Ideas to Action:

Independent research for global prosperity

CGD in the News

March 11, 2019

The U.S. Supreme Court Sent a Wake-up Call to Development Banks. Will They Listen? (World Politics Review)

From the article:

The shallow waters of the Gulf of Kutch, an inlet of the Arabian Sea along the northwestern coast of India, are ideal for fishing, with coral reefs and mangrove forests that provide breeding grounds for a diverse array of marine life. On the gulf’s northern coast, near the town of Mundra, the gently sloping seabed and calm tides make it easy to catch local delicacies like prawns, pomfret and a type of lizardfish known colloquially as “Bombay duck.” 

The Waghers, a Muslim minority group, have fished these waters for generations. They maintain permanent inland villages, but from September until May, many Waghers erect temporary settlements along the coast. From there, they venture out to fish in small boats and on foot, and their catch is dried, processed and sold to local traders. “It is their skill with using nets that is believed to give the Waghers their name,” Bangalore-based author Srinath Perur wrote in 2016. It derives, he explained, “from the exclamation wah and gher, meaning ‘well laid out’ or ‘well surrounded’ in Kutchi,” which is widely spoken in that region of Gujarat state. 

In recent decades, this centuries-old way of life has been increasingly threatened by industrial development projects along the coast. These include the Tata Mundra Ultra Mega Power Project, a gigantic, 4,150-megawatt coal-fired power plant that was financed in part with a $450 million loan from the International Finance Corporation, or IFC, an arm of the World Bank. Since reaching full generation capacity in 2013, the Tata Mundra plant has provided power to 16 million people in five states. Unfortunately, it has also created a host of problems for the Waghers, who complain that discharges of hot water from the plant’s outfall channel have altered the nearby marine habitat and reduced fish stocks. The groundwater is no longer fit to drink. Coal dust and ash from the plant sickens the villagers and contaminates fish that have been laid out to dry. “The joy has gone away,” Budha Ismail Jam, a local Wagher fisherman who lives near the plant, told The Nation magazine last year.

--

The IFC argued that international development banks should receive absolute immunity based on the IOIA, partly because their activities are inherently commercial, so applying restrictive immunity would subject them to an onslaught of foreign-plaintiff litigation and divert resources from their important missions. That was also the primary concern of eight former secretaries of the treasury and secretaries of state, who filed an amicus brief in support of the IFC. 

But the court found those worries to be exaggerated, noting that in reality, many international organizations, including the United Nations and the International Monetary Fund, specify absolute immunity from any kind of judicial proceedings in their charters. The IFC does not, but the court argued that “it is not clear that the lending activity of all development banks qualifies as commercial activity.” Even if it does, potential plaintiffs must meet other standards laid out in the Foreign Sovereign Immunities Act, including that the activity has a “sufficient nexus to the United States.” Development experts and international legal scholars agree that the IFC’s case was unduly alarmist. “This ruling has opened the door a little bit,” says Vijaya Ramachandran, a senior fellow at the Center for Global Development. But, she adds, “we don’t really know whether this is going to lead to a flood of lawsuits.”

A key indicator for other prospective plaintiffs will be the outcome of the Tata Mundra case, which will now go back to lower courts for further litigation. Whether courts agree that a loan to the Tata Mundra Ultra Mega Power Plant project has “sufficient nexus to the United States” is unclear, but lawyers for Earthrights International, the advocacy group that represented the Indian plaintiffs, believe they have a good chance of success. At least one other case, involving farmers in Honduras who say that an IFC-supported company used death squads to terrorize them and dispossess them of their land, is likely to move forward as a result of last month’s ruling. 

While the legal uncertainties are being worked out, observers like Ramachandran say that the IFC and other lenders should take this case as a wake-up call to completely revamp their accountability mechanisms so that they become binding in similar cases going forward. “That currently doesn’t exist, and I think that is the reason the IFC is in this mess,” she says. In practice, that would mean creating an internal ombudsman that can force project management personnel to take corrective actions instead of merely issuing reports.

A strengthened internal accountability mechanism would provide an easier avenue to redress grievances by adversely affected communities, many of whom do not have the resources to pursue legal action in the U.S. But Ramachandran stresses that it is also in the interest of the IFC, which does not want to be in the position of frequently litigating cases in U.S. courts. “Given this ruling, they are probably thinking about it,” she says. “The organization wants to get this right, so I do think they will undertake some steps to carry out reforms.”

 

February 22, 2019

South Africans left in the dark as blackouts return (The National)

From the article:

Cape Town // It was almost possible to hear a collective groan of "not again" rattle around South Africa as the country was once again hit by rolling electricity blackouts.

Around February 4, a balmy summer's Sunday, which most South Africans use to kick back with family and friends, the state energy utility Eskom announced blackouts would be implemented over the next week. And, it said, these would be "Level 4" power cuts, the most serious level before a complete nationwide electrical cut-off.

As Monday rolled around and the markets came on line, the South African currency the rand had its worst week in more than a year, breaching the crucial 14 to the dollar level over the next few days, losing almost 5 per cent against the greenback in total. The economic knock-on of the rand’s fall will be felt quickly, as fuel prices are set to soar.

