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Foreign direct investment, financial flows, private-sector development, humanitarian assistance, Africa
Vijaya Ramachandran is a senior fellow at the Center for Global Development. She works on the impact of the business environment on the productivity of firms in developing countries, and is the coauthor of an essay titled "Development as Diffusion: Manufacturing Productivity and Africa's Missing Middle,” published in the Oxford Handbook on Economics and Africa. Vijaya is also studying the unintended consequences of rich countries’ anti-money laundering policies on financial inclusion in poor countries. She has published her research in journals such as World Development, Development Policy Review, Governance, Prism, and AIDS and is the author of a CGD book, Africa’s Private Sector: What’s Wrong with the Business Environment and What to Do About It. Prior to joining CGD, Vijaya worked at the World Bank and in the Executive Office of the Secretary-General of the United Nations. She also served on the faculties of Georgetown University and Duke University. Her work has appeared in several media outlets including the Economist, Financial Times, Guardian, Washington Post, New York Times, National Public Radio, and Vox.
A recent flurry of legislative activity has seen the introduction of four bills that aim to crack down on the financing of terrorism. While it is very important to combat money laundering and the financing of terror, the actions can result in unintended negative consequences for poor countries as well. We like some things in these new bills, but they also leave a lot to be desired.
Many developing countries have made progress in political openness and economic management but still struggle to attract private sector investments. Potential investors to these countries have many concerns that can broadly be classified into high costs and high actual or perceived risks. Drawing on insights from existing guarantees offered by bilateral development agencies, national governments, utility companies, and even shopping malls, we suggest that Service Performance Guarantees can be part of the solution, offering investing firms the opportunity to purchase insurance against a wider range of risks than is currently possible and establishing a partnership of donors and recipient governments, accountable to their investor clients.
Last November, we released a report on the unintended consequences of anti-money laundering policies for poor countries that focused on remittances, corresponding banking, and the delivery of humanitarian aid. Today, we are pleased to report progress towards reducing the negative, unintended consequences of anti-money laundering (AML) regulation, despite the shadow cast on the international development community by Brexit. One significant policy change from the Financial Action Task Force (FATF) and three new reports give us reasons to celebrate a little, even when there is much work to be done.
The Brexit vote illustrates what can happen when people feel their job opportunities are suffering due to liberalized trade policies. If we want open migration and trade policies, we need to focus on domestic job losses.
In India, the price of onions is an election issue, so ubiquitous are they in the nation’s cooking. Regularly, around the world, poor consumers face extra hardship as the prices of basic foodstuffs seesaw. Global food security is an area CGD has worked on for many years, and back in mid-2008, we tried to help figure out a solution to the skyrocketing price of a major staple.
Struggling to provide relief and reconstruction assistance in the wake of super typhoon Haiyan (a.k.a. Yolanda), the Philippines has launched a foreign aid information hub and gently encouraged donors to follow through on their own transparency pledges, with a top official reported in the Philippine press as saying that the two efforts "should go hand in hand."
Many countries in Africa suffer high rates of under-employment or low rates of productive employment; many also anticipate large numbers of people entering the workforce in the near future. It is estimated that the working age population will rise to almost 800 million in 2030, up from the current number of 466 million. In our new paper , we ask the question— are African firms employing fewer people than firms located in other parts of the world? And if so, why?
The first-ever National Business Census began in Haiti this month. A census of formal and informal businesses has never been conducted and there is no comprehensive business database. Although a daunting task, the census will likely help to strengthen small and medium enterprises and increase local procurement.
The survey began September 3rd and will be conducted by 500 interviewers recruited by 42 supervisors from across the country – at a cost of 26 million gourdes (around $600,000). Wilson Laleau, the Minister of Trade and Industry, explained that this survey will enable the government to assist entrepreneurs with access to credit, help meeting standards, and entering new markets. Maintaining crops, inventories, and production is notoriously difficult with disasters such as Hurricane Isaac. A comprehensive census could improve access to credit and insurance coverage for natural disasters. Prime Minister Laurent Lamothe said: “Everyone recognizes the importance of such an activity… [a census is a] prerequisite to any policy to support the development of entrepreneurship in Haiti.”
Photo: Gates Foundation / cc
At the second anniversary of the Haiti earthquake in January 2012, slow reconstruction and recovery efforts sparked soul-searching and debate in the development community. Why aren’t recovery efforts moving faster? Are international donors and NGOs helping or hurting recovery? Can traditional aid work amidst Haiti's weak government institutions? Are there alternative approaches that would be better?
