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Moss served as Deputy Assistant Secretary in the Bureau of African Affairs at the U.S. Department of State 2007-2008 while on leave from CGD. Previously, he has been a Lecturer at the London School of Economics (LSE) and worked at the World Bank, the Economist Intelligence Unit (EIU) and the Overseas Development Council. Moss is the author of numerous articles and books, including African Development: Making Sense of the Issues and Actors (2011) and Oil to Cash: Fighting the Resource Curse with Cash Transfers (2015). He holds a PhD from the University of London’s SOAS and a BA from Tufts University.
“An Aid-Institutions Paradox? Aid dependency and state building in sub-Saharan Africa,” with Nicolas van de Walle and Gunilla Pettersson, in William Easterly (ed.) Reinventing Aid, MIT Press, Cambridge, 2008.
“The Ghost of 0.7%: Origins and Relevance of the International Aid Target,” with Michael Clemens, International Journal of Development Issues, Vol. 6, No. 1, 2007.
“Compassionate Conservatives of Conservative Compassionates? US political parties and bilateral foreign assistance to Africa”, with Markus Goldstein, Journal of Development Studies, Vol. 24, No. 1, October 2005.
“Is Africa’s Skepticism of Foreign Capital Justified? Preliminary Evidence from Firm Survey Data in East Africa”, with Vijaya Ramachandran and Manju Kedia Shah, in Magnus Blomstrom, Edward Graham, and Theodore Moran (eds), Does a Foreign Direct Investment Promote Development?, Institute of International Economics, Washington DC, May 2005.
“Irrational Exuberance or Financial Foresight? The Political Logic of Stock Markets in Africa”, in Sam Mensah & Todd Moss (eds), African Emerging Markets: Contemporary Issues, Volume II, African Capital Markets Forum, Accra, 2004.
“Stock Markets in Africa: Emerging Lions or White Elephants?” with Charles Kenny, World Development, Vol. 26, No. 5, May 1998.
“Africa Policy Adrift,” with David Gordon, Mediterranean Quarterly, Vol. 7, No. 3, Summer 1996.
“US Policy and Democratisation in Africa: The Limits of Liberal Universalism,” The Journal of Modern African Studies, Vol. 33, No. 2, June 1995.
The World Bank is supposed to work with poor countries in distress. When it all goes well, the Bank supports reformers with advice and money. Sometimes, however, the Bank prolongs a country’s pain by throwing a lifeline to recalcitrant regimes. The difference between a helping hand and a counterproductive crutch requires the Bank to understand the trends inside a country and how its own actions might affect those dynamics. Often, it’s difficult to discern these subtleties. Not in the case of Zimbabwe—where a leaked draft report suggests that the Bank could do business there again if human right abuses “level off.” You can read it for yourself—I’ve linked to it below—but I’ve already been through it and it’s pretty extraordinary.
The backdrop is that Robert Mugabe’s government is literally running out of cash and wants new loans. But the World Bank can’t lend to his government because it hasn’t repaid its old loans for the past 17 years. So before Mugabe can start borrowing again, his government must first clear the $1.8bn in arrears that it owes to the World Bank, International Monetary Fund, and African Development Bank. Since the country doesn’t have the money, its finance minister has proposed a raft of new loans and accounting maneuvers (PDF) to clear the tab. Part of the financing will supposedly come from a special rescue fund created by donors like the UK and US.
Shareholders of the international financial institutions expect borrowers to meet some minimal standards of human rights and governance before receiving help from their taxpayers. Thus, if Zimbabwe wants others to pay off its arrears and for lending to restart, Mugabe’s government must convince the world that it’s serious about reforms. This is a pretty tall order given that a small cabal has run the country for the past 36 years. These very same people are responsible for decimating the economy, stealing elections, and repeatedly committing gross human rights violations. But the cabal is now promising they have changed.
The first step in the process is a green light from the IMF. Zimbabwe should easily meet the IMF’s overly narrow technical targets while the IMF has hinted it is preparing to go along. The next step, convincing the World Bank, should be a higher bar since its mandate includes broader governance. The Bank is currently trying to figure out if the Government of Zimbabwe is truly committed to reform or just play-acting in order to get the money it desperately needs.
