Otaviano Canuto, World Bank Group: Fiscal Policy Redux

[caption id="attachment_4027" align="alignright" width="300"] U.S. Capitol Building[/caption]

As part of their response to negative shocks coming from advanced economies after the Lehman Brothers' collapse in 2008, most developing countries resorted to countercyclical fiscal policy. Such a policy choice was available to many developing economies that entered the global economic crisis in good macroeconomic and financial shape, with smaller fiscal and current-account deficits, lower inflation, higher international reserves, lower public and external debt, and less financial vulnerability than in the past.

Today there is a swing toward pursuing more ambitious goals through fiscal policy than countering economic downturns. In that context, it is worth revisiting those requisites that must be in place for fiscal policy to truly succeed.

Counter-Cyclical Fiscal Policies in Developing Countries

Prior to the financial crisis, an improvement in the fiscal position of many developing countries was reflected in a substantial decline in their public debt during the 2000s (see Chart 1). The median ratio of general government debt to GDP among middle income countries (MICs) almost halved from near 60 percent in 2002 to just over 30 percent in 2008. Median debt in a sample of low income countries (LICs) fell even more precipitously over this period, aided by substantial debt relief.

[caption id="attachment_4029" align="aligncenter" width="357"] Chart 1. Source: World Development Indicators, World Bank[/caption]

Some of that fiscal space built prior to the crisis proved to be a buffer against the crisis, with the strength of post-crisis recovery in many developing countries partially reflecting increased public spending. Median debt ratios rose close to 10 percentage points in the last few years (see Chart 1) and, although not all developing economies are now in a relatively benign position, in most cases the use of short term fiscal stimulus could take place without raising general concerns with fiscal sustainability. Debt build-up has remained modest, given interest rates at low levels and less than GDP growth rates in most developing countries.

"Nevertheless, one can notice an increasing appetite for using fiscal policy as an instrument to foster growth, reduce poverty, boost social inclusion and equity, and to protect against risk and vulnerability to shocks."

As the global economic environment seems to have changed from consecutive negative shocks to a more chronic disease of low growth in advanced economies, fiscal policy in most developing countries has also shifted from pro-activeness to a more low-profile resort to automatic stabilizers. Nevertheless, one can notice an increasing appetite for using fiscal policy as an instrument to foster growth, reduce poverty, boost social inclusion and equity, and to protect against risk and vulnerability to shocks.

A Three-Pronged Rationale for Fiscal Policy

A threefold rationale for public action through fiscal policy can be pointed out.

First, there is macroeconomic stabilization. Given that often relying on monetary policy is not enough to get the job done, governments should also maneuver taxation and/or spending levels in a countercyclical manner. Before the crisis, many economists had discarded the effectiveness of proactive fiscal policy as a stabilization tool, but its widespread use in the early stages of the global economic crisis has since rescued it from the limbo to which it had been relegated.

Second, there is a resource allocation rationale, i.e., improving economic performance via expenditure and tax policies that raise efficiency and tackle relevant market failures. The existence of public goods, externalities and increasing scale returns, as well as information failures and missing markets, are recognized as factors frequently undermining the operation of pure markets. Therefore, taxes and government expenditures addressing those factors could be considered as policy options as a way to fuel economic growth.

Third, there is the distribution rationale underpinning policies that are designed to mitigate inequalities of income, opportunities, assets, or risks that result from private-market activities. We should not forget to include a dimension of intergenerational distribution, since fairness toward future generations may demand taxes and expenditures that guarantee some carry-over of the value of natural assets, for example. After all, one may ethically consider it unfair that current generations consume the whole gift received from Mother Nature, so to share prosperity over time and for future generations may require taxes and government expenditures.

Recipes for Fiscal Policy to Succeed

There are preconditions that must be followed if fiscal policies are going to deliver. First of all, the quest for stabilization has to be symmetrical on both upturn and downturn stages of the economic cycle. The fiscal space of maneuver used to offset negative shocks has to be replenished during boom times, to make sure that public finance remains sustainable, rather than becoming another source of macroeconomic instability. Fortunately, good news is the proportion of developing countries implementing countercyclical fiscal rules went up from less than 10 percent in 1960-99 to above one-third in the new millennium. This is an encouraging trend.

"Quality of public investment management is crucial."

The pursuit of economic growth, in its turn, will justify the resource allocation rationale only if costs of government failures do not exceed the costs of the same market failures that fiscal policy is supposed to address. That will require efficiency in revenue collection by governments, cost-effective public service delivery, and protection of public resources against waste and corruption. Quality of public investment management is crucial. In that context, besides capacity-building in governments, transparency and feedback from stakeholders - civil society organizations, citizens, users of public infrastructure, and contractors - have been shown to help improve performance. The good news is that information and communication technology has made it easier to progress on transparency and social monitoring.

Finally, shared prosperity can only be obtained through fiscal policy if tax structures and government expenditures adopted for the other two rationales do not conflict with that objective. The good news is, on the expenditure side, a lot has been learned in the last decades about what works and under what conditions regarding cost-effectiveness of different social and environmental policies. On the taxation side, the challenge remains how to reconcile adequate levels of revenue with progressivity on income and wealth among citizens and generations.

The Special Case of Natural Resource Rich Countries

Fiscal policy in natural resource-rich countries demands a separate discussion, as they share many uniquely distinctive features. Taxation and royalties from the natural resource sector too often become a predominant source of government revenues. Given the high volatility of international resource prices, they also face a tendency of high volatility in government revenues and economic activity. In the case of so-called “point-source” natural resources - such as minerals and oil – they become a tempting target for corruption and rent-seeking. The struggle to control such assets is sometimes a source of civil strife and war. Extractive natural resources themselves are depleting assets so a key question arises as to how much to consume today and how much to save for future generations.

The problems of natural resource-led development get exacerbated in Low-Income Countries (LICs), where governance conditions are often weak, present consumption demands by the large numbers of poor are hard to resist and where it is hard for governments to commit and stick to rational plans for natural resource depletion.

Fiscal policy in resource-rich countries plays a central role with respect to capital accumulation and long run growth. The key to increasing future living standards lies in increasing national wealth, including not only traditional measures of capital such as produced and human capital, but also natural capital. Standard economic measures of GDP and savings are inadequate to tell us whether national wealth is indeed rising: we need instead measures of adjusted net national income and savings which, among other things, take into account the depletion of natural assets as a form of depreciation, complemented by comprehensive measures of the stock of wealth. This is a matter of much practical importance: conventionally measured GDP growth has been strong in many Sub-Saharan African countries in recent years, for example, but may be unsustainable because adjusted savings rates are estimated to be negative, indicating that their overall wealth may be declining.

To ensure that their long run growth is sustainable resource-rich countries must ensure that they capture an efficient and fair share of natural resource rents, and then invest that share effectively, so as to increase the country’s wealth. This is where sound fiscal policy and good public sector governance become crucial.

Bottom Line: A Fiscal Policy Renaissance?

The global economic crisis has given back to fiscal policy its high profile as an instrument of macroeconomic stabilization. A revived interest in the potential of fiscal policy to boost economic growth, poverty reduction and equity has followed. Instead of denying it, we believe the most fruitful path is to work on those conditions necessary for it to succeed.

About the Author

Otaviano Canuto is Senior Advisor on BRICS Economies in the Development Economics Department, World Bank, a new position established by President Kim to bring a fresh research focus to this increasingly critical area. He previously served as the Bank’s Vice President and Head of the Poverty Reduction Network (PREM), a division of more than 700 economists and other professionals working on economic policy, poverty reduction, gender equality and analytic work for client countries. He also served as an Executive Director of the Board of the World Bank from 2004-2007. Outside of the Bank he has held leadership positions at the Inter-American Development Bank where he was Vice President for Countries, and for the Government of Brazil where he was Secretary for International Affairs at the Ministry of Finance. He also has an extensive academic background, serving as Professor of Economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil.


Emir of Qatar: Raising the Profile

[caption id="attachment_4048" align="alignright" width="223"] Sheikh Hamad bin Khalifa Al-Thani[/caption]

Sheikh Hamad bin Khalifa Al-Thani became Emir of Qatar in 1995 and his reign has coincided with a period of rapid economic growth at home and increasing political and social influence throughout the region. Qatar has seen a modernisation programme for the military and can boast of a very successful reform programme. This  is one of the smallest countries in the world (with just a quarter of a million nationals out of a total population of some 2 million) but Qatar is at the top of the GDP per capita league as the world’s top exporter of liquefied natural gas.

Billions have been spent on national infrastructure and his $400 million development package for Gaza saw Sheikh Hamad at regional centre stage. There has also been significant humanitarian funding of reconstruction efforts in Darfur. Qatar was first to support the Libyan rebels against Gaddafi and has been extremely active elsewhere indicating that Qatari influence is out of all proportion to its size.

“As you know, our Arab region stands on the verge of a quantum leap. The Arab Spring bloomed into a generation of young people who are determined to achieve their dreams and ambitions.”

Qatar funded the TV network Al-Jazira which is massively influential and has brought a breath of fresh air to regional reporting. The country’s international profile should rise as host of the 2022 World Cup.


Revenue Watch: 4 out of 5 Companies Fail in Good Governance

The Resource Governance Index (RGI) measures the quality of governance in the oil, gas and mining sector of 58 countries. From highly ranked countries like Norway, the United Kingdom and Brazil to lowranking countries like Qatar, Turkmenistan and Myanmar, the Index identifies critical achievements and challenges in natural resource governance.

