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Arab World: A New Social Contract

June 2008

Will the current financial turmoil change the financial architecture in Asia?

It has been a long time since I’ve written, but the past two months have been quite hectic for us!  I just returned from China, where we were working with the capital market supervisor, and the issue of the financial sector regulatory architecture, or how market supervisors should be organized, was a topic of discussion.  In early June, there was a conference with all of the key financial supervisors on the topic of integrated regulation and supervision, and again, the policy makers are keenly focused on this issue now.

Across Asia, this topic has largely been in the background since the years immediately following the Asian crisis in 1997-1998.  However, the sub-prime mortgage crisis in the United States, beginning in the summer of 2007, has once again brought this issue to the forefront of policy discussions among Asian financial supervisors, particularly those in the developing economies.  Given the global turmoil and the new domestic challenges in emerging Asia (i.e., high inflation, rapid credit growth, and equity market turbulence, etc.), effective supervision of financial institutions and markets is clearly a hot topic.

This most recent financial crisis unfolded rapidly, impacted the largest and most sophisticated financial institutions in the world, and the duration and ultimate ramifications of the crisis is still unknown.  In Asia, the direct exposures of financial institutions to sub-prime-related instruments and risks appear to have been limited as most institutions were not active in this market segment.  In addition, the financial markets in Asia have not witnessed the same level of financial innovation as in the US and Europe with a more limited range of complex structured products. 

Broken promises and new approaches to foreign aid

G8_leaders_20070607edited_copy_4 The Financial Times on its front page today speculates (subscription required) that the G8 may be backtracking on its commitments to Africa:

Leaders of the Group of Eight rich nations are set to backtrack on their landmark pledge at the Gleneagles summit in 2005 to increase development aid to Africa to $25bn a year...In a further retreat, the G8 is set to abandon its Gleneagles promise to provide universal access to Aids treament and prevention by 2010.

For some critics of the aid establishment, this will not provoke too many tears. I wait to see how many minutes pass before William Easterly intones on this latest broken promise. It probably won't be anything too nice if it bears any relation to what Easterly had to say in this biting critique of foreign aid from 2007:

Development Marketplace for African Diaspora in Europe

The first Development Marketplace for the African Diaspora in Europe (D-MADE) ended in Brussels last week, awarding close to a million dollars for sixteen investment projects in Africa. The winning projects will be implemented in 11 African countries, including Mali (4), Cote d'Ivoire (2) Benin (2) and one each for Burkina Faso, Cameroon, Democratic Republic of Congo, Ethiopia, Madagascar, Malawi, Sierra Leone, and Togo.

The winners were selected from a group of 68 finalists who presented projects that a 24-person jury deemed innovative, sustainable, replicable and based on sound business principles. The D-MADE initiative was launched in 2007 to allow entrepreneurs from the African Diaspora in Europe to participate in the development of their countries.

Russian CSR - no longer a contradiction in terms?

As average Russians have seen steady improvements in their income for almost a decade, they have gotten a taste for luxury goods - you can see many in Moscow flaunting their Gucci and Prada, recently returned from a trip to Milan. But this is not the only thing their improved incomes are buying, at least according to a recent article in the Moscow News:

Being socially responsible is not simply an act of selfless generosity but can also be an important PR device for companies. [Russian] consumers are now choosing brands depending on how socially responsible the company is.

However, the Moscow News article doesn't cite any hard evidence that Russians are really being persuaded they should spend their hard-earned roubles on socially responsible products. Another factor seems to be at play.    

Sichuan: Ordinary life in an extraordinary situation

Talking to some of the students, many of which are preparing for the college entrance examination.

As I toured earthquake-devastated parts of Sichuan last week, what struck me most was the continuation of ordinary life in extraordinary circumstances. 

Beichuan middle school was the site of one of the great tragedies of the earthquake.  The old building of the school collapsed completely and the new building pancaked, crushing the lower level.  About half of the 2,000+ students and teachers died.  Beichuan county seat has been completely abandoned.  The middle school has temporarily been relocated some miles away, on the campus of a training ground for a big appliance manufacturer.   The facility had some good classrooms to begin with, and new temporary ones were added quickly.  The students are living in tents on the grounds.

