerging markets really are in their infancy but cost issues will push their development into these countries.  These markets need to anticipate this future trend by ensuring that the adequate telecommunications infrastructure and the relevant skill sets are in place.”

Do challenges face companies when investing in emerging markets?

With opportunity comes indeed certain challenges.  On a very simple level, the access to information can often be much more limited than in developed countries making informed choices rather difficult.  Bureaucracy and complicated administrative procedures can represent another challenge.

Evidently, the regulatory frameworks in place in different countries have their role to play.  This is especially of interest in these times whereby we are seeing mounting signs of re-evaluation of the openness to FDI in developed economies, notably such as the increase of national policy changes, as well as more restrictive review processes, that make the investment environment less hospitable, especially for cross-border M&As.

The experiences of other companies investing in the same markets can be helpful and that is why this year’s AIM congress welcomes high-level,private sector representatives who will share with participants their views and experiences of investing in emerging markets, as well as their feedback as to what were the main drivers were behind their investments, the interaction and support they had and how they mitigated the risks in investing in these markets.

How can emerging markets improve their investment environment by anticipating these challenges and limiting the risks?

Ultimately, any emerging market needs to make sure that the right economic determinants are in place: the market, the physical and virtual infrastructures and the right skills.  These are the real drivers behind an investment decision.  A simplified regulatory framework makes it easier, but if the economic determinants are in place, a company will find the way to invest.

Easing the regulatory framework is however important, as on an even playing field this can indeed make a difference.  One of the main instruments used is the creation of an Investment Promotion Agency (IPA) which will not only promote the developing country to overseas investors but also act as a lobbying arm to ensure that the investment climate is open and welcoming.

The creation of such a structure also increases FDI inflows by not only “getting their country as the map” as it were, but also in centralising all that market information that overseas investors can find hard to access.  Investment Promotion Agencies typically also navigate the red-tape that companies can find burdensome.

Dr. Sauvant stresses the fact that the “World FDI market is extremely competitive.  There are literally thousands of institutions worldwide with a remit for investment promotion and attraction. All IPAs really need to watch what their competitors are doing in order to stay in the game successfully.”

About the AIM congress

The 4th edition of the Annual Investment Meeting (AIM) will take place in Dubai on the 8th – 10th April 2014.  Under the Patronage of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President of the United Arab Emirates, Prime Minister and Ruler of Dubai, this year’s meeting will focus on the theme of: Investment Partnerships for Sustainable and Inclusive Growth in Frontier and Emerging Markets. Representatives of 165 countries having been invited and a total of 10,000 visitors expected.

www.aimcongress.com

About Dr. Karl P. Sauvant

Karl P. Sauvant, is Resident Senior Fellow at the Vale Columbia Center on Sustainable International Investment (VCC), a joint centre of Columbia Law School and the Earth Institute at Columbia University; Adjunct Senior Research Scholar and Lecturer-in-Law at Columbia Law School and Guest Professor at Nankai University, China. Until February 2012, he was the VCC’s Founding Executive Director. Until July 2005, Dr. Sauvant was Director of UNCTAD’s Investment Division. While at the UN, he created the prestigious annual World Investment Report, of which he was the lead author until 2004. He authored a substantial number of publications on issues related to economic development, FDI and services. He is a Fellow of the Academy of International Business and an Honorary Fellow of the European International Business Academy. He received his PhD from the University of Pennsylvania in 1975.

For further information, contact Louise Gibbons:

Press Relations Advisor | Telephone: +33 (0)6 33 02 05 54 | E-mail: louise.gibbons@location-marketing.eu


Corporate Tax and Transfer Pricing Forum Brazil

[caption id="attachment_6545" align="alignright" width="154"] Melia Jardim Europa[/caption]

With frequent and significant changes occurring to Brazil’s corporate tax and transfer pricing rules in the last year, it is critical that companies quickly adjust to the new landscape in order to avoid investigations, litigation and huge fines which can severely impact profitability.