The 58 countries produce 85 percent of the world's petroleum, 90 percent of diamonds and 80 percent of copper. Profits from their extractive sector totaled more than $2.6 trillion in 2010. In 41 of these countries, the extractive sector contributed a third of gross domestic product and half of total exports on average. Revenues from natural resources dwarf international aid: In 2011, oil revenues for Nigeria alone were 60 percent higher than total international aid to all of sub-Saharan Africa. The future of these countries depends on how well they manage their oil, gas and minerals.

Mismanagement and corruption have many manifestations and can have dire consequences. Some countries negotiate poor terms with extractive companies, forsaking potential long-term benefits. Many countries do not collect resource revenues effectively. And even when resource revenues do end up in government coffers, they aren't always spent in ways that benefit the public. Too often, governments keep citizens and civil society leaders in the dark regarding government contracts and resource revenues. This opacity deprives the public of a voice or even representation in basic decisions on natural resources.

The RGI is based on the premise that good governance of natural resources is necessary for the successful development of countries with abundant oil, gas and minerals. It provides a diagnostic tool to help identify good practices as well as governance shortcomings.

The RGI evaluates four key components of resource governance in each country: Institutional and Legal Setting; Reporting Practices; Safeguards and Quality Controls; and Enabling Environment. The Index (See Figure 1) assigns a numerical score to each country and divides them into four performance ranges—satisfactory (71-100), partial (51-70), weak (41-50) and failing (0-40).

Main Findings

The RGI shows a striking governance deficit in natural resource management worldwide. Only 11 countries earn an overall score of above 70. The vast majority of countries exhibit serious shortcomings in resource governance.

More than half the sample, 32 countries, do not meet even basic standards of resource governance, performing weakly or simply failing. Among the 15 failing countries, seven score below 30: Cambodia, Iran, Qatar, Libya, Equatorial Guinea, Turkmenistan and Myanmar. As of 2012, when the data collection took place, these countries failed to disclose any meaningful information about the extractive sector and lacked basic governance standards.

There is room for improvement even among the 11 top-ranked satisfactory performers. For example, Brazil and Chile fail to publish their extractive industry contracts. Western Australia does not require public officials to disclose information about their financial interest in mining projects.

An examination of the four RGI components clearly shows the endemic nature of the resource governance deficit. Only Norway, the United Kingdom and the United States (Gulf of Mexico) earn a satisfactory score in all four components, leaving 95 percent of the sample without satisfactory standards in one or more areas. In the Reporting Practices component, the vast majority of countries (45 out of 58) have partial, weak or failing standards of transparency. In these countries, citizens lack access to fundamental information about the oil, gas and mining sector. For instance, a country might provide little or no information about which companies (domestic and foreign) operate in the extractive sector, how much the government collects in resource revenues and where those funds are allocated.

The governance deficit is largest in the most resource-dependent countries.

Of the 58 countries in the RGI, 41 are classified as resourcerich by the International Monetary Fund.5 That is, in each of these countries, oil, gas and/or minerals dominate the economy, making up at least 25 percent of gross domestic product (GDP), exports or government revenues. Only five of the 41 countries (Norway, Mexico, Chile, Peru and Trinidad and Tobago) have satisfactory standards of resource governance (a composite score of 70 or more).

Resource-rich countries receive an average score of 48 in the RGI composite, nine points lower than the average of their 17 less resource-dependent peers (see Figure 2). Similar disparity is evident in all four components of the Index. Among the resource-rich countries, only Norway rates satisfactory in all components. Thirty-seven of the resource-rich countries rate less than satisfactory in at least two of the four components.

[caption id="attachment_4078" align="aligncenter" width="596"] Figure 2[/caption]

Transparency is missing in the countries where it is needed most. Nine of the 15 failing performers (Algeria, Cameroon, the Democratic Republic of Congo (DRC), Equatorial Guinea, Iran, Libya, Qatar, Saudi Arabia and Turkmenistan) are among the most resource-dependent countries in the world. In 2010, resource profits in these countries totaled more than $530 billion, or about $1,500 per capita; oil, gas and mining contributed an average of 34 percent of GDP and a staggering 60 percent of total government revenues. Resource wealth of this scale affects every aspect of economics and politics in these countries. Yet governments provide the public negligible, if any, information about the industry on which their economic future depends.

The governance deficit affects nearly 450 million poor people in the most resource- dependent countries.

The share of the population living on less than two dollars a day is higher at the bottom half of the RGI ranking. In 26 resource-rich countries with weak and failing performance, more than 300 million people (or 50 percent of their combined populations) live on less than two dollars a day.

By comparison, in countries scored as having partial performance, 149 million people (32 percent of the population) live on less than two dollars a day; for the countries with satisfactory performance, the figure is 10 million people (7 percent of the population).

Satisfactory performance is possible in diverse contexts.

Six of the 11 top performers are middle-income countries—Brazil, Chile, Colombia, Mexico, Peru, and Trinidad and Tobago—showing that being wealthy is not a precondition for good governance. And with the exception of Brazil, all are resource-rich, demonstrating that resource dependence does not preclude transparency and accountability. The Index shows it is possible to adopt high reporting standards, including disclosure of timely, extensive information on operations and primary sources of revenue, when the extractive sector is of the utmost political and economic importance.

Even countries facing significant economic challenges exhibit good practices in selected components. For instance, Timor-Leste has adopted transparent and accountable systems for managing its oil wealth. And though Guinea's overall minerals governance is weak, it recently initiated reforms to improve, as reflected in its high Institutional and Legal Setting score. Afghanistan and the DRC, both rated failing for overall resource governance, recently decided to publish most of their extractive contracts. These improvements could be a springboard for more decisive resource governance reforms.

Figure 1:

Rank
Country
Resource Measured
Composite Score
Institutional & Legal Setting
Reporting Practices
Safeguards & Quality Controls
Enabling Environment

1
Norway
Hydrocarbons
98
100
97
98
98

2
United States (Gulf of Mexico)
Hydrocarbons
92
88
97
89
90

3
United Kingdom
Hydrocarbons
88
79
91
83
93

4
Australia (Western Australia)
Minerals
85
88
87
65
96

5
Brazil
Hydrocarbons
80
81
78
96
66

6
Mexico
Hydrocarbons
77
84
82
81
53

7
Canada (Alberta)
Hydrocarbons
76
67
72
74
96

8
Chile
Minerals
75
77
74
65
87

9
Colombia
Hydrocarbons
74
75
73
91
58

10
Trinidad and Tobago
Hydrocarbons
74
64
83
86
52

11
Peru
Minerals
73
88
83
56
55

12
India
Hydrocarbons
70
60
72
83
61

13
Timor-Leste
Hydrocarbons
68
77
82
70
28

14
Indonesia
Hydrocarbons
66
76
66
75
46

15
Ghana
Minerals
63
79
51
73
59

16
Liberia
Minerals
62
83
62
71
31

17
Zambia
Minerals
61
71
62
72
37

18
Ecuador
Hydrocarbons
58
70
64
65
28

19
Kazakhstan
Hydrocarbons
57
62
58
76
32

20
Venezuela
Hydrocarbons
56
57
69
67
18

21
South Africa
Minerals
56
69
31
75
72

22
Russia
Hydrocarbons
56
57
60
62
39

23
Philippines
Minerals
54
63
54
51
46

24
Bolivia
Hydrocarbons
53
80
47
63
32

25
Morocco
Minerals
53
48
60
56
42

26
Mongolia
Minerals
51
80
39
49
48

27
Tanzania
Minerals
50
44
48
68
42

28
Azerbaijan
Hydrocarbons
48
57
54
51
24

29
Iraq
Hydrocarbons
47
57
52
63
9

30
Botswana
Minerals
47
55
28
53
69

31
Bahrain
Hydrocarbons
47
38
40
59
58

32
Gabon
Hydrocarbons
46
60
51
39
28

33
Guinea
Minerals
46
86
45
43
11

34
Malaysia
Hydrocarbons
46
39
45
39
60

35
Sierra Leone
Minerals
46
52
47
59
24

36
China
Hydrocarbons
43
43
46
46
36

37
Yemen
Hydrocarbons
43
57
46
52
16

38
Egypt
Hydrocarbons
43
40
44
48
40

39
Papua New Guinea
Minerals
43
59
34
50
38

40
Nigeria
Hydrocarbons
42
66
38
53
18

41
Angola
Hydrocarbons
42
58
43
52
15

42
Kuwait
Hydrocarbons
41
28
43
36
57

43
Vietnam
Hydrocarbons
41
63
39
31
30

44
Congo (DRC)
Minerals
39
56
45
42
6

45
Algeria
Hydrocarbons
38
57
41
28
26

46
Mozambique
Hydrocarbons
37
58
26
37
37

47
Cameroon
Hydrocarbons
34
63
33
25
17

48
Saudi Arabia
Hydrocarbons
34
30
35
31
38

49
Afghanistan
Minerals
33
63
29
38
8

50
South Sudan
Hydrocarbons
31
80
17
35
8

51
Zimbabwe
Minerals
31
48
23
56
6

52
Cambodia
Hydrocarbons
29
52
13
46
20

53
Iran
Hydrocarbons
28
26
33
26
23

54
Qatar
Hydrocarbons
26
15
14
20
66

55
Libya
Hydrocarbons
19
11
29
15
10

56
Equatorial Guinea
Hydrocarbons
13
27
14
4
4

57
Turkmenistan
Hydrocarbons
5
12
4
0
3

58
Myanmar
Hydrocarbons
4
8
5
2
2

Resource-rich countries, as defined by the IMF, appear in italics.

