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Weekly Wire: the Global Forum

These are some of the views and reports relevant to our readers that caught our attention this week.

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Like Water for Internet: Ory Okolloh Talks Tech in Africa

“Last week, ahead of her trip to Washington, D.C., to speak to the World Bank about Africa’s private sector, the 35-year-old Policy Manager for Google Africa took to her Twitter account and asked her followers, “What should I tell them?”

The responses came in fast and varied from rants about corruption in multinational corporations to comments about infrastructure and energy. For the most part, Okolloh didn’t engage the responses, but she did re-tweet them for all to read and she made sure to add the World Bank’s twitter account to the dispatches so that the behemoth institution could also see what Africa’s tweeting populace had to say.” READ MORE

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I just returned from Brussels where I met five very determined individuals. Whether an entrepreneur, a doctoral student, a ministerial chief of staff, or the head of a community organization in the slums of Nairobi, these five young people have one common goal: to fight for a more just future. And to achieve this goal, they have chosen to use both their talent and their determination to intensify the pace of social progress in their country.

Benedetta Mwongeli Kyengo (Kenya), Bruce Dube (South Africa), Crystal Fiallo (Dominican Republic), and María de los Ángeles Lasa and Alexis Estevez (Argentina) were guests of the World Bank at the Brussels Forum.

Click on the slideshow below for their portraits

The schedule for the trip was packed. No sooner had they been introduced than they had to set off for their first major meeting...

Eleven of the less prosperous members of the European Union – Bulgaria, Croatia¹, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic, and Slovenia (EU11)—have remained attractive destinations for Foreign Direct Investment (FDI). The Czech Republic, Estonia, and Slovakia witnessed FDI levels in 2012 similar to pre-crisis levels. Poland and Bulgaria also experienced large gains in FDI in 2012.

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YouThink! - Engage-toi ! Tirer les enseignements de l'engagement des jeunes en Tanzanie
An IFOP Survey (fr) published in 2010 reveals that in France, 30% of young people aged 15 to 24 do volunteer work. This is a good average when compared to the rest of Europe. But why be satisfied with 30% when all young French people have the wherewithal to contribute to the cause of their choice? What good is it for youth to be full of energy and bursting with ideas if others cannot benefit from it?

Heloise, Radia, Lea, and Julliette are students at Sciences Po Paris who looked for ways to encourage young people to get involved. How could they help others understand that everyone has an important part to play? That even if they are young, even if they do not yet have the right to vote, they still can make a difference?

And that’s how they came up with the idea to go on a trip.

Cover Photo: © Getty Images, Inc.
Book Title: In From the Shadow : Integrating Europe’s Informal Labor
by Truman Packard, Johannes Koettl, Claudio Montenegro

Few phenomena that occupy the time of governments and economists are as ambiguously defined and difficult to measure as the “shadow" or "informal" economy. Those terms immediately make some people think of the guys who built an extension for their house and insisted on being paid in cash. Others remember the taxi driver who took them home after a late night out, and either didn’t have a meter or didn’t turn it on. Those who have been in very poor countries might recall bustling markets where you can haggle for anything from a handful of fresh chilies to a pair of sandals or even livestock. All of these are likely to be part of the unregulated and untaxed transactions that make up a country's informal economy.

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Today the world seems to hold its breath again amidst the sudden hike in food prices caused by a historical drought in the US and lack of rain in Eastern Europe.[1] It is a thorny task to predict whether the very recent increases in food prices will unfold into magnitude of the crises seen in 2007-08 and again in 2010-2011: differences between now and then in the price of energy, a critical driver of food prices, give a reason for optimism; as does the hope that governments now better understand the painful consequences of some panic policies that have been put in place during previous episodes. On the other hand, months of volatility in global food prices, low food stocks and food security crisis alerts in parts of East and West Africa all paint a gloomy picture.

Systemic financial crises require swift and comprehensive solutions by the government. In 2008 it quickly became clear that characterizing the U.S. securitization crisis as one of liquidity was inaccurate, and hoping that it would be cured by auctioning off increasingly poorly collateralized central bank loans to distressed firms was futile. That led to -TARP- a plan to repurchase troubled assets from banks, which quickly evolved into a bank recapitalization plan when it became clear pricing toxic assets was nearly impossible.

More recently, Spanish banking system has seen its situation worsen, partly because of Madrid’s failure to force an earlier cleanup of bad debts stemming from a real estate bust. Austerity measures to remedy the region’s debt crisis have since led to greater deterioration of Spanish bank balance sheets, as more and more Spanish businesses folded and homeowners went into foreclosure. Over the weekend Spain became the largest euro-zone nation to seek an international bailout, and the 17-nation currency area agreed to lend Madrid up to $125 billion for its bank rescue fund. At this point there is little disagreement that there needs to be a broad-based approach to resolve the Spanish bank insolvency problem, but not as much discussion over the form it should take.