C5’s practical conference on Corporate Tax and Transfer Pricing (Monday, March 24th to Tuesday March 25th, 2014 at Melia Jardim Europa, São Paulo, Brazil) will provide you with the critical information you require to ensure your company can successfully adapt to the raft of recent changes and ensure effective tax planning and compliance.

Leading tax experts will share their vast knowledge, experiences and best practices, providing practical guidance on the recent changes and strategies on how to adapt to the new market conditions. By attending this event you will be able to establish effective tax planning processes that are compliant with the new rules, which will significantly reduce the tax risks for your company.

Do not miss this truly unique opportunity to meet key market participants and get a comprehensive analysis of the rapidly evolving corporate tax and transfer pricing landscape, which will help you to develop the best strategies for your company.

Official conference languages are English and Brazilian-Portuguese. Simultaneous translation is provided during both days of the event.

CFI.co subscribers get a 10% discount on the conference fee - please quote the code 637CFI in order to activate the discount.

In order to register please contact C5:
Online: www.C5-Online.com/TaxBrazil
Phone: +44 (0) 20 7878 6888
Email: Registrations@C5-Online.com
Fax: +44 (0) 20 7878 6887


Alessandro Carlucci: Going Global on Intuition and Emotion

Ethics and aesthetics: That is what Alessandro Carlucci sells as CEO of Brazilian cosmetics firm Natura, now wrapping up its 44th year in business with an annual revenue north of $3.2bn. At the forefront of conservation efforts and mindful of its corporate responsibility, the Natura brand name has become synonymous with beauty of both mind and spirit. “Simply put: We want to do right.” Mr Carlucci finds modest pride in the fact that his company never tests its products on animals yet adheres to the strictest of international safety standards.

Doing things right, doesn’t mean giving up on either profit or expansion. Though last year Natura suffered from higher logistics costs and was forced to increase its investment in marketing to fend off competition, the company mulls a move into North America and also wants to further solidify its already robust presence in Latin America. Earlier this month, Natura got a hit on the São Paulo stock exchange after the company’s earning trailed estimates by the most since 2006.

However, Mr Carlucci is far from worried and believes his company will not just weather the storm, but prosper as well: “We strive for sustainability and have our sights set on the long-term. This is what ultimately will ensure our corporate success.” The Natura CEO in 2011 confided to the Financial Times that he succeeded in outselling his main competitor Avon only after getting in touch with his “feminine side”. It made him, he said, into a “much better” manager: “Developing my feminine side has not just been a pleasure, but offered new business opportunities as well.”

CEO of Natura since 2005, Mr Carlucci has few qualms about allowing intuition and emotion to guide his executive decisions. “Here at Natura we value our surroundings. Society and the environment are not merely abstract concepts but part and parcel of our business model. This attitude not only sets us apart from others; it delivers shareholder value as well. As a company we depend on nature for the ingredients of our products. Should the Amazon rain forest go, so would we.”

Last year, Natura acquired a 65% stake in the Australian beauty brand Aesop in a move that seems to herald an era of global expansion. Mr Carlucci admits that the Aesop’s extensive line of unisex products lured his company into the deal. “Sales of skincare products for men are projected to rise by 11% next year while the overall global skincare market is set to grow by only 6%. We need to go where the action is and Aesop allows us to do just that.”

Aesop has a particularly strong presence in Asia with 72 stores in 13 countries. The brand’s philosophy also closely mirrors that of Natura. “We are an exceptionally good fit,” says Mr Carlucci whose intuition so far has not failed him.


Emmanuel Nnadozie, ACBF: Africa - BRICS Partnership Is Growing Rapidly

[caption id="attachment_6570" align="alignright" width="233"] Emmanuel Nnadozie[/caption]

Emerging trends show that recently the BRICS group has become a major force in the global economic arena. The OECD predicts that the balance of economic power is expected to shift dramatically over the next fifty years with China becoming the world’s largest economy (replacing the United States). India’s GDP growth is also projected to outpace that of the United States. Thus partnerships with BRICS countries will become even more important over time.