Source: Revenue Watch Institute


Up to Full Capacity with London's Andrew Likierman

The London Business School benefits enormously from Prof. Likierman's broad experience. Unlike many deans, Sir Andrew has spent much of his career outside academia working in both the private and public sectors with appointments that have included running a textile factory in Germany and heading up the government's accountancy service. This business experience has helped maintain the School’s sense of intellectual freedom and diversity. Prof. Likierman’s return to academia as dean has undoubtedly further enhanced the reputation of the School. By all accounts, he is a stickler for academic integrity and this suits the ethos of the London Business School which is not to take a fixed view on the world (in contrast to many of their American counterparts). This has helped maintain a strong faculty against completion from better endowed rivals. With his academic rigour, management experience and strong leadership and a characteristically British style the School has managed to expand to what must be close to full capacity. Rather like London’s international hub Heathrow, Prof. Likierman has taken the School to the point where without physical expansion the School has reached its limit.


Salman Khan: Standing In for Newton

Looking for a practical means of tutoring family members, Salman created the Khan Academy YouTube account in late 2006. Initially nothing more than a means of helping friends and family members brush up on their algebra, the YouTube account was not planned as the first step in some major innovation in education. But, as tends to happen to good ideas on the internet (good ideas and Korean music videos that is) Khan’s video lessons went viral.  His concise, practical, and relaxed teaching methods attracted viewers from all over the world. In 2009, prompted by the growing popularity of his videos and the testimonials of appreciative students, Salman quit his job as a hedge fund analyst to focus entirely on developing Khan Academy to the point it has reached today.

“If Isaac Newton had done YouTube videos on calculus, I wouldn't have had to.”

Salman Khan during his TED Talk in Long Beach, California, March 2011

Backed significantly by - amongst others - Google and the Bill & Melinda Gates Foundation, Khan Academy has grown tremendously and currently offers over 4,000 lecture videos in 23 languages free of charge to anyone with access to the internet. Both Khan Academy and Salman himself have been featured in numerous media outlets. The TED talk outlining his vision of the future of education – explaining how Khan academy fits into that picture - is a subject he also covers in his excellent book: The One World Schoolhouse: Education Reimagined.


Bernard Yeung: Global Citizen at NUS

[caption id="attachment_4206" align="alignright" width="300"] Bernard Yeung[/caption]

It seems rather appropriate that Prof. Bernard Yeung, dean of National University of Singapore Business School is truly a global citizen. He holds three nationalities and is part of the growing trend that has seen top academics returning to their native Asia. Under his stewardship, NUS is attracting top faculty from across the globe and recreating the concentration of academic talent found in leading western institutions. This concentration of talent is key because - given the need for the development of the region - it is not going to be possible to rely on existing text books. New ideas and better understandings must be nurtured as rapidly growing Asia takes full advantage of the industrial, scientific and economic knowledge that has been build up over the past hundreds of years. Prof. Yeung is at the forefront of creating the kind of academic institution that Asia needs and it is clear that NUS will be producing graduates that can take full advantage of the opportunities that abound and avoid the pitfalls as Asian economies converge with those of the developed world.


Chen Lihua: It's a Natural Thing to Give

China’s Chen Lihua, now in her early 70s, has a net worth of well over one billion dollars. This wealth comes from the Fu Wah International Group which she established to undertake residential housing projects. By all accounts she is a humble and focused philanthropist with a desire to share her love of her country with people around the globe.

Coming from a poor family, Lihua finished her education at the high school level and travelled to Hong Kong in the 1980s to polish her business skills. She returned home to set up Fuw Wah and has never looked back.

Chen Lihua has invested 200 million RMB in her China Red Sandalwood Museum which is spread over 100,000 square metres in Beijing. It is a monumental achievement and she has gifted sandalwood artwork to museums throughout the world.

“I should be responsible for everybody around me. It is only a natural thing to give money to those most in need.”

She doesn’t keep accounts but donates massive amounts for disaster and poverty relief and education of the needy.


Andrey Kostin Means Business

[caption id="attachment_4220" align="alignright" width="240"] Andrey Kostin[/caption]

Andrey L. Kostin is the Dean of the St. Petersburg University GSOM. He fits this role around an already very busy business life. For most business school deans the role is full time but GSOM rather than engage a full time dean elected Dr Kostin. This was an interesting decision given that Dr. Kostin already has a demanding job as the chairman and president of VTB Bank. The advantages of electing a well-respected and active business leader to lead the school has bought with it several key advantages. There can be no doubt over Dr. Kostin’s leadership experience having been instrumental in leading VTB  over the past decade through both major acquisitions and organic growth  turning VTB into one of Russia’s leading universal banks. Part of the business schools mission has been to help turn Russia into a market economy  and the contacts and knowledge that Dr. Kostin has built up helping turn VTB into an internationally respected bank are sure to help drive the business school towards the goal of being seen as one of the global centres  of excellence for business education.


The Fed’s Flawed Model

[caption id="attachment_4226" align="alignright" width="177"] Ben Bernanke[/caption]

In May 22 testimony to the Joint Economic Committee of Congress, Fed Chairman Ben Bernanke issued another of many similar positive interpretations of central bank policy. Yet again, he continued to argue that quantitative easing has decreased long-term interest rates and produced other benefits. He called economic growth "moderate," a term that he has often used without acknowledging that the Fed's forecasts have repeatedly been far above the mark.

In spite of his continuing ebullience, the Fed's polices have not produced the much-promised re-acceleration in economic growth. The 1.7% growth in 2012 was actually less than the 1.8% average rise in GDP in the thirteen years of this century, and less than half the 3.8% GDP growth rate since 1790. Only growth in the 1930s was less than in the 2000s, a time when Dr. Bernanke played a major, if not dominant, role in monetary policy decisions.

Questions abound: how serious have their forecast errors been? Are they related to the Fed's failed policies? Has the Fed facilitated errant fiscal policies that are as much a problem as central bank policy? What may explain the Fed's excessive optimism? Are they so committed to what they are doing that they continue to make unsupported assessments, or is the Fed relying on an outdated understanding of how the macro-economy works – one that does not square with an impressive body of new scholarly research?

"Questions abound: how serious have their forecast errors been?"

In its final forecast for 2011, made in late 2010, the Fed forecast that real GDP would rise 4% in 2011, and just prior to that projection they expected even stronger growth. For 2012, the Fed projected 3.3% growth, with previous assessments even higher. In both years, their forecasts were more than double the actual result. Augmenting horrendous forecasts, the Fed made overly optimistic economic assessments in the official minutes of the Fed Open Market Committee, as well as the Beige Book, that are very hard to reconcile with the poor economic outcome.

Four major defects in the Fed's approach are all too evident. First, they continue to fail to take into account that economic growth slows considerably once gross government debt reaches 90-100% of GDP, and that this relationship may turn nonlinear above that threshold – i.e., that growth deteriorates more than proportionately as debt levels escalate. Second, high levels of private debt to GDP have a similarly debilitating effect. Third, the Fed has relied on a wealth effect that is either nonexistent or extremely weak. Fourth, all three quantitative easing (QE) operations have raised, not lowered, long-term Treasury bond yields, thus serving to keep the interest rate higher than it otherwise would be.

The short-run impact of these policies also transitorily raised inflation. Since wages remained soft, real income of the vast majority of American households fell. If the Fed had not taken such extraordinary steps, interest rates and inflation would be lower currently than they are, and we could have avoided the unknowable risks embodied in the Fed's swelling balance sheet. In essence, the Fed has impeded the healing process, delayed a return to normal economic growth, and worsened the income/wealth divide while creating a new problem – how to "exit" its failed policies.

Bad Things Happen When Government Debt Exceeds 100% of GDP

Four different scholarly studies, all published in just the past three years, document this conclusion. These studies are highly relevant. Since Organisation for Economic Co-operation and Development (OECD) figures indicate that gross government debt exceeds 100% in the US, Japan, and the OECD countries of Europe. Three of these studies have been published outside the United States and were primarily conducted by foreign scholars, and thus avoid domestic political biases. Here are the studies, starting with the one with the broadest implications:

"Government Size and Growth: A Survey and Interpretation of the Evidence," fromJournal of Economic Surveys. Published in April 2011, Swedish economists Andreas Bergh and Magnus Henrekson (both of the Research Institute of Industrial Economics at Lund University) found a "significant negative correlation" between size of government and economic growth. Specifically, "an increase in government size by 10 percentage points is associated with a 0.5% to 1% lower annual growth rate."

"The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area," in European Central Bank working paper, Number 1237, August 2010. Cristina Checherita and Philipp Rother found that a government-debt-to-GDP ratio above the threshold of 90-100% has a "deleterious" impact on long-term growth. Additionally, the impact of debt on growth is nonlinear – as the government debt rises to higher and higher levels, the adverse growth consequences accelerate.

The Real Effects of Debt, published by the Bank for International Settlements (BIS) in Basel, Switzerland in August 2011. Stephen G. Cecchetti, M. S.Mohanty, and Fabrizio Zampolli determined that "beyond a certain level, debt is bad for growth. For government debt, the number is about 85% of GDP."