--

A report last year by the Centre for Global Development found that In some of the continent’s largest economies like Nigeria, Angola, and Ghana, more than 25 per cent of businesses lose double-digit sales due to power outages - with some firms averaging losses of 31 per cent.

Vijaya Ramachandran, the study’s lead author and a senior fellow at CGD, said: “We found that unreliable power can have a major impact on businesses, dampening their growth prospects and undermining job creation opportunities.”

South Africa has a dire unemployment problem but, unlike most African countries, it does not have the peasant-culture that allows people to become independent food producers outside the formal cash economy. Most, therefore, depend on jobs to earn cash money in order to survive.

The economy grew only about 1 per cent in 2018, latest government data shows, and it is economic consensus that South Africa needs 5 per cent growth to achieve job creation.

“An electricity crisis soon becomes a governance crisis, since all services depend on electricity,” says Johannesburg based author and artist Sizwe Mpofu Walsh. “An electricity crisis also soon becomes an economic crisis, since power and production are linked.”

Eskom itself though will probably have to shed jobs. The company’s own figures show that in 2003 it employed 32,000 people; today that number stands at 47,600, while still producing about the same amount of electricity.

Getting the unions, and even the bulk of the ANC itself to be on board with desperately needed changes to Eskom’s structure will be the defining task facing Mr Ramaphosa’s presidency, if he wins the upcoming elections as expected.

Should he fail, so will Eskom and with it, sub-Saharan Africa’s only industrial economy.

 

January 24, 2019

U.S. Contemplates Appointing First Female President of World Bank (The Wall Street Journal)

From the article:

The race to select the next president of the World Bank could be shaped by a strong international desire for the institution to have its first female president.

--

“It would help the U.S. if they went with someone pathbreaking,” said Vijaya Ramachandran, a senior fellow at the Center for Global Development think tank and former World Bank senior economist.

--

“It would be great to have a female president of the World Bank, and given the U.S. is going to nominate someone, these are two really viable candidates,” Ms. Ramachandran said of Ms. Powell and Ms. Nooyi.

January 22, 2019

Are 26 billionaires worth more than half the planet? The debate, explained (Vox)

From the article:

Here’s a wild statistic: The 26 richest people on earth in 2018 had the same net worth as the poorest half of the world’s population, some 3.8 billion people.

That statistic, which comes from the charity group Oxfam, is a bit of an annual tradition. Every year, to mark the World Economic Forum in Davos, Switzerland — that yearly convocation of the world’s richest and most self-important plutocrats — Oxfam puts out a statement that “the top [X] people have the same amount of wealth as the bottom” half, as the Center for Global Development’s Maya Forstater and Vijaya Ramachandran once generalized it. In 2018, X was equal to 26, and as it does every year, the stat went viral.

--

But as the Center for Global Development’s Forstater and Ramachandran noted, Oxfam’s defense smuggles in something interesting: The richest 147 billionaires in the world control about 1 percent of global wealth. That’s way, way more than the 0.000002 percent of the world’s population they represent, but it’s not the case that a small handful of billionaires control most of the world’s wealth.

December 2, 2018

Africa must manufacture its way to a ‘lion economy’ (Asia Times)

By Joseph Dana

From the article:

Despite a recent downturn in the global economy, an unprecedented shift is underway throughout the so-called non-West. From Southeast Asia to Latin America, these economies have seen explosive urbanization and the emergence of a new middle class. Manufacturing remains the engine behind the re-emergence of non-Western economic power. Robust manufacturing sectors have created millions of jobs in countries such as China and India, which have in turn put these economies on impressive growth trajectories.

Africa remains an anomaly in this transformative story. With one of the world’s fastest-growing populations, Africa’s urbanization rates are also exploding. Yet its economies are not meeting their potential. While the continent has benefited from the internet to create new industries, its manufacturing sector has lagged woefully behind those of the rest of the world. Poor governance (a lack of trade-friendly legislation), a lack of investment in local and regional infrastructure (a paucity of efficient ports) and high costs are all factors behind the abysmal state of the sector.

Yet, more generally, the road is going to be long and hard for Africa’s manufacturing sector. Opening a factory remains an expensive and bureaucratic process. According to a 2017 report by the Center for Global Development, small African manufacturing plants were 39 percent more expensive than similar facilities elsewhere. Medium-sized and large factories were a staggering 50 percent more expensive. Despite high levels of unemployment, labor costs were found to be high in countries from South Africa to Tanzania. All this makes little sense, given that countries on the continent remain among the world’s poorest. The reason, in one word, is corruption. It exists on a massive scale through the accumulation of a multitude of small payoffs — almost like a differential calculus of graft. 

Read the full article here.

 

October 9, 2018

Ethiopia continues its economic ascent (World Finance)

By Elizabeth Matsangou

From the article:

Ever since horrifying images of famished children hit our screens back in the 1980s, there has been a stigma attached to Ethiopia – one of a deeply impoverished nation, strangled by starvation. And, for some time, it was. But what may not be as widely known today is the utterly remarkable progress Ethiopia’s economy has made over the past decade. The country has in fact achieved double-digit GDP growth on average for the last 10 years (see Fig 1). Yes, Ethiopia has come a long way in a relatively short period of time, and yet, it’s still just at the start of its extraordinary story.