The cooperation between Africa and the BRICS has gained new momentum and generated much interest in recent years. This is because these countries, particularly Brazil, China, India and South Africa, have begun playing an increasingly prominent role in global trade, finance, investment and governance. Within this trend, Africa has deepened its engagement with these countries, not only in terms of trade, investment and development finance, but also in terms of diplomatic and cultural relations. The size of the BRICS economies, their economic potential and their demand for a stronger political voice on the international platform make them particularly relevant to Africa’s development.

What effect could BRICS trade, investment and aid have on growth, employment and structural transformation in Africa? How can Africa maximize the positive effects of its interactions with the BRICS, and minimise the costs? This study undertakes a comparative analysis of the BRICS practices in their cooperation with Africa, and their implications for addressing the pressing challenges of strong and sustained economic growth, employment and structural transformation in Africa.

The greatest impact of BRICS on Africa will emanate through three key channels: Trade, investment and development assistance. Already, in all three areas, the impact of BRICS is being felt strongly across the continent although significant differences exist in the breadth and depth of each BRICS country’s engagement in Africa.

BRICS Impact on Trade

The successful experience of the BRICS and other countries over the past half century (China, Malaysia, Thailand, Brazil, Chile, Taiwan, Singapore and South Korea) has amply demonstrated that trade can be an important stimulus to rapid economic growth. The response in Africa is particularly strong, reflecting the growing trade ties that these countries have forged with BRICs in recent years. Particularly for Africa, trade with the BRICS bloc has grown faster than the continent’s trade with any other region in the world, doubling since 2007 to $340 billion in 2012.

China’s imports from Africa increased by more than twice the rate of its imports from Europe and the United States did, at 28 per cent between 1995 and 2008. It is projected that Africa-BRICS trade will reach $500 billion by 2015.

“The greatest impact of BRICS on Africa will emanate through three key channels: Trade, investment and development assistance.”

However, there are several risks that Africa must take into account in its trade cooperation with the BRICS. First, trade-led growth of national output may have little impact on employment and development. This is particularly the case where most of the trade is in primary commodities with few linkages and where a large proportion of export earnings accrue to foreigners. This not only biases the economy in the wrong direction but also reinforces internal and external dualities and inequalities.

The ability of African countries to use trade with the BRICS to achieve development aspirations largely depends on their ability to negotiate favourable trade concessions from BRICS.

BRICS Investment in Africa

Even though Africa’s trade with and FDI inflows from traditional partners remains crucial, the largest increase in FDI has come from the BRICS. Their contribution has increased continuously, falling only slightly in 2009 due to the global financial crisis. FDI inflows from BRICS were, until 2002, dwarfed by those from the UK, the US and other traditional western sources. Recent data suggests that FDI flows to Africa from India, China and Brazil have risen on average 18% annually between 1995 and 1999 and 21% between 2000 and 2008. This is important for Africa as FDI is one of the major catalysts for promoting economic growth and development.

In light of the significant BRICS FDI flows to Africa, the continent needs to ensure that certain conditions are met in order to benefit. Bengoa and Sanchez-Robles (2003) counsel that, in order to benefit from long-term capital flows, the host country requires adequate human capital, sufficient infrastructure, economic stability, and liberalized markets. Since BRICS-Africa cooperation also include technical cooperation and development aid channelled into projects such as infrastructure, education among others, there is the potential for this cooperation to enhance the positive benefits that can accrue from increased FDI from BRICS.

BRICS Development Assistance

In general, the impact of development assistance on a recipient country is not automatic. Critical are the mode and type of aid as well as the recipient country’s socio-economic as well as political environment in enhancing the growth impact of aid. With the above in mind, BRICS development assistance can be harnessed within a framework that will lead to the realization of economic growth and employment creation in the recipient African economies.

The contribution of the BRICS to development financing has increased over the last decade with China leading the way. However, data on exact figures remain challenging. Nonetheless, BRIC countries continue to be supportive of Africa’s development through project aid, aimed at improving infrastructure on the continent, the provisioning of concessionary and soft loans, credits and grants. The focus on infrastructure has been complimentary to aid from OECD countries and led to an increase in power generation and transport networks.