"Public Debt Overhangs: Advanced-Economy Episodes Since 1800,"by Carmen M. Reinhart, Vincent R. Reinhart, Kenneth S. Rogoff, Journal of Economic Perspectives, Volume 26, Number 3, Summer 2012, pages 69-86. The authors identified 26 cases of "debt overhangs," which they define as public-debt-to-GDP levels exceeding 90% for at least five years. In spite of the many idiosyncratic differences in these situations, economic growth fell in all but three of the 26 cases. All of the instances, which lasted an average of 23 years, are included in the paper. They found that average annual growth is 1.2% lower for countries with a debt overhang than for countries without. The long duration of such episodes means that cumulative shortfall from the debt excess – i.e., several years in a row of subpar economic growth – is potentially massive.

Bad Things Happen When Private Debt Rises Above 160-175% of GDP

This argument is also operative since private debt to GDP in the US was 260% of GDP in the fourth quarter of 2012. This is a serious matter, since it strikes at one of the primary purposes of central banking – to promote private credit. But when private debt levels are excessive, efforts to promote more private debt are counterproductive. Thus, the Fed is destabilizing rather than facilitating economic growth. The two major studies on private debt, both completed in the past two years and published outside the US, bear directly on this issue.

In Too Much Finance, published by the United Nations Conference on Trade and Development (UNCTAD) in March 2011, Jean Louis Arcand, Enrico Berkes, and Ugo Panizza found a negative effect on output growth when credit to the private sector reaches 104-110% of GDP. The strongest adverse effects are for credit over 160% of GDP.

The second is the 2011 BIS study authored by Cecchetti, Mohanty, and Zampolli. They found that private debt levels become "cancerous" (in BIS economic advisor Cecchetti's own words) at 175% (90% for corporations and 85% for households) – just slightly more than the UNCTAD study.

The Nonexistent or Minimal Wealth Effect

The issue here is not whether the Fed's policies cause aggregate wealth to rise or fall. The question is whether changes in wealth alter consumer spending to any significant degree. The best evidence says that wealth fluctuations have little or no effect on consumer spending. Thus, when the stock market rises in response to massive Fed liquidity, the broader economy is unaffected.

According to Dr. David Backus, economics professor at New York University, the stock market boom in the late 1990s helped increase the wealth of Americans, but that did not produce a significant change in consumption. As the stock market rose, Backus did not observe a big increase in consumption. And when it subsequently fell, neither was there a big decrease (Flavelle, Christopher, Slate, March 6, 2010, "Debunking the Wealth Effect").

More Americans own houses than own stocks. This suggests that a change in home equity should have a bigger impact on spending than a comparable change in the stock market. However, Backus did not observe much of a wealth effect on consumer spending as housing prices rose, implying that the reverse effect was also minimal on the way down.

Backus' analysis confirms research done in 1999 at the New York Fed by Sydney Ludvigson and Charles Steindel. In the Economic Policy Review, they found a positive connection between aggregate wealth changes and aggregate spending. But they wrote: "Spending growth in recent years has surely been augmented by market gains, but the effect is found to be rather unstable and hard to pin down. The contemporaneous response of consumption growth to an unexpected change in wealth is uncertain and the response appears very short-lived."

In "Financial Wealth Effect: Evidence from Threshold Estimation" (Applied Economic Letters, 2011), Sherif Khalifa, Ousmane Seck, and Elwin Tobing found "a threshold income level of almost $130,000, below which the financial wealth effect is insignificant, and above which the effect is 0.004." Thus, a $1 rise in wealth would in time boost consumption by less than one-half of a penny, and only for those in the upper-middle class and above.

Quantitative Easing Effects on Treasury Bond Yields and Inflation

It might surprise you to learn that the 30-year Treasury bond yield increased during QE1 and QE2, as measured by the average rate from when the policy was announced until it ended versus the monthly average after each program ended. Since QE3 is ongoing, we measured the change from year-end 2012 to the end of the first quarter 2013. Rates rose during that period, too.

The 30-year yield rose in all cases, by 109, 33, and 23 basis points respectively. When the Fed says it wants higher inflation and radically expands its balance sheet to achieve that objective, the short-term effect is to raise inflation, inflationary psychology, and Treasury bond yields, which are the anchor for all interest rates. The higher transitory inflation caused by the quantitative easing cuts into real weekly earnings.

The Fed Made Things Worse

In response to the Fed's QE programs, stock prices rose, but no convincing evidence indicates that this has boosted consumer spending in any meaningful way. Treasury yields rose during those operations, in part because the rise in stock prices has been interpreted as a possible sign of better economic conditions, rather than merely of the excess liquidity created by the Fed's balance sheet expansion. Although inflation has receded to less than a 1% annual rate, it did spike during the earlier phases of QE operations, thus eroding real income for those dependent on wages as their main source of income. The standard of living – defined as median household income – has fallen back to the level of 1995. The percentage of the population that is working is one percentage point lower than when the recession ended, and not far above the worst level of the past three decades.

As a sign of reduced economic opportunities from these failed monetary and fiscal policies, a record 1 out of 6.5 Americans is on food stamps, and a record percentage of those in the 25-34 age cohort is forced to live in their parents' homes. Thus, for most households, economic conditions would have been better if the Fed had simply done nothing. Moreover, the problem of what to do with the Fed's engorged balance sheet would not exist – a subject that has diverted valuable time from the more important discussion: how to right the mighty ship that once was, but no longer is, the US economy.

An internationally known economist, Dr. Lacy Hunt is executive vice president of Hoisington Investment Management Company (HIMCO), a firm that manages $5.8 billion for pension funds, endowments, insurance companies, and others. He is vice chairman of HIMCO's strategic investment policy committee and also chief economist for the Wasatch-Hoisington US Treasury Fund. Previously, he was chief US economist for the HSBC Group, one of the world's largest banks. A native Texan, Dr. Hunt also served as senior economist for the Federal Reserve Bank of Dallas.

Source: Casey Research


The BRICS Leaders’ Summit: Rich Outcomes

[caption id="attachment_4237" align="alignright" width="227"] Jacob Zuma[/caption]

President Jacob Zuma hosted the Fifth BRICS Summit in March 2013 in Durban, South Africa under the theme: “BRICS and Africa: Partnership for Development, Integration and Industrialisation.”

Quite a lot was achieved on financing and development, most notably:

The BRICS Leaders agreed to the establishment of a New Development Bank and indicated that the initial capital contribution to the bank should be substantial and sufficient for the bank to be effective in financing infrastructure.

In addition, the Leaders also agreed on the establishment of the Contingent Reserve Arrangement (CRA) with an initial size of US$100 billion. The CRA would help BRICS countries forestall short-term liquidity pressures and further strengthen financial stability. It would also contribute to strengthening the global financial safety net and complement existing international arrangements as an additional line of defence.

Another outcome of the Summit was the establishment of the BRICS Think Tanks Council and the BRICS Business Council.

The BRICS Think Tanks Council will link respective Think Tanks into a network to develop policy options such as the evaluation and future long-term strategy for BRICS.

The BRICS Business Council will bring together business associations from each of the BRICS countries and manage engagement between the business communities on an on-going basis.

These two new BRICS structures that were initiated under the South African chairpersonship, that is, the BRICS Think Tanks and the BRICS Business Council, will strengthen our intra-BRICS cooperation to develop new paradigms for sustainable and inclusive growth models, as well as new learning and knowledge paradigms to deal with our contemporary growth and development challenges.

Two Agreements were concluded under auspices of the BRICS Interbank Cooperation Mechanism:

The BRICS Multilateral Infrastructure Co-Financing Agreement for Africa paves the way for the establishment of co-financing arrangements for infrastructure projects across the African continent.

The BRICS Multilateral Cooperation and Co-Financing Agreement for Sustainable Development sets out to explore the establishment of bilateral agreements aimed at establishing cooperation and co-financing arrangements, specifically around sustainable development and green economy elements.

South Africa assumed the BRICS chairpersonship at the Summit and will be responsible for the implementation of the Action Plan during its tenure.

The BRICS Leaders agreed to review progress made at the next meeting of BRICS Finance Ministers and Central Bank Governors in September 2013.


Chinoy Gets Angry

“Daniel and I want to dedicate this award to all the heroes working on the ground in Pakistan, including Dr. Mohammad Jawad, who's here with us today. He is the plastic surgeon working on rehabilitating all these women. And to Rukhsana and Zakia, who are the main subjects of the film, whose resilience and bravery in the face of such adversity is admirable. And to all the women in Pakistan who are working for change, don't give up on your dreams. This is for you.”

Sharmeen Obaid-Chinoy’s Oscar acceptance speech was short, concise and without fluff -very much like her documentary work. She exemplifies what it means to be an investigative journalist. In an age when cable news networks are rapidly losing attention span and there is a growing reliance on online reporting, it is certainly worth taking every opportunity to celebrate long form investigative journalism.

Sharmeen won the 2012 Academy Award, Best Short Documentary, for he latest film Saving Face. This tells the story of victims of acid throwing attacks in Pakistan and includes interviews with both victims and perpetrators (who are usually family members). The film focuses on two women: Rukhsana and Zakia, documenting their rehabilitation through facial reconstructive surgery and struggle for justice through the courts and political system. Although the film is upsetting, particularly when the details of each case are discussed, ultimately it has a message of hope.

Having worked on investigative pieces since the age of fourteen, Sharmeen produced her first documentary in 2002. Terror’s Children follows the lives of eight Afghan refugee children living in Sharmeen’s native Karachi. Eleven years on and the subject matter of her documentaries hasn’t got much lighter.

"Sharmeen is a very angry person and when something angers her she channels that anger into her film making."

Audiences very quickly get the message that she will fight injustice despite the dangers she faces and will not put up with frivolity. Her documentaries cover major issues, but these issues are brought to our attention via the stories of the individuals affected. This leads to an offering which is very personal and often appropriately uncomfortable to watch. Powerful in their simplicity, always bringing to light stories in desperate need of being told, her films will leave you sharing her anger.