Perhaps what had been missing from the tale until now was a charismatic protagonist. Enter Abiy Ahmed, as of April 2, Ethiopia’s 15th prime minister. Abiy has taken the country by storm, and in just a few months has achieved what most leaders could only hope for during an entire tenure: establishing peace with neighbouring Eritrea; rousing a disenchanted population; pushing forward with key infrastructure development; opening up the economy to further financial investment; and winning support from the Ethiopian diaspora.

Unsurprisingly, with such triumphs in tow, Abiy has enraptured the Ethiopian diaspora – an important vehicle for foreign investment. “There’s just so much positive energy around the new prime minister,” according to Vijaya Ramachandran, Senior Fellow at the Centre for Global Development. “I think there’s an enormous amount of hope that he can bring stability to the region, that he can mobilise investment, and certainly I think the diaspora is enthusiastic – everybody wants to help him succeed.”

Read the full article here.

 

August 25, 2018

India is Evolving from Being a ‘Recipient’ to a ‘Donor’ (The Policy Times)

By Nandika Chand 

India is one of the youngest and fastest emerging economies in the world. Over the years, the nation has evolved and continues to do so politically, diplomatically and digitally as well as through policies. In the last thirty years, India has emerged from a ‘recipient’ of foreign aid to a ‘donor’. India is a nation, walking that fine line between being a ‘developing’ and ‘developed’ country.

According to an article by the Centre for Global Development, India Emerges as an Aid Donor, “India has quietly transitioned to a donor country, emerging on the world stage as a significant provider of development assistance.”

Read the full article here.

July 12, 2018

The Coming Split in NATO (The Atlantic)

One of President Donald Trump’s chief complaints about America’s European allies is that they don’t spend nearly enough on defense; he has again raised the issue on Wednesday at the nato summit. Granted, Trump is hardly the first American president to point to miserly military spending on the part of fellow nato member states. This has been a sore spot in transatlantic relations since at least the 1970s. But the vociferousness of his complaints, and his transactional approach to alliances writ large, appears to have had an effect all the same. European powers are thinking harder about how to build their military strength and how they might use it in concert, even in—especially in—cases where the United States won’t be there to lend a hand. 

... 

Yet the alternatives to opening Europe’s borders will be daunting in their own right. Last year, researchers at the Center for Global Development released a working paper on the prospects for manufacturing in Africa, and their findings were sobering. With the important exception of Ethiopia, they found that industrial labor costs in most African states were far higher than one would expect when judging by their overall level of development. The upshot is that while export-oriented manufacturing has greatly reduced poverty in much of East Asia, Ethiopia might be the only country in sub-Saharan Africa suited to that development path. Other African states will have to make use of their labor abundance in other ways—for example, by developing their tourism sectors and by transforming themselves into destinations for wealthy expatriates. In other words, either Africans will come to Europe in search of employment, and Europeans will remake their societies to accommodate them, or Europeans will come to thriving African states in search of a higher quality of life, fueling the expansion of the local service-sector workforce in the process. 

Read the full article here.

July 9, 2018

Can IFC rise to its next challenge? (Devex)

By Sophie Edwards 

WASHINGTON — Having pulled off a surprise victory to secure a large chunk of the World Bank Group’s capital increase earlier this year, the International Finance Corporation is now gearing up to tackle the “huge challenges” involved in meeting the terms of the deal, especially around upping its investments in fragile and conflict-affected countries. 

The bank’s private-sector lender was given a $5.5 billion boost as part of a broader $13 billion paid-in capital increase announced by the World Bank’s board of governors two months ago.  The deal marks IFC’s first significant increase since 1992 — bank insiders told Devex it seemed unlikely just a few months ago.

... 

Furthermore, recent analysis of IFC’s portfolio by the Center for Global Development showed it has been investing less in low-income countries in recent years. 

Read the full article here.

June 7, 2018

East African countries have become the investment haven in Africa (Africa.com)

With the giants of Africa, Nigeria and South Africa, faced with a crisis at home, East African countries are increasingly becoming a suitable alternative for foreign investors and large consumer companies. Both of Africa’s largest economies have experienced growth at below 2%, hit hard by fall in global commodity prices in 2016. While East African countries’ led by Ethiopia, Kenya, Tanzania and Rwanda have been enjoying growth rates not less than 5% since then.

​...

Countries like Kenya, Ethiopia and Tanzania have also benefitted from generally low labour costs. In a recent Working Paper by The Center for Global Development (CGD), it said the “general level of prices in Ethiopia is below the level in India and comparable to that of in Bangladesh.” Kenya and Tanzania have also been identified as countries with low wages but not as low as Ethiopia. With labor costs now rising faster in places like China, large manufacturing firms are exploring opportunities for production outside Asia. These East African countries have become a sweet spot.

Read the full article here.

Pages