All BRICS Are Not Created Equal

There are some key elements common to the BRICS cooperation with different parts of Africa. The first is that their volumes, particularly of trade and investment, have increased substantially since the turn of the century. The second is that there is a growing diversity in the range of their sectorial interests, even as strategic considerations continue to drive their overall engagement. The third is that geographical distribution is changing, as noted in the various sections, with each country spreading out from its original comfort zone. The fourth is that there is a strong partnership between the state and the private sector of the countries.

Three main differences could be highlighted in the activities and practices of Africa’s BRICS partners. First, China stands out as by far the largest BRICS partner of Africa in terms of trade, investment and development finance. It has the widest country coverage, providing some aid to almost all African countries, although large development financing activities are concentrated in a few resource rich countries.

Second, Brazil differs from China and India in that it provides very little support in the form of loans. Brazil emphasizes in-kind technical assistance as a way of transferring technology and good practices. It generally does not provide concessional loans to its African partners, but it subsidizes the engagement of its state-owned and privately owned multinationals. China and India provide a significant amount of project grants, but these are mainly tied to equipment and services from the respective countries. They also make extensive use of concessional loans and often attach their development assistance to the procurement of goods and services from their domestic firms or in some cases, to access natural resources.

Although Africa’s export (mainly food products) to the Russian Federation represents only 1% of its total exports to BRICS, Russia’s export to Africa has been increasing over the years to reach 7% of total BRICS export to Africa. While Russia has provided development assistance focusing mostly on food security and education, Russian corporations are investing in the areas of fuel and energy.

South Africa has used diplomacy and its increasing political influence in the rest of Africa to promote its interest, for instance through sponsoring of peace talks across the continent and contributing to peacekeeping across the continent. South Africa has also established many bilateral commissions with other African countries and promotes South African investments in the continent through the state-owned Industrial Development Corporation and the Development Bank of Southern Africa. As a result South African firms are playing significant roles in banking, retail, telecoms, food and mining.

Lastly, while all BRICS countries engage in trade, investment and aid activities, China and India have been significantly more active in this respect, with China being more unequivocal. Brazil and Russia on the other hand have tended to keep their aid, trade and investment engagements relatively more distinct.

BRICS to Promote Growth and Jobs

Thus, in order to maximize the benefits of the increasing cooperation with the BRICS, African nations need to take Africa-BRICS trends into account in their planning for long-term economic progress. The continent needs to be assertive when negotiating cooperation with BRICS, with the ultimate goal of building Africa’s productive capacities. In this regard, all areas of cooperation have to be pursued with a view to creating avenues to stimulate production and entrepreneurial development. This essentially implies that any potential cooperation should target sectors that have potential to generate sustained growth and employment, such as agriculture and manufacturing which then has to be linked to industry through agro-processing.

A key policy issue for Africa is how to make growth more resilient and job-creating. African countries must capitalize on their cooperation with BRICS to develop sectors that have a substantial multiplier effect in their economies and that could impact positively on growth and employment through the different linkages.

A good way of looking at Africa’s problem of unemployment is to look at youth unemployment. Africa’s young population is growing rapidly and is getting better educated. With almost 200 million people aged between 15 and 24, Africa has the youngest population in the world. And this demographic keeps growing rapidly and is expected to double by 2045.

Strategies required to stimulate employment growth include: The encouragement of export diversification; the strengthening of inter-sectorial linkages; and, the adoption of labour-intensive techniques. Others include the maximization of private-sector job creation capabilities through minimizing the constraints on investment and growth, as well as reducing taxes on producer prices to ensure that labour benefits from improved terms of trade. Therefore, in cooperating with its BRICS partners, African countries must ensure that their agreements reflect these policy imperatives aimed at addressing unemployment.
In the absence of diversification and transformation, many African countries continue to be vulnerable to external shocks. In other words, high and sustained growth rates in Africa must be underpinned by substantial economic diversification and structural transformation.