Pope Benedict's Heroic Decision

Pope Emeritus Benedict, elected by the cardinals in 2005, resigned his office effective February 28th 2013.   And as you will have been informed many times before, dear reader, he was the first pope to tender his resignation in the past six hundred years.

There has been speculation that Benedict had other honourable reasons for wishing to stand down. This may be true, but CFI.co is prepared to take him at his word. Is it so surprising that a man of 86 years of age should take his leave after eight long years doing his duty in such a high profile role? Whatever his motivation may be we believe that Benedict took this action having considered the best interests of the presently troubled Catholic Church. It should, perhaps, not need to be the case, but his resignation was a heroic step.

Although we must be careful not to take the analogy too far, a pope could be considered the CEO of the Catholic Church. This pope was a decisive chief executive who understood the need for change. No individual - however capable - is more important than the organisation they lead. Knowing when to step down and pass the mantle is in some ways the most important decision a leader can take. Pope Benedict had no way of knowing who would succeed him but trusted that the very system that had elected him would decide upon a worthy successor.

"My strengths, due to an advanced age, are no longer suited to an adequate exercise of the Petrine ministry."

Change came in the form of Pope Francis - who is dazzling us daily with his humility and lack of concern for the trappings of high office. There are, of course, those who say that Francis should be accepting the trappings with humility and even that there is some ‘arrogance in his humility’. Whatever the case, we are optimistic: the new pope is a welcome breath of fresh air and we credit Benedict with having paved the way for a new leader.

There have been precious few papal intellects equal to that of Benedict and we believe him to be a true and faithful servant of God. However, he is our Hero not because of these considerations or for any of his past works. Benedict is our Hero for taking a difficult but very important decision. We believe that this year he was right to give the Catholic Church an opportunity for change.


European Council’s President, Herman Van Rompuy: Unlocking Opportunities for Growth and Competitiveness

"Unlocking opportunities for growth and competitiveness"
Keynote opening speech by
President of the European Council Herman Van Rompuy
at the European Business Summit 2013

[caption id="attachment_4257" align="alignright" width="226"] Herman Van Rompuy[/caption]

Speaking today at the opening of the European Business Summit in Brussels, President Van Rompuy reiterated that reviving job creation and growth was Europe's foremost political priority: "Right now, nothing could be more important than focusing on tangible steps and concrete results for growth and for jobs. Unlocking opportunities, fast, for companies, for investors, for industry."

Referring to the Union's comprehensive strategy to exit the crisis, the President told the audience: "I've said it already and I'll say it again: there are four "keys" to unlock our way to recovery. Four keys that we need to use simultaneously. First: preserving financial stability. Second: improving the resilience of our economies, through sound public finances – focussed on structural efforts – and improved competitiveness. Third key: fighting unemployment and supporting growth in the near term. And fourth: strengthening our economic and monetary union. Working on all four, making sure we don't neglect any : it's the only way forward."

“I’ve said it already and I’ll say it again: there are four “keys” to unlock our way to recovery."

- Herman Van Rompuy

Turning to the agenda of upcoming European Council meetings, President Van Rompuy explained: "At the June European Council, we will focus on two issues: access to credit, and jobs for young people. We are working very hard on concrete proposals, and of course all ideas coming from member states and social partners are welcome." At its next summit on 22 May, the European Council will also debate the issues of taxation of energy. Commenting on the latter theme, the President underlined: "The world is in the midst of an energy revolution. So it's important to discuss those questions. We won't necessarily have all the answers right away, but we need to feed and grow that common debate."

It's a pleasure to be joining you today for the opening of this year's European Business Summit.

Over the years, this forum has established itself as a central platform: a place where problems can be debated, where ideas can be put forward, where solutions can emerge, and – most importantly – where these solutions can gain the traction, the backing necessary for their success.

Right now, nothing could be more important than focusing on tangible steps and concrete results for growth and for jobs. Unlocking opportunities, fast, for companies, for investors, for industry. For we are engaged in a race against time.

Exhausting years of fire fighting are starting to pay off: market tensions have abated, and we can finally safely say that the existential threats of the financial crisis are behind us. But we are not there yet, far from it.

For Europe, this is a moment of "in-between" – after the violence of the storm, but before the darkest clouds have cleared. But our countries are still caught in a deep economic crisis. Today, high unemployment and slow growth are the greatest worries.

Growth projections (like the Commission's annual spring forecast) confirm what a difficult period this is – for companies, for households. How hard it is to get the economy going again. They also show that, on average, limited growth should be slowly returning already this year, to further pick up in next year.

We need to find ways to shorten that time, to support and accelerate the recovery and bridge the period between the return of financial stability and that of economic growth. Part of the reason why this is no easy task lies in just how severely our economies were shaken by the financial crisis. How serious the industrial and economic problems were in some countries. And how deep the confidence of consumers and companies was destabilised when first the banks and then the integrity of the eurozone, two pillars of our system, came under threat.

The consequences are far from over. The crisis laid bare structural fragilities that had been long neglected:

Slipping competitiveness.

Staggering debt levels.

Loopholes in our tax systems.

Gaps in how the eurozone was designed.

Had those problems been addressed earlier, our countries would not be in the situation where they are now. We now have to make up for lost time. For the complacency, the lack of courage and foresight of the last decades.

The cracks run deep, and they need fixing – in a solid, lasting way. And we need to work to fix these structural problems at the same time as we work to restart our economies. Managing to do so is far from easy,  but it's the only way to truly heal our economies.

I've said it already and I'll say it again: there are four "keys" to unlock our way to recovery.
Four keys that we need to use simultaneously:

First: preserving financial stability;

Second: improving the resilience of our economies, through sound public finances – focussed on structural efforts – and improved competitiveness;

Third key: fighting unemployment and supporting growth in the near term;

and fourth: strengthening our economic and monetary union.

Working on all four, making sure we don't neglect any: it's the only way forward.

Huge efforts are already under way, in all member states, to bring back our economies onto sound bases. The first results are undeniable.

Aggregate deficits in the eurozone are down by half compared to the start of the crisis. And countries are not just focused on keeping expenses in check, but also on improving their effectiveness, at the same time as we put renewed emphasis on tackling tax evasion, tax avoidance and tax fraud – an issue I placed at the top of the agenda for next week's European Council.

Competitiveness is improving: between 2010 and 2012, real unit labour costs have gone down in ten member states, including Ireland, Greece, Spain and Portugal, but also countries like Denmark or Poland.

Exports are on the rise again, and should be the main engine for growth in 2013. Exports in both goods and services went up in twenty-one member states last year. As a result current accounts balances are also improving.

The downturn in industrial production is still severe, but there is ground for being cautiously positive. Net increases in physical assets (what we call gross fixed capital formation) are set to rebound in the second half of the year, and investment in equipment is already recovering.

These are encouraging signs. And the efforts that have brought them about must continue. But the truth is that it will take time before their full effect is felt on the economy. Before these results eventually start to translate into more growth, and then into new jobs.

Which is why in parallel with these efforts, we need to use all the other levers we can mobilise to speed up the recovery. At the June European Council, we will focus on two issues: access to credit, and jobs for young people. We are working very hard on concrete proposals, and of course all ideas coming from member states and social partners are welcome.

Unlocking access to credit, to start with this first issue, is indeed a major concern. Especially in the eurozone, there are clear bottlenecks in some countries, which are seriously hampering economic activity, and therefore hurting growth prospects. Making sure investments can happen is important in the short run, to spur economic activity. It's vital in the long run, to make sure our economies can keep up with the needs of tomorrow. And for that, businesses like yours need access to financing.

The European Union plays its part when it comes to supporting investments. It accompanies national governments in their own actions – through our common European budget and through the action of the European Investment Bank, which has seen its lending capacity massively increase after a decision by the European Council in June 2012.

But in several European countries the problem runs deeper. For those countries, even when spreads have gone down for their governments to borrow, interest rates for companies haven’t followed.

It's a problem many of you know well. Today it's much more expensive for a Portuguese or Italian business to borrow money than for a similar company based in Austria or Belgium. And it's not only more expensive, it's also often more difficult given tougher credit standards applied by banks, especially for small and medium sized enterprises.

Financial fragmentation, resulting in unacceptably tight lending conditions in some countries, is a real threat to growth. Putting an end to it is a huge priority – for all the national governments, for all the European institutions, including the European Central Bank. When it comes to unlocking opportunities: access to financing is one of the keys.

It's particularly important for small and medium enterprises – which represent about three quarters of all jobs in the eurozone. So it's also vital for employment. Fighting unemployment is the highest priority today. Not only is unemployment soaring across the Continent, it is also becoming more entrenched. For individuals, for households, the earlier and the longer unemployment hits, the more devastating its effects. The deeper the scars on individual lives, on societies, on our economies as a whole. So doing our utmost to fight unemployment, against the economic cycle, is vital not only for recovery today, but also for the longer-term health of our economies. There's no higher priority. We need measures with an immediate impact, targeting the unemployed, especially young people.

Member states are in the lead, and the European Union is right by their side. So we all have to work hand in hand: businesses, local and national authorities, European interlocutors, we all need to play our part.

The European Union is doing its utmost to help, and we need to do more. We've reallocated unused EU funds in support of national initiatives to fight unemployment. Six billion euro have been set aside in the new seven-year EU budget for a youth employment initiative by leaders in the European Council. The European Parliament is currently discussing this budget and I hope it can come to an agreement as soon as possible.