The students we talked to were remarkably composed.  One high school senior explained that she had been on the second floor of the new building, which collapsed onto the first floor, allowing her to escape.  The boy next to her said he remembered nothing because he was knocked unconscious and then pulled from the rubble.  He had only recently been released from hospital. 

Privatizing health care in Georgia

2396827209_894cf7ef41Big changes are underway in Georgia's health sector. The central government is taking steps to privatize both publicly owned hospitals and health insurance. As it stands, the public health care system inherited from the Soviet era is bloated - only about 30 percent of its hospital beds are being used, and many of the 250 hospitals need renovation. An article in Transitions Online cites the Minister of Labor, Health, and Social Affairs on the current state of things:

It is absolutely impossible for [a] state like Georgia to retain...254 publicy owned hospitals...Therefore, private medical insurance and [a] private hospital network [are] something that we think is the only way out of the situation.

Fridays Academy: Gender and the Labor Market

As usual on Fridays, from  Raj Nallari and Breda Griffith's lecture notes.

Gender Inequality and the Labor Market

Specialization in work is thought to account for why gender inequality exists in the labor market. Tradition and custom dictate different jobs and/or types of work for men and women. In the industrialized world, certain professions, such as the nursing profession, are dominated by one sex, e.g. women (Anker, 1998). According to "Global Employment Trends, 2007", the sex segregationof occupations is changing, but slowly. Females are still overrepresented in the caring profession and in home-based workers. Changing these trends will rely on further and increased investment in women’s education and training. Furthermore, even when women migrate, they tend to be overrepresented among these stereotypical female occupations. The UNFPA in its study of global population estimate that there are 95 million female migrants, accounting for half of all migrants and contributing hugely to remittances. Migration for women takes place across all age groups and income groups. As migrants and women, they oftentimes face significant challenges in their chosen host country, especially if race, class and religion factors come into play. Oftentimes they lack the opportunities to migrate legally and safely and oftentimes they are unaware of their rights. The figure below shows the trends in female migration for three sample years between 1995 and 2005.

 

Illuminating the Path to Peace: Public Opinion Research in Darfur

Colleagues have previously argued on this blog that public opinion is a critical force in conflict transformation and peace building.  It makes intuitive sense that serious assessment of the viability of peace processes requires taking stock of various societal forces -- not just the political will of elites but also the public will comprised of the preferences of various stakeholder groups.

Podcasting for development

2223223306_87664986eb There seems to be a mania to take any new technology and apply it to the developing world, be it computers, solar panels, or, the next big thing, iPods. (Sorry, OLPC, you're no longer the cool new kid on the development block.) And the really next big thing is podcasting for the developing world. An article on scidev.net discusses one such initiative in Peru:

Practical Action has been working on podcasts for the Cajamarca region of northern Peru since 2006. A poor, rural area, most of the people there rely on agriculture for their livelihoods...Practical Action's local office in Peru surveyed local people about the type of information they needed to support their livelihoods - advice on grape cultivation or raising cattle for example. This information was then gathered from experts and recorded as digital audio files...

PSD Stories of Note: Weekly Roundup for June 23 to June 27

Arab Businesswomen: FT thinks this is a niche market with potential.

Root Capital: Funding the “missing middle” is better than Harvard Business School.

China’s Stock-market: Beijing lets the market take care of itself.

Spreading the Capitalist Ethos: Wall Street is Chinese tourists’ first stop in NY.

NYSE Euronext: Qatar continues in its bid to become a regional financial center.

After the Sichuan earthquake: Where will people live?

Approaching the mountains from the Chengdu plain along the main road to Beichuan County, red banners with large white characters expressing support for the earthquake victims and thanks to the rescuers, are strung across the road, as if creating an arbor for all to pass through.  Driving up this road doesn’t feel safe, even now, six weeks after the quake.  The steep slopes of the mountains on both sides of our vehicle loom above us.  Huge boulders are scattered everywhere on the mountain sides, landslides are all around, and I cannot stop thinking about the description given by a group of tourists of the moment the quake struck: “the mountains exploded as if hit by a megaton bomb”. 