Such a decision is usually made in a black box. Ordinary Zimbabweans and Western taxpayers would normally have no idea what the Zimbabwe government is pledging to do, nor what the World Bank really thinks is going on in the country. But this time, the public has a revealing window into the Bank staff’s views of Zimbabwe’s progress: a leaked copy of the World Bank’s draft “Turnaround Eligibility Note for Zimbabwe,” dated 27 July 2016. Readers can judge for themselves if the Bank’s analysis bears any resemblance to reality or if the arguments for engagement are convincing. (My verdicts: no and hell no.)
Let me call attention, however, to one section that particularly struck me: On page 29, the Bank proposes an indicator of progress would be “Number of alleged human rights violations level off or decline...”
Reading this literally turned my stomach. It fits with the worst conspiracy theories that critics have of the World Bank—that it’s an unaccountable behemoth plotting in secret to bankroll tyrants, undermine democracy, and destroy communities. I don’t believe any of that. I briefly worked at the World Bank, I’ve researched the World Bank for most of my career, and I have largely defended the World Bank. It’s an essential institution for tackling some of the world’s toughest global problems. And it’s mostly filled with smart, honorable, hard-working people dedicated to ending poverty.
That’s why this document makes me sick.
For the World Bank to move ahead with funding for Zimbabwe based on this naïve and deeply flawed analysis would be a colossal mistake. Doing so in the hope that human rights violations “level off” is an affront to the very reason the World Bank exists. It’s also entirely counter to the Bank’s new safeguards, launched less than a month ago, which are supposed to increase the focus on human rights.
But it’s not too late. President Jim Kim must squash this immediately. Barring clear action from Bank management, the shareholders like the US and UK must do the right thing and block this nonsense before it goes any further. Bankrolling Mugabe on the delusional premise that it would benefit ordinary people and encourage reform is harmful to millions of suffering Zimbabweans—and would cause irreparable damage to the credibility of the World Bank and its shareholders.
The climate and energy challenge is primarily about finding ways to bring clean energy to Rio and Lagos, not to San Francisco or Berlin.
To avoid catastrophic climate change, the world needs a radical transformation in how we produce energy. In fact, the International Energy Agency estimates that generation from renewable energy needs to more than triple by 2040 to have any chance of limiting global warming to two degrees Celsius. And for all of the recent progress in energy technologies, most people accept that we will only achieve sustainable energy patterns with a substantial investment in research and development—from solar, wind, and nuclear through storage and efficient distribution.
The good news is that the international community is committed to finding low carbon technologies to power an increasingly high-energy planet. Mission Innovation is a pledge by major emitting countries to double their investments in clean energy research from its current level of $15 billion over the next five years. Bill Gates and other billionaires have teamed up to create the Breakthrough Energy Coalition to add private support as well, bringing the total expected investment in research to well over $110 billion through 2021.
These efforts should lead to changes in the way North America and Europe generate power in the future. But where the research will take place and where energy will be consumed doesn’t necessarily match up.
Between 2012 and 2040, electricity use by OECD countries is expected to grow by 18 percent; but for non-OECD countries, the projected rise is a whopping 71 percent. Within 25 years, non-OECD countries will account for two-thirds of global energy consumption. To that end, the climate and energy challenge is primarily about finding ways to bring clean energy to Rio and Lagos, not to San Francisco or Berlin.
Developing countries are different from rich countries in more ways than income per head. Most are closer to the tropics, where the majority see lower population density. The overall scale of national energy markets is often orders of magnitude smaller than a country like Belgium or Canada—let alone the US. These and many other factors suggest that the sustainable energy solutions that work in the rich world might not be applicable, or at least will require significant adaptation to be applied, in many parts of the developing world. Take one recent example: how useful is a major breakthrough in carbon capture in Iceland when most developing countries don’t share relevant geological features?