Now we need to look at how we can speed up the impact of this initiative, how we can maximise its reach. I've already started mobilising leaders, and at our summit in June, we'll put forward some more actions to support jobs for young Europeans.

Governments have committed to setting up a Youth Guarantee: every young person should be in school, in training or in work within four months of leaving school.

This can only become reality if business leaders like you are fully engaged. Only with your involvement will we be able to bridge the divide between the classroom and the work place. You don't just recruit employees: you also help develop skills, you nurture talent, you spread opportunities. Making sure your needs are matched can only happen with your support.

And I call upon you as business leaders, just as I call upon all social partners, to be creative, to leave old divides behind, and to work with all your partners to find solutions, both within your countries and within Europe. It would be a great moment for Europe if social partners can agree on a job plan before the June European Council.

In my discussions with national leaders, here in Brussels and during visits to national capitals, I insist that immediate measures on growth or employment, whether national or collective, should always come together with structural reforms that improve the business climate by removing unnecessary barriers to businesses and creating the conditions for companies to invest, expand and create jobs.

Because investments don't just flow from sudden tax rebates or cheap money. If the overall business environment isn't good, if red-tape and unpredictability reign, well… entrepreneurs won't follow.

A stable, predictable business environment is key for confidence, and amongst the most important factors when it comes to unlocking investment decisions. Especially in the world of industry.

And that's another reason why it's so important to keep working with a longer-term perspective in mind, setting the direction for our economies beyond the crisis, for the decades ahead. Investments in infrastructure, in innovation, need that long-term view.

Precisely with that in mind, I've made sure that, at each European Council summit, leaders devote some of their time together to key issues for competitiveness. And not looking only at what immediate measures we can decide, but also at where we want to go eventually.

Before the end of the year, we'll review the engagements of our growth compact and hold an initial exchange of views on industrial policy (in June), we'll look at innovation and our digital agenda (in October), and at the competitiveness and economic role of our defence industry (in December). At several points in the year, we also look at our trade relations with key partners – the negotiations with the United States naturally get much attention, but there are also many other deals on the go. Next year, a comprehensive overview of industrial competitiveness is on the agenda for our February 2014 summit, ahead of a review of the Europe 2020 objectives in March 2014.

And already next week, along taxation matters, the European Council will focus on an issue of utmost importance for businesses and industry: the question of energy. And it's an
issue on which I would like to say a little more before concluding.

You know it better than anyone else: affordable energy is key to keep industry – and jobs – in Europe; it is key for growth; and it's crucial for households too. High energy prices generally mean high prices full stop. Energy prices for industry have gone up by 27% in real terms between 2005 and early 2012, more than in most other industrialised economies.

Just last year, industry gas prices in the European Union were four times higher than in America. Thanks to its new "energy boom'" the United States is set to become a net gas exporter. And others, like China will follow.

It's now becoming clear: eventually Europe may well be the only continent in the world to depend on imported energy. Already by 2035 our dependence on oil and gas imports will reach more than 80%. This will have an impact on the competitiveness of our companies, and of our economy as a whole.

It is this energy dilemma that I want to put to European Council members next week. What should be done by our Union on energy, to foster competitiveness and fuel growth in Europe? Where does action by our Union bring the most added value?

There are four key questions on which I want to focus.
- First, energy efficiency. After all the cheapest energy will always be the one we didn't need to consume in the first place.
- Second, our common energy legislation. We have agreed on tools to open up and integrate our energy markets into a truly single market. Actually using these tools could save us each year up to 30 billion euro for gas, and up to 35 billion for electricity. Why isn't this happening? How can we speed up implementation?
- Third question: facilitating investments, both to modernise our energy infrastructure and to make sure every single Member State is well connected to our single energy market. By 2020, we’ll need around one trillion euro in investments. And investors are ready to invest. But what they do need, is a predictable energy framework: the industry needs to know where the goalposts are. For our energy – and I should add – for our climate policy. It makes sense ecologically, but also economically.
- Fourth and final question: the diversification of energy sources. Both in terms of geographical choice for our imports, but also in terms of indigenous energy resources. We need to carefully weigh the potential of all conventional and unconventional energy sources present on our continent. Not to forget renewable energy of course, where we have set ourselves an ambitious target of 20% of our total energy by 2020 (and overall we are on track). There is still a huge potential, also in terms of job creation. And we should take full advantage of it, especially now that these technologies are becoming more and more mature.

The world is in the midst of an energy revolution. So it's important to discuss those questions. We won't necessarily have all the answers right away, but we need to feed and grow that common debate.

Because ultimately, our global competitiveness depends on our capacity to deal with challenges such as that of energy together. Taking advantage of our collective size, weighing our full weight in the world. It matters for European businesses and European jobs. It matters for European innovation and European industry. And ultimately, it matters for our common future.


Riordan Brings Strong Leadership to Daniels

Prof. Christine Riordan is a perfect example of a dean who practices what she preaches. Riordan has a reputation as an expert in leadership and ethics and under her own leadership, Daniels has blossomed into an internationally recognised academic community. Prof. Riordan has strengthened all aspects of Daniels but of particular interest to us is the way in which she has increasingly engaged the school with the local community. The approach Daniels has shown is really paying dividends - not just in terms of boosting endowments but also in helping strengthen faculty and, most importantly, driving the educational and career opportunities open to students. More and more, Daniels is seen as a centre of excellence and is an integral part of driving the local economy. Prof. Riordan has shown what strong and focused leadership can achieve: when she took over as dean, Daniels did not feature in the rankings but has now established itself as a top ranked school. Her leadership stands out as an example of what is possible to deliver given focus and determination.


PwC, South Africa: Africa Rising

[caption id="attachment_4279" align="alignright" width="173"] Cape Town, South Africa[/caption]

Africa is rising. These days, one cannot pick up a newspaper or magazine without coming across an article or some piece of insightful and fascinating enunciation about the opportunities in Africa. Africa is ripe for the picking and there is certainly no lack of interest worldwide from potential investors. Be that as it may, potential investors must always ensure that a sound investment plan is put in place when embarking on any investment. This includes both an entry and exit strategy. The focus of this article is on the former and it is premised on the basis that the potential investor will utilize interest bearing funding in order to acquire the equity shares in the target company.

Options available for potential investment in South Africa

When faced with a potential investment, investors will either acquire the shares in the target entity or they will choose to acquire the business as a going concern from the target. It may well even be, however, that the potential investors have no choice but to acquire the shares in the target entity. The shareholders of the target entity are acutely aware that by disposing of the shares in the target entity, they effectively get rid of any potential gremlins that may exist in the target entity. The same result would not be achieved if the business were sold out of the target entity. Furthermore, the tax costs would also differ under the two scenarios. If the shares are sold in the target entity, the shareholders would, assuming that the shares are held on capital account, be subject to South African capital gains tax on the difference between their original cost in the shares and the proceeds received for the disposed of shares. Under the South African Income Tax Act No. 58 of 1962 (“the ITA”), a portion of this gain would be included in the taxable income of the shareholders and taxed accordingly. The resultant gain would be taxed at an effective rate of 13.3%, 18.6% or 26.6% depending on whether the shareholder is a South African resident individual, company or trust respectively. On the other hand, should the target entity dispose of its business as a going concern, the disposal may give rise to income tax and/or capital gains tax. Thereafter, the proceeds from the disposal would have to be distributed to the shareholders and this may add another layer of tax costs. In terms of the South African ITA, distributions made by a company to its shareholders are subject to a 15% dividend withholding tax, subject to certain exemptions. For example, dividends distributed to a South African resident company are exempt from the 15% dividend withholding tax.

Funding the acquisition of shares in a South African entity

Not all potential investors have a reservoir of cash resources which they can access in order to acquire the shares in a target entity. In most instances, interest bearing funding will be required in order to acquire the relevant shares. The funding can either be sourced from within the group (from a finance entity or the holding company) or from a foreign or local bank. However, before the transaction is implemented, potential investors generally set up a new South African entity (where they do not have an existing presence in South Africa) or they use an existing South African subsidiary in order to undertake the transaction. The South African entity would then be funded, either through equity funding or a combination of equity and debt funding. This funding would then be used to acquire all the shares in the target entity.

[caption id="attachment_4285" align="aligncenter" width="528"] Debt Pushdown[/caption]

Interest incurred on the loan utilized to acquire the shares

It is a global principle that the treatment of interest incurred on qualifying debt is often more favourable than the treatment of a dividend paid by a company. Whilst a dividend distribution is a simple means of extracting profits from a company it is not without consequences as, from a South African tax perspective, the dividend will be subject to a 15% dividend withholding tax (see discussion above) and the company declaring the dividend cannot deduct the dividend declared from its taxable income. Interest, on the other hand, receives more favourable treatment but it too is not without its own complications.

Firstly, the general principle in South Africa is that interest incurred on a loan utilized to acquire shares is not deductible due to the treatment of dividends as exempt income in the hands of the shareholder. In order to overcome this, creative methods have been employed in order to secure an interest deduction. One such method is the debt push down mechanism which is a global phenomenon and not “proudly South African”. The rationale behind employing such a structure is that interest incurred on a loan utilized to acquire a business is deductible. From a South African tax perspective this structure is implemented together with the so called roll-over provisions in the South African ITA in order to indirectly secure an interest deduction in South Africa. Sound commercial rationale for implementing the debt push down structure is required and it cannot simply be a window dressing exercise. Potential investors must also take cognizance of the South African exchange control provisions and, where a group company provides the requisite funding, the South African thin capitalization and transfer pricing provisions. Furthermore, despite South Africa currently exempting from tax any South African sourced interest earned by a non-resident (provided that the non-resident has not carried on a business through a permanent establishment situated in South Africa), it should be noted that South Africa will be implementing a withholding tax of 15% (before the application of any relevant double tax agreement) on any interest that accrues to a non-resident from a South African source on or after 1 July 2014.