The current policy debate on spurring growth is sometimes couched as a choice between fiscal stimulus and structural reform. In the context of the euro zone, this gives an incomplete picture. Two other issues are important: financial policies to avert a credit crunch; and collective actions to rebuild confidence. Adding these complicates the picture but helps point the way to a fuller policy response and clearer priorities to address the current mutually reinforcing combination of a growing sovereign debt-banking problem on the one hand and risks of a recession on the other.

As a counterpoint to grim forecasts coming out of Europe, I am hopeful that we can anticipate an Asian century where China will grow dynamically for another 20 years. Yet there are caveats to this optimistic scenario: Success in China will require a process of continual transformation and the wherewithal to tackle what I describe as a triple imbalance at the national level. I expound on this and other points in a BBC viewpoint piece published on November 23.

Given the urgent need for policymakers in Europe and other advanced economies to tackle current debt challenges, there is a frantic scramble for suitable policy tools that will help resolve the Greek conundrum.

One policy tool – a form of debt restructuring known as ‘financial repression’ that focuses on establishing a tighter relationship between government and the financial industry by setting caps on interest rates and regulating cross-border money flows – has largely been overlooked. The Petersen Insitute’s Carmen Reinhart recently delivered a

Migration is a strategy followed by women when they face poverty or when they widowed or divorced. In India, women mainly migrate because they get married. In other countries women migrate to get better job opportunities, for education purposes or for family reunification. For example in Lesotho, since divorced women or widowers do not count with the income of a male migrant wage-earner, they are the ones who have to support their families.

Case study evidence of migrants’ labor market performance in receiving countries shows that most immigrants from developing countries, regardless of their destination, suffer an earnings penalty and higher inactivity levels and unemployment rates than nationals. In Europe, unemployment rates for immigrants originating from developing countries are uniformly higher than those from more developed economies. This gap is more pronounced for women than men across all skill levels (Page and Plaza, 2006). The situation is not different for immigrants in South Africa. The majority of female workers from Lesotho work in low-paying jobs since they have an irregular migration status. However, they get more money compared to what they get in Lesotho for the same work that they do in South Africa. The majority of women from Lesotho work as domestic workers, followed by agricultural jobs and in the informal sector (Crush, Dodson, Gay and Leduka, 2010).

The latest Global Economic Prospects report, released January 12, projects that global real GDP growth (in 2005 U.S. dollar terms) will moderate to 3.3% in 2011, after a strong 3.9% rebound in 2010 that was led by 7% gains in developing countries. High-income economies registered better-than expected growth of 2.8%. Looking ahead, developing countries are projected to continue outpacing high income countries through 2012. A recovery in foreign capital inflows supported the rebound in developing countries, but flows were highly concentrated among a small subset of larger middle-income countries with deep financial markets. And left unchecked, excessive flows can lead to destabilizing asset bubbles and abrupt currency valuation swings that can do lasting damage to economies. Annual double-digit price increases for food price inflation is pressuring low-income households. And if global food prices continue to increase, a repeat of the conditions of the 2008 “food crisis” cannot be ruled out. http://www.worldbank.org/globaloutlook
In most developing countries, GDP has regained levels that would have prevailed had there been no boom-bust cycle, and strong growth is projected through 2012. The robust recovery in developing countries in 2010 was remarkable in that it mainly reflects an expansion of domestic demand, which has accounted for a full 45% of global growth in the year. Further, developing countries are increasingly an important source of stability, with many of the risks to global growth centered in high-income countries and reflecting as yet unresolved imbalances generated by the boom. In contrast, the recovery in several economies in emerging Europe and Central Asia and in some high-income countries is less well-established and output remains below pre-crisis levels. High household debt and unemployment, and weak housing and banking sectors are likely to mute recoveries—with continuing tensions tied to debt-sustainability issues in Europe.
Very low policy-induced interest rates in high-income countries combined with better growth prospects in developing countries prompted a recovery in capital inflows. Net international equity and bond flows rose by 42% and 30%, respectively in 2010, with nine middle-income countries receiving the bulk of the flows. Short-term debt, equities and bonds, particularly corporate bonds, posted the strongest gains. Foreign direct investment to developing countries rose a more modest 15% in 2010, reaching $410bn after falling 40% in 2009. Low-income countries experienced modest declines in capital flows in 2009 and modest increases in 2010, partly reflecting their reliance on relatively stable FDI. However, many low-income countries did benefit from stronger remittance inflows, a recovery in tourism and higher commodity prices. South-South flows are increasingly important for low income countries.
If international commodity prices continue to rise, affordability issues and poverty impacts could intensify. Although real food prices in most developing countries have not increased as much as those measured in U.S. dollars, they have risen sharply in some poor countries. Notably, there are some similarities with the food-price spike of 2008, which also coincided with strong developing country growth, high oil prices, and high liquidity. However, compared with the 2008 grain price shock, current global commodity market conditions are not as severe. Grain production and stocks are much larger now than seasons prior to the 2007-08 price spike and oil market supply-demand conditions are not as tight.