The big push on sustainable energy R&D can only succeed if it takes into account the opportunities and special challenges for bringing energy to the world’s poorest regions. This means that Mission Innovation and the Breakthrough Energy Coalition should be sure they set aside funds not just for sexy projects that will work among the affluent of London or Los Angeles, but that will also find energy solutions that are fitting for the demands of consumers in Manila and Bamako.
To complement the push, an energy pull may also be especially useful. Lessons can be drawn from the pneumococcal vaccine story. Pneumococcal illnesses from pneumonia to meningitis are the globe’s biggest vaccine-preventable killer of children under five. A vaccine developed by Western pharmaceutical companies soon became routine in 35 high- and middle-income countries, but it did not provide protection against the strains most prevalent in the developing world. The Bill & Melinda Gates Foundation along with six governments created an “advance market commitment,” pledging to spend $1.5 billion on a vaccine—that included those strains—if it was developed by pharmaceutical companies.
The strategy worked.
GAVI has now immunized 47 million children with the new vaccine. Perhaps a similar pull mechanism could apply to clean energy?
US foreign aid can take many forms, from disaster assistance to democracy support. And historically, the reasons for dispensing it have run the gamut from humanitarian need to political priority. The Senate Foreign Relations Committee recently took an interest in one key form of foreign aid—US economic assistance—convening a hearing to investigate the topic. We had high hopes going in and were pleased to hear all three of the hearing’s witnesses—Jeffrey Herbst, Alicia Phillips Mandaville, and CGD’s Todd Moss—champion the use of rigorous analysis, evaluation, and selectivity in aid to promote economic opportunity in developing countries.
The hearing covered a lot of ground that, in an election year, has implications for the next presidential administration as much as the current one. But emerging from witnesses’ statements and members’ lines of questioning were a number of common themes. Here’s what we took from the back-and-forth:
Analysis and coordination are a starting point for economic growth
Aid is most likely to be effective when it’s appropriately targeted and responds to the needs and wants of recipient countries. US aid agencies should work closely with partner countries and use analytical tools like cost-benefit analysis and growth diagnostics to inform investment decisions. After all, as Alicia Philips Mandaville noted, broad-based investment is about more than sustaining developing country growth—it’s about cultivating an enabling environment in which such growth can even take place.
Using these diagnostics to determine priorities and select the tools and instruments up to the task (hint: it’s not always about aid) can help ensure projects are tailored to achieve desired outcomes. Development finance, as Todd Moss explained, is well suited to promoting market solutions to poverty and insecurity. And if committee members’ comments were any indication, they, like us, believe it will be a big part of the future of US development policy.
Evaluation is critical for maximizing development impact
Diagnosing country needs, of course, is a separate matter from evaluating foreign aid programs. To ensure that these programs are accomplishing the goal of promoting economic growth, they must be subject to rigorous evaluations based on good metrics and a sound process for assessing what works and what doesn’t. Our colleagues have written before about how USAID would benefit from a top-to-bottom review of its programs—one that uncovers program strengths and weaknesses and, in turn, helps the agency adapt its capabilities and resources to the trends reshaping global development today.
Selectivity is a useful principle for guiding bilateral relationships
Discovering what works and what doesn’t gives rise to a tricky question: how does the United States manage its bilateral relationships with recipient countries when those relationships have evolved beyond existing aid programs? To be sure, ineffectual programs and disinterested governments should not receive taxpayer dollars indefinitely. But the answer is not to take a hacksaw to existing aid programs. A more prudent approach is for the United States, on the front end, to be selective in the countries and sectors it provides aid to and, on the back end, to adjust flexibilities and directives or encourage country reforms based on (you guessed it!) rigorous analysis and evaluation.
In previous posts, we’ve used “timely,” “thoughtful,” and “bipartisan” to describe many of the committee’s recent hearings. Following this latest hearing, we might also add “engaged” to the list, as six members participated in a robust discussion on how the United States can leverage its development toolkit to promote growth abroad. With just over six months to go before a new US president takes office, an engaged committee is exactly what we want to see.
On July 7, CGD chief operating officer and senior fellow Todd Moss testified before the Senate Foreign Relations Committee at a hearing titled “An Assessment of US Economic Assistance.” Moss’s remarks emphasized the role development finance in promoting market solutions to poverty and insecurity.