Transforming Africa with BRICS

At the heart of the structural transformation agenda is the strengthening of the industrial sector. Globally there are important lessons that can be learnt from the success of BRICS and other emerging economies in enhancing their economic growth rates. The expansion of their manufacturing sectors over the past two decades is suggestive of the fruits to be obtained from this development path.

However, the very export driven success of BRICS countries and South East Asian economies makes it globally difficult for African countries to simply follow in their footsteps. For this route to promoting industrialisation is now heavily restricted by the trade-policy liberalisation that has accompanied deepening globalisation. Moreover, the export-intensive route makes it difficult for new entrants that now have to compete not just with the industrialised world but also other successful exporting economies.

Africa’s resource endowments also create opportunities. The continent’s countries have to embark upon an industrial strategy aimed at maximizing backward and forward processing linkages from the commodity sectors as a major source of potential benefits. This strategy will yield many benefits. Employment is the obvious one but also price and non-price ones may be obtained.

The experience of resource-rich Venezuela, Argentina, Malaysia and Thailand suggest that the export success of resource-based industries was not so much the result of high level of initial skills and capital, but rather economic policies aimed at fostering their development.

As part of overall globalization process, Africa-BRICS cooperation carries benefits and opportunities as well as costs and risks – especially for low-income countries for who the stakes are higher. The cooperation presents new possibilities for broad-based economic development because the interaction can potentially benefit African countries directly and indirectly through cultural, social, scientific and technological exchange, as well as through conventional trade and finance. It could also lead to a faster diffusion of productive ideas, innovation and adoption of new technologies and to a more effective absorption of knowledge which is a key ingredient of wealth creation.

The potential downside is that this model can lead to a situation whereby African countries are locked into a pattern of development in which economic and social dualities are sharpened. This can lead to some people being completely bypassed. This is the basis of the argument that globalization may create or reinforce poverty traps and increased vulnerability to capital flows.

The success of the BRICS (though not in all cases) in promoting inclusive growth, employment and structural transformation to reduce poverty and inequality provide some valuable lessons for African countries. Overall, the critical building blocks that defined success were building human capital and improving access to assets; investing in infrastructure with structural transformation and jobs in mind; using well-designed social transfer programmes to address poverty and inequality and prioritizing inclusion.

Implications for BRICS

The growth slowdown in emerging economies, including the BRICS, raises some implications. The BRICS need to see cooperation with Africa as an important tool in their quest to resume being an engine of global economic growth.

There is a growing consensus that Africa is on the verge of an economic take-off and could become a new pole of global growth. This includes Africa’s untapped natural resource endowment, which provides significant investment potential; the continent’s steady population growth, which, if properly managed, could yield positive returns as well as increasing urbanization, the rise of the middle class and the untapped regional market.

Since 2003, many African countries have attained high economic growth rates, and in some cases, managed to sustain relative high rates throughout the global economic and financial and Eurozone crises. African countries have also witnessed notable improvements in the general macroeconomic environment, thanks to an increase in strategic and timely institutional reforms, as well as improved governance in many countries. Business environment is improving in many countries and as a result of improved macroeconomic conditions, Africa has successfully attracted increased FDI in recent years.

Yet the reality is that since independence, African growth has been driven mainly by primary production and export with limited economic transformation, rising unemployment and deepening poverty. However, African growth resurgence in the last decade has benefited from improvements in macroeconomic management, good governance and control of corruption such that apart from primary production and export, manufacturing, modern financial and telecommunications services and tourism are beginning to make significant contributions to growth. The growth resurgence has transformed Africa from the world’s lowest growing region of the past to one of the world’s fastest growing regions.

Notwithstanding, global economic crises and the resultant economic recession are bad for economic and social progress in Africa. Weaker global growth and continued Euro zone debt crisis present Africa with serious challenges and have led to a slowdown of Africa’s growth momentum. Economic growth in Africa declined from an average of 5.6% in 2003-2008 to 2.2% in 2009, 4.6% in 2010 and 4.2% in 2012. Therefore, it is in Africa’s interest to have a high performing global economy because a strong and growing global economy will benefit Africa through increased trade, financial flows (FDI, ODA, remittances), which are necessary for growth, employment and poverty reduction.