"It is a global principle that the treatment of interest incurred on qualifying debt is often more favourable than the treatment of a dividend paid by a company."

[caption id="attachment_4291" align="alignleft" width="145"] Author: Denny Da Silva[/caption]

Reprieve may be found in the form of provisions effective from 1 January 2013. These provisions represent a shift from the common law position regarding the deduction of interest incurred on a loan used to acquire shares in an entity. In terms of these new provisions, potential investors may obtain a deduction for any interest incurred on a loan used to acquire more than 70% of the shares in a South African entity. But as expected, not all is sunshine and roses and taxpayer’s are required to approach the South African Revenue Service for a directive permitting the deduction of any interest incurred on the loan utilized to acquire the shares in the target entity. In considering the application for the directive, the South African Revenue Service will consider the tax leakage to the fiscus. Experience has shown that a tax leakage of 15% appears to be acceptable to the revenue authorities and anything beyond this will become a matter of debate as to how much the revenue authorities are willing to part with. Factors that would play a role here would be the aggressiveness of the transaction, the parties involved in the transaction and their reputation in the market and with the revenue authorities.

[caption id="attachment_4292" align="alignright" width="145"] Overseen by: Mike Benetello[/caption]

Potential investors are forewarned however that where foreign interest debt funding is used to fund the acquisition of shares, a directive from the South African revenue authorities would most likely be subject to much scrutiny and debate. Coupled with the soon-to-be-introduced withholding tax on interest as noted above, foreign interest bearing debt funding may not be the order of the day for these particular types of transactions. There may be light at the end of the tunnel though. With careful planning it may be possible for potential investors to increase their chances of a deduction under these new provisions or indirectly via a debt push down structure. Potential investors are therefore advised to seek advice before embarking on an investment in South Africa because if you fail to plan, you plan to fail!

This publication is provided by PricewaterhouseCoopers Inc. for information only, and does not constitute the provision of professional advice of any kind. The information provided herein should not be used as a substitute for consultation with professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all the pertinent facts relevant to your particular situation. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher.


Baker and McKenzie: Impact of a New UK Regulatory Framework on Capital Markets

The UK Financial Services Act 2012, which came in to force on 1 April 2013, significantly restructures the regulatory framework in the United Kingdom for monitoring the financial markets and for supervising the banking and financial services industries. The Act implements comprehensive revisions to the regulation of financial services and markets in order to uphold the integrity of the UK financial system. This article focuses on two key reforms which affect the London capital markets: changes to the regulation of sponsors and the adoption of new market manipulation criminal offences.

General overview of regulations

The Act replaces the Financial Services Authority with a new tripartite regime comprised of:

the Financial Conduct Authority, a focused conduct of business regulator regulating the financial markets and retail and wholesale financial services firms;

the Prudential Regulation Authority, a focused micro-prudential regulator regulating financial firms, including banks, investment banks, building societies and insurance companies; and

the Financial Policy Committee of the Bank of England, an expert macro-prudential regulator advising the PRA on macro-economic policy-making and risk assessment and monitoring and responding to systematic risks in the financial sector.

The FCA inherited the FSA's authority to regulate the issuance and trading of securities, supervise multi-lateral trading platforms, establish market codes of conduct, and impose civil and criminal penalties for market abuse and insider dealing. As the FSA's successor as market regulator, the FCA regulates securities transactions in accordance with the United Kingdom Listing Authority's Listing Rules, Prospectus Rules, and Disclosure and Transparency Rules. Although the Act in general does not materially change the UKLA rules in effect prior to the Act, one significant change to the UKLA Listing Rules is to broaden the FCA's authority to authorise, monitor, and discipline sponsors. These changes are designed to make the sponsor system more flexible and responsive to the market, and are summarised further below.

"The FCA inherited the FSA’s authority to regulate the issuance and trading of securities, supervise multi-lateral trading platforms, establish market codes of conduct, and impose civil and criminal penalties for market abuse and insider dealing."

The FCA also inherited the FSA's authority to prosecute criminal offences under the market abuse regime of the UK Financial Services and Markets Act 2000. The Act extensively amends a number of the provisions of FSMA, including repealing the misleading statements criminal offence and adopting new criminal offences for misleading statements, misleading impressions, and misleading statements and impressions relating to benchmarking activities. The changes, which are discussed further below, are intended to govern benchmarking activities in line with, and in response to, the final report of the Wheatley Review of LIBOR.

Changes to the sponsorship regime

The Act amends the UKLA Listing Rules to provide that restrictions or limitations can be placed on the services which a sponsor may provide to make the sponsor system more flexible and responsive to the market. As a result of these changes:

it is now possible to apply to become a sponsor for a limited number of services, rather than having to become a sponsor for all purposes;

the FCA can alter the level of approval and limit the scope of activities a firm can be a sponsor for after they have been given approval;

the FCA has the power to suspend a sponsor's approval, rather than cancelling it, allowing sponsors to more easily return to the market once they have regained the FCA's approval; and

the FCA has a wider range of disciplinary sanctions to use in its regulation of sponsors, including the ability to impose financial penalties.

These changes could provide new opportunities for firms wishing to become sponsors. In its consultation on the changes, the FSA (as the predecessor to the FCA) explicitly acknowledged that one purpose for the new powers is to make it easier for new sponsors to enter the market and therefore to increase competition. The changes mean that sponsors can now apply to be approved to carry out only certain sponsor services, requiring them to meet the eligibility criteria for those services only. This is a significant change from the previous regime, which required all sponsors to satisfy all eligibility criteria and therefore made it potentially difficult for firms to enter the market.

The recent changes will clearly be of interest to existing sponsors. They will also be of interest to firms who are considering becoming new sponsors, in particular those who have in the past been put off by the need to satisfy all of the eligibility criteria. For example, there may be firms who are keen to become sponsors in order to service their global clients on certain transactions in the UK, but only have experience and expertise in certain types of transactions. Under the previous regime, such firms would not have been able to become sponsors without first acquiring additional skills in order to satisfy all of the criteria required by a sponsor. However, under the new regime, such firms would be able to be approved as sponsors for specific types of transactions, allowing them to make an initial entry into the UK market, and then possibly expand their operations at a later date.

To become a sponsor it is necessary to meet several criteria which are set out in the Listing Rules. These criteria must not only be met upon application but continuously whilst a firm remains a sponsor. An applicant must show, to the satisfaction of the FCA, that it:

is either an authorised person or member of a designated professional body;

is competent to perform sponsor services; and

has appropriate systems and controls in place to ensure that it can carry out its role as a sponsor.

There is a multi-step application process for becoming a sponsor in the UK. The process does not have a set timeline as the period taken will depend on the specific firm applying and the quality of its application. It is therefore best to begin the process as soon as possible and to contact the regulator at an early stage. The steps are:

first, write to the Sponsor Supervision team of the UKLA, providing details of the firm. The Sponsor Supervision department will then provide guidance on how the Listing Rules will apply to the firm;

second, submit an application form, together with the non-refundable application fee of £15,000;

and third, the UKLA Sponsor Supervision team will then conduct an onsite assessment of the firm, examining its systems and controls.

A prospective sponsor will need to demonstrate that its systems and controls are sufficient. If a firm is considered competent it will be given approval to become a sponsor. The sponsor will be liable to pay the annual sponsor fee of £20,000.

Expanding market manipulation offences

The Act replaces the provisions of FSMA for misleading statements and misleading impressions, adopting some new standards and introducing a new offence for misleading statements and impressions relation to benchmarking activities. These changes are primarily in response to the final report of the Wheatley Review of LIBOR, which was issued in 2012 amidst increasing concerns about the accuracy and reliability of benchmarks, such as LIBOR. As a result of these changes, benchmarking activities are regulated activities under FSMA and intended to fall within the market abuse regime of FSMA.

The FCA inherited the FSA's responsibilities for the market abuse regime under FSMA, and retains the power to prosecute the following criminal offences:

"misleading statements", or making a statement which is knowingly or recklessly materially false or misleading, or dishonestly concealing a material fact, to induce investment activity;

"misleading impressions", or any intentional or reckless act to create a false or misleading impression of the market in or price or value of an investment to induce investment activity and/or the making of an economic gain or the causing of an economic loss; and

"misleading statements and impressions relating to benchmarks", or making a statement or impression which is knowingly or recklessly false or misleading in connection with setting a benchmark.

The offence of "misleading statements" substantively restates the offence in effect prior to the Act, and the offence of "misleading impressions" broadens the offence in effect prior to the Act by including reckless as well as intentional acts. For example, a statement or impression which is likely to induce a shareholder to sell its shares could constitute a criminal offence if the person making the statement was reckless as to whether the statement was misleading, false or deceptive. The "misleading statements and impressions relating to benchmarks" offence is a new criminal offence which did not exist prior to the Act. All three criminal offences may be punishable by imprisonment of up to seven years or fines up to the statutory maximum.