Tens of thousands of people will descend on Cleveland and Philadelphia—hosts of this year’s Republican and Democratic National Conventions—in the weeks ahead. But that doesn’t mean Congress is off the hook just yet. Legislators still have a week and a half in town, and we were encouraged to see the Senate Foreign Relations Committee fit an important hearing into the narrowing window. This afternoon, the Committee will convene a hearing to assess the role of US foreign aid in spurring economic growth.
If you’ve been watching the Committee as closely as we have over the past few months, then you’ve been treated to a string of timely and thoughtful hearings, many characterized by a healthy dose of bipartisanship. We’re hoping for more of the same from this hearing, which features a top-notch panel of development experts—including CGD chief operating officer and senior fellow Todd Moss.
As the dialogue between witnesses and members proceeds, here are a few things we’ll be listening for:
Comparative advantage. It can be hard to get members of the development community to reach agreement on the building blocks of economic growth—harder still to find consensus on which are the most transformative. But this hearing isn’t just about how countries, in their push to promote growth that’s broad-based and pro-poor, remedy those constraints holding back their economies—it’s also about the role of US assistance in that endeavor. There’s ample evidence that businesses are unlikely to flourish in environments that lack reliable electricity and ready access to capital, but just as important to this conversation is considering where the United States can leverage resources and yield the greatest impact.
A range of tools and instruments. The landscape of global development is changing rapidly as once poor countries see their incomes rise and as emerging powers, like China and India, craft ever more ambitious foreign aid programs. The United States wields convening power along with an array of economic and foreign policy tools but, for decades, has been slow to adjust its toolkit to the growth needs of developing countries. Put differently, US aid agencies can do a better job matchmaking—devising a comprehensive strategy for transitioning bilateral relationships once reliant on traditional aid to ones shaped by more complementary sources like trade and investment.
Evidence, evidence, evidence. After all, any “assessment of US economic assistance,” as the hearing is titled, begins with an understanding of which aid programs, principles, and approaches are working, which are falling short of stated goals and expectations, and whether these findings warrant reconsideration of where finite US development dollars should go. And where that evidence base is thin, we hope US policymakers pledge to do more to build it by supporting robust evaluation and piloting programs that pay on the basis of verified results.
With election-year events crowding out the legislative calendar, there’s only so many more opportunities for the Senate to show its commitment to development and its interest in improving US development policy. Let’s hope we get both at today's hearing.
One of the nearest real-world examples of Oil-to-Cash is Alaska, which has paid an annual dividend to every state resident since 1982. One of the presumptive lessons drawn from Alaska’s experience has been that once a dividend was in place, political forces aligned to protect it from politicians. Yet last week, Alaska Governor Bill Walker announced the first-ever cut to the Alaska Permanent Fund dividend. The battle now moves to the legislature, which next week may try to vote to override the veto. Here’s why CGD is also watching.
Our Oil-to-Cash proposal lays out a policy option for governments experiencing resource windfalls: pay a portion of the revenue directly to citizens. Several countries have taken steps toward the model, such as Mexico with its prospera program or Saudi Arabia’s new cash transfer scheme, while Mongolia’s attempt at a mining-linked dividend has largely faltered.
One of the rationales for Oil-to-Cash is that a regular, universal cash transfer linked to revenues would create incentives for citizens to pay attention and build a constituency for better revenue management. In Alaska, every resident receives an equal share of half of the five-year average earnings of the state’s sovereign wealth fund, which is itself funded by 25 percent of all incoming oil royalties. In 2015, Alaskans each received a check of $2,072. The dividend seems to have helped to generate an unusually high level of public interest in fiscal issues. This was the vision of Governor Jay Hammond, the architect of the fund, who believed the dividend would ensure that citizens prevented his successors from raiding state savings or even changing the dividend formula. For 34 years, Hammond’s prediction has held.