In light of Africa’s interest in global economic recovery we argue that both Africans and the rest of the world, especially the BRICS, should see Africa as part of the solution to the global economic crisis and invest in the continent for mutual benefit. Indeed, the emerging consensus is that the world needs a new driver of consumer demand, a new market and a new dynamo which can be Africa. Clearly an Africa that joins the ranks of global growth poles will benefit both it and the rest of the world.

Africa’s Response

How should Africa respond to the opportunities and challenges presented by Africa-BRICS cooperation and capitalise on it to promote growth, employment and structural transformation? Africa should design a BRICS strategy built on the inherent spirit of mutual interest and mutual respect.

The Africa-BRICS partnership must be embedded within the larger effort of promoting development. To promote growth, employment and structural transformation, Africa must develop strategies for maximizing the benefits of Africa-BRICS cooperation as a particular form of relations with the continent’s external partners.

Africa and its individual countries must deploy high-quality resources to manage their relationship with the BRICS countries. The continent must have a clear picture of its needs and requirements as part of the overall policy and planning framework of each country. A clear framework of objectives and priorities is essential as a basis for meaningful dialogue of equals. Maximizing the benefits of the partnership requires rectifying the capacity deficits that hinder the continent’s relationship management with its partners, especially with regard to understanding issues, coordination, negotiation, monitoring and competing.

The main deficits are the capacities:

To understand the issues. This requires investing in research, stronger think tanks and conducting extensive background analysis of impact of BRICS and other major partners as well as putting in place mechanisms and processes for robust internal dialogue on relations with BRICS.

To coordinate. African countries must have effective mechanisms for coordinating among themselves as well as encourage and support the participation of new actors and new processes in cooperation arrangements among countries.

To negotiate. African countries also need to build negotiation capacity to be effective in bilateral forums, handle large and complex deals with BRICS and consider adopting a similar strategy of integrating trade, financing and development considerations in their approach to BRICS partners.

To monitor. This requires enhancing the analytical capacity in Africa to monitor trade and financial flows and the implementation of agreed projects. Thankfully several countries are already formulating strategies for more effective engagement with BRICS and other Southern partners.

To compete. Enhancing Africa’s capacity to compete in the global market is critical for African-BRICS cooperation but it requires promoting technology transfer and capturing the positive spillover from foreign investment and learning from the experience of the BRICS.

Africa’s relations with BRICS partners should be based on a clearly articulated African interest. The continent should then install the critical capacities that are required to participate as an equal in the requisite dialogue and negotiation.

In Conclusion

Africa’s high growth rates since the turn of the 21st Century have not translated into high levels of employment and reduction in poverty due to lack of meaningful economic structural transformation that entails a change in the structure of the economy over time from a subsistence economy, through industrialization, to an industrial or even post-industrial high-income society. Structurally transformed economies tend to be associated with steady, sustained economic growth rates combined with relatively low growth volatility and higher capacity to create jobs.

To support development aspirations beneficial to both Africa and the BRICS, the latter needs to support Africa’s efforts in looking for options for improving political and economic governance; for relaxing constraints imposed by human capital and infrastructure deficits; for unleashing Africa’s agricultural potential in the context of Comprehensive African Agricultural Development Plan (CAADP); for stepping up regional integration initiatives in the context of the Minimum Integration Programme (MIP) and efforts to boost intra-African trade.

The operations of the major partners in Africa are driven by their own economic and strategic considerations. The mix of trade, investment and to some extent aid helps to promote these interests. The most important message of the study therefore, is that Africa–BRICS cooperation is driven as much by market as by non-market and political-economy dynamics. This acknowledgment should underpin the continent’s strategy towards its BRICS partners. Its relations with them should be based on a clearly articulated interest. The continent should then install the critical capacities – which form the basis of the following recommendations – for it to take part as an equal in dialogue.

African countries’ ability to use trade with the BRICS to achieve their development aspirations largely depends on the capacity to negotiate favourable trade concessions. This includes how African countries negotiate their trade relations with BRICS-related multinational corporations. Moreover, the extent to which African countries efficiently use scarce capital resources while making maximum use of abundant but currently underused labour in producing their exports will determine how much export earnings benefit ordinary African citizens.