The Act's Misleading Statements Order clarifies which investments, activities and benchmarks fall under the new criminal offences, and the FMSA's Regulated Activities Amendment Order affirms that providing information in relation to a specified benchmark and administering a specified benchmark constitute regulated activities. In addition, the FCA issued the new handbook General Guidance on Benchmark Submission and Administration, which includes new rules for entities carrying on benchmark related regulated activities. Although the orders specify that currently the only regulated benchmark is LIBOR, the FCA has the authority to regulate other benchmarks as well. For example, the FCA could adopt similar provisions for benchmarks for the energy or commodity markets.

Conclusion

The new financial regulatory framework is intended to increase the reliability and stability of the UK financial markets, and the Act balances the need to protect a broadening definition of financial consumers, to increase effective competition, and to enhance the integrity of the financial markets. The FCA's powers to regulate capital markets activities have been significantly expanded as compared to its predecessor to meet these strategic objectives, and the new regulatory authorities will need to continue to work with market participants to ensure that the new regime is practical and effective.

About the Author

Edward Bibko is a partner in Baker & McKenzie’s International Capital Markets Group based in London. He joined Baker & McKenzie’s London office in February 2001. Prior to joining Baker & McKenzie, Edward practiced in New York and Chicago law firms and worked as a financial analyst for IBM. Edward is ranked as a leading capital markets practitioner in Chambers Global 2009 and currently serves as a member of the Firm’s International Capital Markets Group. Mr Bibko  specialises in international equity and debt capital markets transactions. He received a doctorate from Syracuse University.

About Baker & McKenzie

Baker & McKenzie is the world's leading law firm, with 3,750 lawyers who "speak" 75 languages in 71 offices worldwide. The company had $2.27 billion in revenue in 2011.


IMF Facility for Mali: And Hopes for a Resumption of Growth

[caption id="attachment_4323" align="alignright" width="259"] Min Zhu[/caption]

The Executive Board of the International Monetary Fund (IMF) approved a disbursement of an amount equivalent to SDR 10 million (about US$15.1 million) for Mali under the Rapid Credit Facility (RCF). The disbursement will help the authorities meet their urgent balance-of-payments need, and support their economic program in 2013 and re-engagement with donors during the transition toward a new elected government.

The RCF provides rapid concessional financial assistance with limited conditionality to low-income countries facing an urgent balance of payments need.

Following the Executive Board’s discussion of Mali, Mr. Min Zhu, Deputy Managing Director and Acting Chair, stated:

“Mali’s economy is emerging from a recession caused by the security and political crisis in 2012. The adoption of the road map toward presidential and parliamentary elections in July, the restoration of government control over the full territory with the help of foreign military intervention, and the return of donor support are helping set the stage for a resumption of growth. However, the economic situation remains fragile and fraught with risks.

"Strengthening public financial management is essential for sustained economic and fiscal stability."

“The Malian authorities deserve praise for their skillful management of the economy under very difficult circumstances. The government’s fiscal prudence has helped maintain broad economic stability. With the announcement of significant international financial support for Mali at the recent donor conference in Brussels, the challenge will be to ensure effective deployment of these additional resources in line with the country’s near and medium-term priorities of peace consolidation and development.

“Strengthening public financial management is essential for sustained economic and fiscal stability. The steps taken to strengthen cooperation and information exchange between the tax, customs, and procurement administrations will help improve tax auditing and bolster tax revenue over time. The clearance of all outstanding external and domestic arrears by year-end will support the recovery. Going forward, enhanced expenditure controls and cash management will be necessary to avoid the reemergence of payment arrears.

“The ongoing energy sector reform is expected to alleviate the fiscal burden, and boost growth and poverty reduction. The authorities need to secure public support for the reform through open and transparent communications and targeted measures to protect the poor.”


WTO and Aid for Trade: Connecting to Value Chains

The WTO has announced the agenda for the Fourth Global Review of Aid for Trade to be held on 8-10 July. The theme of this year’s event is “Connecting to Value Chains”. The review will focus on the development implications of the global expansion of production chains and will examine how Aid for Trade can help developing countries enter and move up value chain.

The meeting brings together more than 15 ministers from developed and developing countries, 17 heads of international agencies and regional organizations, representatives from 15 private sector companies and associations and an array of trade and development experts.

"The Fourth Global Review will examine the economic opportunities that trade in value added offers, the constraints that firms in developing, and in particular least-developed, countries face in connecting (and moving up) value chains and will focus on how Aid for Trade can assist in this process."

Taking place over three days, the event builds on the results of an extensive monitoring and evaluation (M&E) exercise undertaken jointly by the OECD and WTO, in collaboration with the African Union, Confederation of Indian Industry, Grow Africa, the International Chamber of Commerce, the International Trade Centre, the International Telecommunications Union, the United Nations Economic Commission for Africa and the United Nations World Tourism Organization. Over 900 replies were submitted from more than 120 countries by business, developing country governments, regional organizations, donors and South-South partners in response to the joint OECD-WTO M&E exercise.


Nigeria’s Minister of Agriculture: Sustainability and Growth in Investments from Private Sector, but Banks Overcharge

[caption id="attachment_4345" align="alignright" width="160"] Dr Adewunmi Adeshina[/caption]

The expected gains of the N450billion Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL) special credit portfolio set aside by the Central Bank of Nigeria is yet to be seen due to high interest rates pegged on it by banks, the Minister of Agriculture and Rural Development, Dr Adewunmi Adeshina has said.

Speaking at the inaugural meeting of the Nigeria Agribusiness Group (NAG), Adeshina said research carried out by the Agric Ministry and stakeholders have revealed that NIRSAL was yet to function proper and discharge its purpose due to the high interest rate pegged on it by banks allotted to disburse the funds to farmers.

He lamented that the high interest rate has continued to obstruct its aim of establishment as the credit risk guarantee and interest drawback fund programme operated by the CBN to stimulate agricultural financing and trigger the nation’s agricultural industrialisation process.

"Meanwhile, the Managing Director of Dizengoff West Africa Limited, Mr Richard Hargrave at the forum said that agricultural sector in the country may not grow the way it should due to lack of funds for farmers."

Hargrave said it would impossible for any farmer to survive with high interest rate, adding that because farming is a capital intensive business, fund has been one of the biggest challenges to farmers and until this was resolved Nigeria could not prosper in food sufficiency.

He said the passion and zeal shown by the Minister of Agriculture Dr Adesina to revive the agriculture sector was highly commendable but that much would not come out of it without the private sector driving the process.

However, the Minister disclosed that the Global Financial Institutions had endorsed the establishment of staple crop processing zones in the country, which according to him would attract private sector investment in the industry. According to Adesina, the development partners rallied around Nigeria’s agricultural transformation efforts with commitments, totaling $2 billion, including the World Bank with $1 billion, AfDB with $500 million, USAID with $100 million, the International Fund for Agricultural Development with $100 million, and funds from DFID, UNDP and the Bill and Melinda Gates Foundation.

Adesina also said that the private sector to the agricultural transformation agenda in Nigeria had tremendously increased within the last 18 months, adding that the sector was able to attract $8 billion of private sector investment commitments into the agriculture sector, from local and multinational companies. The minister urged stakeholders in the agricultural sector to advocate and drive policies that would ensure the success and sustainability agric investment in the country. “The Nigerian Agribusiness Group (NABG) will help to drive accelerated investments in the agricultural sector and advocate for policies and incentives that will ensure success and sustainability of the agricultural transformation agenda.

The expected gains of the N450billion Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL) special credit portfolio set aside by the Central Bank of Nigeria is yet to be seen due to high interest rates pegged on it by banks, the Minister of Agriculture and Rural Development, Dr Adewunmi Adeshina has said.

Speaking at the inaugural meeting of the Nigeria Agribusiness Group (NAG), Adeshina said research carried out by the Agric Ministry and stakeholders have revealed that NIRSAL was yet to function proper and discharge its purpose due to the high interest rate pegged on it by banks allotted to disburse the funds to farmers.

He lamented that the high interest rate has continued to obstruct its aim of establishment as the credit risk guarantee and interest drawback fund programme operated by the CBN to stimulate agricultural financing and trigger the nation’s agricultural industrialisation process.

Meanwhile, the Managing Director of Dizengoff West Africa Limited, Mr Richard Hargrave at the forum said that agricultural sector in the country may not grow the way it should due to lack of funds for farmers.

Hargrave said it would impossible for any farmer to survive with high interest rate, adding that because farming is a capital intensive business, fund has been one of the biggest challenges to farmers and until this was resolved Nigeria could not prosper in food sufficiency.

He said the passion and zeal shown by the Minister of Agriculture Dr Adesina to revive the agriculture sector was highly commendable but that much would not come out of it without the private sector driving the process.

However, the Minister disclosed that the Global Financial Institutions had endorsed the establishment of staple crop processing zones in the country, which according to him would attract private sector investment in the industry. According to Adesina, the development partners rallied around Nigeria’s agricultural transformation efforts with commitments, totaling $2 billion, including the World Bank with $1 billion, AfDB with $500 million, USAID with $100 million, the International Fund for Agricultural Development with $100 million, and funds from DFID, UNDP and the Bill and Melinda Gates Foundation.

Adesina also said that the private sector to the agricultural transformation agenda in Nigeria had tremendously increased within the last 18 months, adding that the sector was able to attract $8 billion of private sector investment commitments into the agriculture sector, from local and multinational companies. The minister urged stakeholders in the agricultural sector to advocate and drive policies that would ensure the success and sustainability agric investment in the country. “The Nigerian Agribusiness Group (NABG) will help to drive accelerated investments in the agricultural sector and advocate for policies and incentives that will ensure success and sustainability of the agricultural transformation agenda.