Until, perhaps, 2016. Governor Walker, facing plummeting oil revenues and a large budget deficit, last week announced a slew of vetoes to the state budget, including capping the dividend at $1,000, a roughly 50 percent cut from the current formula. The battle now moves to the state legislature, which is holding a second special session beginning July 11 where lawmakers may try to override his vetoes. The proposed cuts could also wind up in court, as there are questions over the legality of the governor’s moves and no guiding case law on the matter. Will public interest and outrage over the proposed restructuring of the fund force legislators to reverse the governor’s action? Has Governor Walker committed political suicide? Find not-so-supportive comments from legislators here and here.
We will be watching closely what happens next in Juneau. So too, we suspect, will policymakers and citizens in Mexico, Mongolia, Saudi Arabia, and other resource-rich countries.
Testimony on US Sanctions Policy in sub-Saharan Africa. CGD chief operating officer and senior fellow Todd Moss testified before the Senate Foreign Relations Subcommittee on Africa and Global Health at a hearing examining the utility of sanctions as an instrument for achieving US policy objectives in Africa.
Last week CGD hosted an event on advancing women’s political leadership, featuring Malawi’s first female president and Africa’s second, President Joyce Banda. President Banda didn’t just join us for the afternoon; she will soon become a colleague too – as a CGD distinguished visiting fellow, jointly with the Woodrow Wilson Center.
At the event, President Banda discussed her own experiences as a woman in African politics and her current work to encourage other women to become political leaders, giving us a snapshot into how she’ll be spending her considerable energies. In her remarks and conversation with the Wilson Center’s Gwen Young, she argued forcefully for leveling the political playing field for women. She also made the case for ensuring that girls have an equal opportunity to go to school, for women to have equal access to productive assets, and for working to prevent maternal mortality and gender-based violence.
President Banda’s words match actions she took while in government; as Minister of Gender and Child Welfare, she championed Malawi’s 2006 Prevention of Domestic Violence Bill, which provided the legal framework to support the prevention and elimination of all forms of violence against women and girls.
Since leaving the state house, President Banda has continued her work to promote gender equality and advance women’s political leadership, through initiatives such as Elect Her Into Office, a new campaign launched by Madeleine Albright and the National Democratic Institute, and the Joyce Banda Foundation. While at CGD and the Wilson Center, she will build on this work by focusing on the issue of women’s political leadership and joining Charles Kenny and Mayra Buvinic to promote other areas of gender and development.
As a distinguished visiting fellow, President Banda brings with her decades of experience not only in politics but also in advocacy on behalf of women and girls, and we are excited to have her on board. Welcome President Banda!
The budget just released zeroes out the Overseas Private Investment Corporation, the nation’s development finance institution. In an era where many government agencies are under threat, it may not be surprising that OPIC would come under fire. Yet, none of the arguments often used to justify killing off OPIC are logical. Here’s why:
Save taxpayer money? Nope. OPIC has paid money into the US Treasury for 37 years in a row. Last year, it contributed $358 million toward the federal budget. Even the Heritage Foundation admits that closing OPIC will cost (!) taxpayers an additional $2.2 billion over the next ten years.
Drain the swamp? Nope. A decade ago, many critics worried that OPIC was fostering corporate welfare by subsidizing large American companies. It’s true that in the 1990s OPIC lent money to Enron and occasionally it has approved some questionable investments, but today there’s no evidence that OPIC is engaging in corporate welfare. In fact, a thorough scrub of OPIC’s portfolio found that less than 8 percent of OPIC commitments have involved any Fortune 500 company.
OPIC is irrelevant to US national security? Nope. When the US government wants to help promote stability and job creation in strategic allies, it turns to OPIC. Last year, OPIC lent money to build financial services in Egypt, power in Pakistan, and to catalyze private investment in infrastructure in crucial allies like Jordan and Kenya. In Iraq, OPIC has played a major role in helping rebuild the economy by spurring investment in water, agriculture, electricity, banking, construction, housing, and industry. (Check out the whole portfolio here.)
The US has better tools to promote private sector development? Nope. OPIC’s mandate is to mobilize private capital to solve development problems and build markets overseas. To do this, it can provide commercial loans, risk insurance, and seed capital for venture and private equity funds. No other agency has these capabilities.