Leigu Township is utterly devastated.  None of our team have ever seen anything like it.   Most of the town is rubble and the buildings that remain will have to be brought down; everything will have to be built again.  The smell of decomposing trash is in the air as we walk through the eerie quiet of ruined streets.  Photos do not do justice to this experience because they cannot express what it feels like to have such devastation all around.  If this were a war zone, I could believe it, but to think that this happened through a force of nature, and all this damage occurred in 80 seconds, is almost beyond my imagination.

Governing global FDI flows

The Council on Foreign Relations just raised a red flag on FDI flows with its recently released Global FDI Policy: Correcting a Protectionist Drift. (You can read a condensed version in an op-ed today in the FT.) David Marchick and Matthew Slaughter, the authors of the paper, offer up some numbers to show that the long-term global trend of increasing openness to FDI inflows is starting to reverse. While in the 1990s, most national regulatory changes around the world favored FDI, that is less and less the case. According to data from the United Nations Conference on Trade and Development, "37 of 184 policy changes—20.1 percent—were unfavorable to FDI [in 2006]." One of the most obvious examples of this has been the United States, which passed the Foreign Investment and National Security Act after debacles with Dubai Ports World and the China National Offshore Oil Corporation. Russia has also adopted a strategic industries law that allows government review of foreign investments.

60 Years of Peacekeeping

Every morning last week I stumbled through the public foyer in the United Nations Headquarters on my way to work (which was speaking to spokespeople – a tall order).  It wasn’t until Friday that I stopped to take a look at the exhibition that I had largely rushed by, running a slalom course through visiting tourists all week. 

Solar power makes it to Kenya

2222448961_fed0cd6ca9In a report last year called Selling Solar, the IFC admitted that its decade-plus engagement with solar power had not been as successful as hoped:

While IFC programs have been responsible for the installation of over 84,000 solar home systems (SHS), these programs have been less successful from a financial standpoint, IFC having been unable to significantly transform markets and create sustainable businesses as originally anticipated.

Just a few weeks ago, however, an article in the East African Standard suggested that demand for solar power is taking off in Kenya (Hat tip: SciDev).

Corruption in the water sector

Transparency International has just released its annual corruption report, and this year's focus is on corruption in the water sector. Undoubtedly, the 398-page tome will draw a lot of attention to what Transparency International makes clear is a crisis:

In developing countries, about 80 per cent of health problems can be linked back to inadequate water and sanitation, claiming the lives of nearly 1.8 million children every year and leading to the loss of an estimated 443 million school days for the children who suffer from water-related ailments.

Beginning the recovery assistance mission to China's earthquake-affected area

At the 700 year-old Er'wang Temple in the Dujiangyan World Heritage Site.

Six weeks and one day since the massive 8.0 earthquake hit Wenchuan County in Sichuan Province and I am participating in the first World Bank mission to the earthquake-affected area.  In the last six weeks the relief effort conducted by the Chinese government and citizens has been widely applauded.  Now the attention is turning to the future – damage assessments are under way and reconstruction planning has commenced.  The purpose of our mission this week is to better understand the impact of the earthquake and to see how the Bank could best provide assistance during the reconstruction period.
   
Today’s site visit took us to Dujiangyan, a city that I first visited almost exactly 12 years ago.  The city sits beside one of China’s greatest engineering achievements – the Dujiangyan Irrigation System – a massive water diversion project built in the 3rd Century BC on a scale that only the Chinese, ancient and modern, could conceive. 

Mapping deforestation, endangered species, and more with Google Earth

Checking out Mongabay.com, I came across a very cool application of Google Earth to see the levels of deforestation across the world, including short data sheets per country. So you can quickly see that Malaysia has lost over 6% of its forest cover between 1990 and 2005 (according to different data sources), while China has increased its own by 25% over the same period of time.

The nicer discovery, though, were the other maps the same developer, David Tryse, has been creating on environmental issues (check them all out in his website): the top 100 most Evolutionarily Distinct and Globally Endangered (EDGE) mammal and amphibian species, 34 biodiversity hotspots according to Conservation International, and protected area networks --or national parks-- worldwide, among others.