About the Author

Emmanuel Nnadozie from Nigeria is the Executive Secretary of the African Capacity Building Foundation (ACBF). Professor Nnadozie’s career spans over 20 years in the development sector. Prior to joining ACBF, he was Chief Economist and Director of the Macroeconomic Policy Division and before then, Director of the Economic Development and NEPAD Division of the United Nations Economic Commission for Africa (UNECA) which he joined in 2004. At the UNECA, Prof. Nnadozie led the production of the well acclaimed African Economic Report for 2010 and 2011 and the Least developed Countries Monitor. He also served as a UN Representative at various intergovernmental and continental forums and as coordinator for the UN system-wide support to Africa’s development as well as the focal point for UN/UNECA’s relations with African Union Commission, NEPAD Secretariat and the African Peer Review Mechanism (APRM).

About the ACBF

The mission of the African Capacity Building Foundation (ACBF) is to build human and institutional capacity for sustainable growth and poverty reduction in Africa. The Foundation’s key objectives are to build new capacity while strengthening and utilizing existing capacity sustainably. ACBF seeks to achieve development results through effective channeling of capacity to areas that spur economic growth and economic transformation, achieve poverty reduction, strengthen good governance and enhance Africa’s participation in the global economy. ACBF’s strength is in its credibility as an institution “for Africa by Africa” with Africans taking greater leadership in proactively addressing the continent’s challenges. It focuses on indigenous ownership, leadership, partnership, accountability and quality in its outputs and results, while nurturing the inter-relationship dynamics of major stakeholders in the capacity building process.


Peter Macnee: IFC Helps Virgin Mobile Find Untapped Demographic

For Mobile Virtual Network Operators (MVNO) Latin America is virgin territory. Barely 0.5% of installed network capacity is currently leased out to providers that do not themselves own any telecom assets. UK operator Virgin Mobile has taken note and is moving in. Starting in Chile, the company - well known for its at times irreverent attitude - introduced simple, easy-to-understand prepaid voice and data plans that in three months attracted some 36,000 customers; a number that has swelled to 200,000 in just over a year and a half.

Peter Macnee, Virgin’s point man in Latin America, launched his company in Colombia and will enter the Mexican market in 2014. His foray into each of these markets is preceded by the unveiling of a provocative statue of Virgin’s founder Sir Richard Branson, usually placed right in front of the new corporate office or even inside its foyer. Antics aside, Virgin Mobile Latin America means business. Mr Macnee keeps quite a straight face as he boldly proclaims that his company will make a mobile phone available to every person on the continent.

In August 2012, Virgin Mobile’s commitment to bringing affordable mobile services to the masses received the blessing of the International Finance Corporation (IFC), part of the World Bank Group, which agreed to supply $11m of strategic funding to help the company gain a solid foothold in Chile. The IFC debt facility will likely entice private investors to underwrite Virgin Mobile’s expansion in Latin America. Since then, the IFC has earmarked an additional $14m in financing to facilitate the launch of Virgin Mobile in Colombia and has expressed an interest to work alongside Virgin Mobile in Mexico.

Mr Macnee feels pretty sure that Virgin Mobile Latin America can make both a splash and a difference: “Our business model aims for competition on creative products as well as on customer satisfaction. The two haven’t often been seen together and for many customers, Virgin’s way of conducting business comes as somewhat of a surprise.”

In Latin America, Virgin Mobile is aggressively and creatively marketing its services to young people. “We have found that customers in this group feel little affinity with existing telecom brands and are bewildered by the glut of confusing mobile plans being offered, one even more complicated than the next.” Mr Macnee and his staff came up with the popular concept of the Anti-Plan: A transparent, straightforward and affordable way to disseminate prepaid mobile services in less affluent demographic segments previously considered off-limits to mobile providers.