That only leaves pure ideology. If the current administration truly wants to get government out of the way of any market potential distortions, then one could imagine getting rid of OPIC as part of an extreme laissez faire policy that could only logically also include completely free trade and completely open borders.
If the administration takes a deep breath and looks at the pros and cons of OPIC, it’s not even a close call. If the White House truly wants to build markets for American goods in fast-growing emerging markets, support private sector led growth in our strategic allies, and ensure that US companies are competing in these markets with Chinese and European firms—all at less than zero cost to taxpayers—then there’s isn’t a more valuable agency than OPIC. In fact, a sober assessment can only conclude that the U.S. should get serious about making OPIC bigger and better.
If the White House won’t do the sensible thing, then it’s up to you, Congress.
On a sub-continent where 600 million people don’t have regular access to electricity, an initiative that would bring electricity to 20 million households in six countries might feel like a drop in the proverbial unlit bucket, but it’s an exciting start—and one that could be amped up by the Electrify Africa Act of 2013.
But let’s be realistic: presidential initiatives on development have a discouraging recent history. Initiatives like PEPFAR and MCC with strong institutional homes, clear value-added, metrics of success, and bipartisan support from the Hill have lived well beyond the presidential launch and become hallmarks of US development efforts. Yet, those thrown to the Interagency wolves have usually died.
That’s why, beyond just cheering on the substance, here are the big process things we’ll be watching for to see if Power Africa is going to succeed or be just another showy announcement:
1. Who’s in charge? Partnership for Growth…Pakistan…Global Health Initiative…New Alliance for Food Security…Global Climate Change Initiative…anything at all involving interagency coordination. The record is pretty dire for USG multi-agency efforts without a clear leader and strong institutional home. It’s easy for initiatives to get sucked into the (w)hole-of-government vacuum and this is a big danger for Power Africa too, especially as key players like Mike Froman leave the White House. (And what happens if Gayle Smith moves?)
Power Africa is currently housed at USAID. We’re keen to see what Andrew Herscowitz and his colleagues can do. But USAID isn’t institutionally empowered to be an interagency driver of something that involves serious efforts from and coordination of multiple agencies—not to mention all of the private sector moving pieces. And if the coordinator is going to be based in Kenya, who is going to drive the Interagency in DC?
If we had our way, OPIC would get the employees and mandate it needs to be the lead agency with substantial support from NSS staff. OPIC has the expertise to drive these projects, can leverage private capital, and is better set up for Power Africa than a grant-making agency like USAID. But with just one employee on the continent and critical staffing restraints, it isn’t currently equipped to do so. (See here for some of Todd’s thoughts on how to strengthen OPIC in a budget-neutral way. And stay tuned for some expanded new work on this soon.)
2. Is this just a repackaging of existing projects + new buzzwords? Maybe. How many of these projects were already in the pipeline? If most of them, what’s the value added by Power Africa? Assuming Power Africa does involve principally new projects, with the right interagency structure (see #1) and some real effort on the private investment side ($9 billion and counting so far), this doesn’t need to be the kind of initiative that is just shiny PR.
3. How will the US involve the African Development Bank and other MDBs? No MDB gets a mention in the Power Africa fact sheet but AfDB is going to be very involved. AfDB’s financing, of course, is needed, but its technical assistance will also be necessary if most of these projects are going to succeed.
4. Will the administration seize or buck the Electrify Africa Act? Representatives Royce (R-CA), Engel (D-NY), Smith (R-NJ), and Bass (D-CA) have gift-wrapped a bill for the President that sets more ambitious electricity targets and gives OPIC the ability to help meet them. Let’s hope there’s some smart thinking in White House Leg Affairs about how to move forward with it.
But the cost of birthday cakes and SUVs pale in comparison to the economic damage by ZANU-PF’s misrule. The economy really started tanking in 2000, the year that Mugabe lost a referendum to change the constitution, started throwing away private property rights, and began in earnest to attack the opposition. Just as the rest of Africa started booming, Zimbabwe’s economy was contracting.