Note that the sources of data are rather varied. To view and explore the maps, you need to download Google Earth and install it in your computer, save the KML file/s provided for each map (KML is a file format used to display geographic data), and open them from Google Earth. At the bottom of that list of maps, you will find a link to download all files at once if you want, and you can also subscribe to updates for new maps that David may come up with.

The Bottom Billion

 The Bottom Billion: Why the poorest countries are failing and what can be done about it? By Paul Collier. Oxford University Press, 2007
 
 The main thesis of the book is that globalization has been beneficial to a majority of the people in the developed and developing world, except for a large group of small countries in Africa, Caribbean ad Pacific countries, which comprise of a billion people (out of the total world population of about 6.5 billion). These billion people are being increasingly marginalized by globalization. For example, average per capita GDP growth of the economies of the bottom billion was 0.5% in 1970s, 0.4% in 1980s and negative 0.50% in 1990s. In comparison, per capita GDP growth in other developing countries increased from 2.5% in 1970s to 4% each in 1980s and 1990s. So there is big time divergence in income between the bottom billion and rest of the world population.
 

The rich get richer

2309630128_67afff717dThe global economy may have slowed down in the last year, but that hasn't stopped the rich from getting richer. Merrill Lynch and Capgemini just released their 12th annual World Wealth Report, and the results are stunning. (Hat tip: FT) The wealth of the ultra-rich (those with assets of $30 million or more) grew 14.5 percent between 2006 and 2007. It seems the rich keep getting richer, no matter what the international financial environment looks like. No surprise there, really. The big surprise, at least for me, is how the geographical distribution of the rich is rapidly changing. 

The view from Russian business

If you want to learn about the real challenges faced by Russia, you could do worse then surveying its captains of industry. This is exactly what the New Economic School did earlier this year in cooperation with Vedomosti and the Ministry of Economic Development of the Russian Federation. The results appear in a report called Challenges 2020: The View from Russian Business. (An aside: One of the true success stories of private higher education in the transition countries is that of the New Economic School. If you're looking to hire a bright economist in the know about Russia, this is your go-to place.)

Roumeen Islam's Latest: 'Information and Public Choice'

Roumeen Islam is manager of the World Bank Institute's Poverty Reduction and Economic Management Division. She is an economist by training and, I might add, by conviction. But to anybody who cares seriously about the role of the mass media in development, Roumeen is much admired in a particular capacity: as someone who has made a sterling contribution to how the media is viewed within international development. Although media systems and their impact on development are not the only things that have preoccupied her - right now she is leading major work on international trade indicators, amongst others - she has done as much as anybody I know to put an institutional view of the media on the development agenda.

Private health insurance in developing countries

A new paper from the National Bureau of Economic Research suggests that there may be a viable market for voluntary private health insurance in developing countries. The authors draw primarily on data from the 2002 World Health Survey, limiting their analysis to 14 countries with "per capita incomes that are low compared to developed countries but above subsistence levels, and generally high values for real economic growth." The question they want to answer is whether risk aversion would be high enough and administrative expenses low enough to permit the introduction of voluntary unsubsidized private health insurance.

Paying for it

WaterThere's no doubt that access to clean water is a major problem in developing countries. According to the latest data from the World Development Indicators, only 56 percent of the population of Sub-Saharan Africa has access to an improved water source. Tyler Cowen, an economics professor at George Mason University, proposes what he calls a radical solution in a recent opinion piece in Forbes entitled Pay for It:

The solution for the poorer parts of the Third World is deregulation of the market for piped water, combined with the enforcement of property rights. Yes, I'm saying that Third World governments should consider letting private companies sell water at any price...And no, I don't mean a water concession with a price regulated by the government, I mean true laissez faire in water supply.

Patience needed at the base of the pyramid

Webcoveroutreachjun08newsizeDiscussion of business models targeting the poor as producers and consumers often centers on the same limited number of examples. Why are more initiatives not going to scale or getting noticed? In part, we may simply have unreasonable expectations. Market innovations from the Post It Note to bagless vacuum cleaners took years to come to market and win over consumers.  If the normal R&D time frame is 7-10 years, why should we expect base of the pyramid models to deliver results in 6-12 months? Analysis, such as that of the BoP Protocol from the team at Cornell University, suggests adapting existing models is not enough. Total innovation is best to build new markets with the poor. That takes time.