Because Haiti epitomizes many of the most difficult challenges of development, it has attracted substantial interest from CGD researchers. Their fresh ideas include using migration as a disaster recovery tool and cell phones to put money directly into the hands of earthquake victims. Below, highlights from their recent work:
1) Better Haiti Aid: Migration
Michael Clemens, Senior Fellow
“The U.S. government added Haiti to the list of more than 50 countries eligible to participate in the H-2 visa program for temporary and seasonal workers, ending a longstanding policy of excluding Haitians from America’s largest temporary employment-based visa program. This is wonderful news for Haitians and Americans. It has the potential to unlock hundreds of millions of dollars in new economic opportunity for Haitian workers and their families—at no cost to the U.S. or Haitian governments, and with no increase in overall U.S. immigration. This seemingly tiny change has vast economic potential. Given the huge wage differences (an estimated $19,000 in additional annual income per Haitian worker), if just 2,000 Haitians are permitted to work as H-2 workers in the United States each year, over the course of 10 years, that’s $400 million in additional, new income for Haitian families. That’s equal in size to the entire U.S. post-earthquake budget for reconstruction in Haiti.”
2) Haiti: Doomed to be the Republic of NGOs?
Vijaja Ramachandran, Senior Fellow
“Haiti is often called the ‘Republic of NGOs.’ Because of the limited capacity of the Haitian government and weak national institutions, NGOs have risen to play a very prominent role, one equivalent to a quasi-privatization of the state. In a forthcoming paper, I discuss some of the options for improving the relationship between NGOs and the government of Haiti, with a view to building public institutions and government capacity. I recommend that NGOs working in Haiti be asked to sign the equivalent of the Paris Declaration for aid donors—one that would require registration, coordination, and cooperation with the government. Meanwhile, the government (and the international donor community, which is committed at least on paper to supporting the government) should focus on core functions, in particular “core governance”: security, civil service, core infrastructure, legal and regulatory reforms, and public financial management and corruption.”
3) Build Back Better: Great Slogan, Bad Idea?
Charles Kenny, Senior Fellow
“On the second anniversary of the Haiti quake, there has been some progress towards reconstruction and recovery, but it is slow. And one big reason for that is the snail’s pace rate of disbursement of international donor funding for reconstruction. [This stirs] up old angst about the broader problem with disaster relief and recovery support. All too often, we try to deliver [disaster relief] like development assistance. But reconstruction and development are two different things. Development is about making things better than they were. Reconstruction, on the other hand, is about ‘getting back to where we were’ as quickly as possible. For disaster recovery, a new model of giving money direct to victims is increasingly practicable thanks to mobile money –indeed, it was done by Mercy Corps in Haiti. I’d suggest combining that with funding local governments –however inefficient and corrupt—to get back to their former state of (dys)function. Wait on the development assistance until life looks a little more normal.”
4) Cholera in Haiti: The Blame Game
Victoria Fan, Research Fellow, and Richard Cash, Senior Lecturer on Global Health, Harvard School of Public Health
“Since October 2010, Haiti has struggled to control a deadly cholera outbreak—on top of ongoing recovery efforts from the devastating earthquake in January 2010. In December 2011, a group of lawyers in Haiti, on behalf of some 15,000 victims of cholera, sued the United Nations for $50,000 for each victim and double that for families of those who died. Focusing on these immediate objects of blame are of epidemiologic interest, but deflect attention away from the country experiencing the disease, and in this case, unable to control the spread. In a country where aid agencies and NGOs play major roles relative to the government, this outbreak should draw attention not only to immediate causes but more importantly to the long-term failure by every involved party and to the urgency of improving Haiti’s water and sanitation as soon as possible.”
This is not the first time CGD has proposed alternative development ideas for Haiti. Click here to see our list from 2010, featuring even more ideas and commentary on post-quake development efforts.
This paper examines how the lack of recognition of Somaliland by the international community—and the consequent ineligibility for foreign financial assistance—has shaped the region's political development. It finds evidence that Somaliland’s ineligibility for foreign aid facilitated the development of accountable political institutions and contributed to the willingness of Somalilanders to engage constructively in the state-building process.
Prime Minister Narendra Modi’s announced a bold measure on Wednesday to reduce the role of unaccounted for cash or “black money” in the country’s economy by “de-monetizing” higher-denomination currency notes. The new policy bans the use of 500 rupee and 1,000 rupee currency notes. While this measure may have the positive (though potentially temporary) effect of forcing illicit activity out of the regulated economy, the process could be disorderly, with the poorest members of society bearing the brunt of the disruption.
This is shaping up to be a big year for US trade policy. Most eyes are on potential deals with the Pacific Rim and Europe (and reeling from Senator Reid’s latest blow to their prospects). Those of us concerned with trade as a driver for development should also be watching Congress’ and the Obama Administration’s review of the African Growth and Opportunity Act (AGOA).