IFC, ECOM Training Helps Women Farmers Boost Income, Productivity

Women make up 80 percent of coffee farmers in North Sumatra of Indonesia and 50 percent in Lam Dong of Vietnam. The coffee beans that they grow can change their families’ lives. IFC’s partnership with global coffee trader ECOM Agroindustrial has been teaching these female entrepreneurs farming techniques that boost productivity and family incomes.

IFC and ECOM have employed women trainers and sought out volunteers to engage leaders from unions and farmers’ associations. The training schedules accommodate the needs of students and IFC is also providing a simple financial management tool to help these women manage household income and farm expenditures.

“The training has not only taught me about good farming practices, but also about financial management,” said Mrs. Susanti, a coffee farmer in North Sumatra. She has been receiving training for the last three years. “Now, I can better manage my family and farming expenses. I have three grown children and they all go to college. It’s all because of coffee farming.”

Supporting Women in Agribusiness is Good for Business

As a result of IFC and ECOM’s work, the percentage of Indonesian women who received agricultural training in North Sumatra jumped to 27 percent – about 1,600 women – from 4 percent in 2009. In Lam Dong, the percentage of Vietnamese women farmers more than doubled to 25 percent, or more than 2,300 women, from 12 percent in 2010.

“The training has not only taught me about good farming practices, but also about financial management.”

“This initiative makes us realize that providing women with the right agricultural practices can help us improve crop yield and the quality of the beans,” said Amran Sinaga, head of the Agriculture Office of North Sumatra’s Simalungun district.

In Indonesia, an IFC survey found that the productivity of farmers training groups comprising both men and women rose 102 percent.

“Empowering women in key sectors such as agribusiness has been one of IFC’s strategic focus areas,” said Sérgio Pimenta, IFC Director for East Asia and the Pacific. “When women farmers have better access to technical training, they will adopt good agricultural practices, improve their productivity and manage their household incomes better.”


Mario Draghi: ECB President Gearing Up for Eurozone Growth Spurt

Italian banker Mario Draghi entertains no doubts at all: Pessimist, sceptics, naysayers and assorted worrywarts severely underestimate the resolve extant – political and otherwise – to forge the euro into a resounding success. Then again, the president of the European Central Bank (ECB) can ill afford any misgivings regarding the common currency he deftly manages. The euro is now shared by 17 countries whose combined GDP of about $14tn make the Eurozone the world’s largest currency area. Estonia was the latest country to adopt the euro (in 2011) while Latvia is set to become the 18th member of the Eurozone as of next year.

Since taking over stewardship at the ECB, early November 2011, ‘Super Mario’ has dealt with the fallout from the 2008 financial meltdown which devastated the economies of the Eurozone’s weaker members. Upon assuming the ECB presidency, Mr Draghi had to first swiftly undo the two rather unfortunate interest rate hikes his predecessor had pushed through. He then proceeded to inject $640bn into the Eurozone economies in an attempt to take the edge of the downturn. This was followed by a second, and even larger, Long-Term Refinancing Operation (LTRO) which disbursed well over $700bn through more than 800 banks.

Though Italian and equipped with a PhD in Economics from the Massachusetts Institute of Technology, Mario Draghi was widely considered “the most German of candidates” in the weeks of hectic political wrangling leading up to his nomination for the ECB top-job. Though his stint at US investment bank Goldman Sachs at one point threatened to derail his candidacy, the almost unanimous praise Mr Draghi received in his role as Governor of the Bank of Italy ultimately carried the day. It also helped that both the French and German governments supported his appointment.

Despite frequent criticism hurled at the lacklustre economic performance of the Eurozone economies, Mr Draghi remains convinced that the euro’s fundamentals are rock solid as opposed to those of the world’s other leading currency – something never spoken out loud and only hinted at in the most veiled of terms. The ECB president regularly points to the current account surplus of $248bn (1.9% of Eurozone GDP) enjoyed by the euro area as proof of the currency’s soundness.

In order to foster economic growth Draghi’s ECB has kept interest rates low even though the shearing another 25 basis points of its benchmark interest rate which now stands at a record low of 0.25%. Super Mario seems to be gearing up for a growth spurt.