It's impossible to know how Zimbabwe would have performed if the government had instead pursued more sensible policies. One reasonable comparison might be to consider what would have happened if Zimbabwe had instead performed like one of its similar neighbors. Zambia is probably the closest match. The two countries share a long border and both economies are based largely on agriculture, mining, and light industry. The two countries also have a similar institutional history (during much of British colonial rule they were Northern and Southern Rhodesia). Yes, there are important differences between the two countries, but using Zambia as a benchmark also seems reasonable because it’s no outlier: its recent growth rate is close to the regional average and it’s a middling performer on governance (e.g., its World Bank CPIA score is just above the regional median).
So, where would Zimbabwe's economy be if, since 2000, it had grown at Zambia's growth rate (5.3%) instead of its actual rate (-2.6%)?
In writing the paper, Todd said, he and Ross “were looking at different ways of trying to encourage private investment in Africa.” Stock exchanges struck them as a vehicle that is currently underexploited. One potentially big upside: regional diversification.
“During the financial crisis of 2008, if you were investing in Latin America or the big Asian markets, you were getting hammered like everywhere else. There was nowhere left to hide. The interesting thing is Africa did not get hit,” Todd says. He and Ross decided to look more closely into whether Africa offered opportunities for diversification not available in other regional markets.
They found was that all the markets of the world are converging, so the diversification gains achieved by investing in different regions are slowly diminishing. It’s a trend that they traced back two decades. “Africa is part of this trend,” Todd said, “but it’s a notable laggard… Africa is the final frontier.”
I asked about this frontier status, the reputation among financiers that Africa is a sort of Wild West in terms investment. Why, I wondered, would investors approach it?
“The markets are volatile, I don't want to downplay that,” Todd replied. “But I really do believe that if you choose reputable brokerages and reputable banks you have very little to worry about.”
“We had some wild rides,” Todd said. “We had a couple stocks do well, we had a couple de-list. But over an 11 year period, we did 11.5% in US dollar terms per year.”
According to Todd, impressive returns are persuading the financial community to reevaluate investments in African markets. Just this year, he said, “the Ghana stock exchange is up about 50% and the Kenyan and Nigerian stock exchanges are up over 30%.”
Todd dampened my urge to immediately invest by noting the small size of these African markets.
“The Ghana exchange will trade less in a whole year than New York will trade before they take their first coffee break,” he says.
“In the US we categorize stocks as small cap, micro cap, mid cap and large cap. A mid cap, which is like a mid-size company, has a stock capitalization of between 2-10 billion dollars. Nigeria may be the second biggest exchange in Africa, but it only has 7 companies that would qualify as mid cap in New York. So if you’re a large institutional investor, there are very few companies where you're going to be able to buy large blocks of stock.
“It's just a massive difference in scale,” Todd said. “But that means there's a lot of headroom in these markets to grow.”
Our discussion wrapped up with Todd emphasizing his confidence in African markets.
“I still hold some shares in Botswana. The Botswana stock exchange works as efficiently as any I've ever invested in,” he said.
[Note: Neither this Wonkcast nor the paper constitutes investment advice!]
My thanks to Aaron King for editing the Wonkcast and providing a draft of this blog post.
As the U.S. government’s development finance institution, the Overseas Private Investment Corporation (OPIC) provides investors with financing, political risk insurance, and support for private equity investment funds when commercial funding cannot be obtained elsewhere. Its mandate is to mobilize private capital to help address critical development challenges and to advance U.S. foreign policy and national security priorities. However, balancing risks, financial needs, and development benefits comes with tradeoffs.
Nigeria has $33 billion in external debt. The government has been trying unsuccessfully for years to cut a deal with creditors to reduce its external obligations but to date has only managed to gain non-concessional restructuring. The major creditors also have good reasons for wanting to seek a resolution, yet agreement has been elusive. Fortunately, there is a brief window of opportunity in 2005 to find a compromise that can meet the needs of both sides. This note briefly outlines a proposal for striking such a deal through a discounted debt buyback.
The international goal for rich countries to devote 0.7% of their national income to development assistance has become a cause célèbre for aid activists and has been accepted in many official quarters as the legitimate target for aid budgets. The origins of the target, however, raise serious questions about its relevance.