Download the Prospects Weekly as PDF here.

Leading indicators point to slower growth in the third quarter. Retail sales volumes have begun to moderate in a number of countries, undermined by a jobless recovery in high-income countries and the gradual withdrawal of stimulus measures that have spurred household consumption. On the production side, developing countries have surpassed pre-crisis output levels, but the United States and Europe do not appear to be on track to regain pre-crisis growth paths. Although consumer confidence and purchasing manager readings point to slower growth in June, the outlook remains positive. Short-term funding pressures appear to still be an issue in European banking markets, but bank-to-bank counterparty risk assessments may have eased, even as other financial markets remain concerned about the solvency of European bank debt.
Global retail sales volumes slowed in April, stagnating in high-income countries but still rising a robust 8.2 percent in developing countries. High-income retail sales were undermined by weak job creation and the expiry of fiscal stimulus measures. Compared with a year ago consumer demand fell 0.4 percent in Japan, following the scaling back of the government’s “eco-points” system that led consumers to buy eco-friendly durable goods. Real consumer spending increased only 0.3 percent in the United States from a year ago, partly because weak labor market conditions saw personal income grow only 0.4 percent. A 10 point plunge in the Conference Board’s consumer confidence index to a still positive 52.9 suggests that consumer demand growth in the U.S. may weaken further in June.
The recovery in industrial production continued through April / May with developing countries having regained precrisis output levels. The recovery in Europe and the United States continues to lag and does not appear to be on track to close with pre-crisis growth trends. In contrast, Japanese activity continues to expand rapidly. Recent purchasing manager surveys and weak employment data in the U.S.A. suggest a slowing in growth rates may be in store. While worrisome, especially in the context of the debt situation in Europe – which has yet to show up in IP data – such a slowing has been expected as bounce back factors that have driven growth fade. Indeed, PMI indicators remain in positive territory – suggesting continued growth – and are higher than the average levels observed during the past two recoveries (2002-03 and 2004-07).
Euro interbank offer rates (Euribor) continue to rise even after last week's repayment of €442bn of ECB loans. Although the immediate challenge of paying the initial 1-year loans has passed, funding pressures remain high–perhaps because banks continue to seek private-sector financing to repay the €110bn in 6-day ECB debt that was taken on. Indeed, higher Euribor rates do not seem to reflect increased counter-party risk assessments as the spread between the 3-month Euribor and overnight (Eonia) rates has been stable since May. Nonbank investors remain skittish however. Credit default swaps on the debt of European banks have risen by 100 basis points since April and continued to rise in recent weeks.

Download the Prospects Weekly as PDF here.

The latest Global Economic Prospects report, released June 9, projects that global real GDP growth will expand 3% in 2010, following a 2.1% contraction in 2009, led by 6.2% growth in developing countries (4.5% excluding China and India). However, the longevity and magnitude of the recovery remains unclear due to evolving European sovereign-debt troubles. Heightened uncertainty points to downside risks, as recent financial market turmoil and a sharp fall-off in capital flows have highlighted. A credit ‘event’ could lead to markedly slower growth. As European banks carry large holdings of troubled eurozone debt, to the extent these assets deteriorate, banks could be forced to limit credit, including flows to developing countries. While Euro-Area output firmed into April, growth is expected to slow on heightened uncertainty and fiscal tightening, which will likely weaken external demand for developing countries. Potentially more expensive private capital and diminished aid flows are also key concerns.
The global recovery remains fragile in the face of strong headwinds, including waning impacts of stimulus measures, recently introduced fiscal tightening and heightened uncertainty in Europe (Global Economic Prospects 2010, www.worldbank.org/gep2010). While the evolving situation in Europe has not derailed the recovery, the decline of the euro, equity market losses and lower commodity prices highlight the fragility of the recovery. Policy steps appear to assure liquidity over the next two years, but growth could disappoint if market uncertainty persists. Moreover, although unlikely, a crisis of confidence could lead to significantly slower world growth, with high-income countries slipping into a double-dip recession.
Capital flows faltered in May, as bond issuance and equity placement tanked. Only one developing country sovereign-bond deal was placed in May ($1.25bn for Malaysia)—given heightened market-volatility and borrowing-cost sensitivity. Similarly, IPO equity-placements fell to the lowest monthly level since August 2009. The decline in syndicated bank-lending was less pronounced, but flows remained well below pre-crisis levels. Early-June data shows capital flows remain sharply subdued, as bond issuance ground to a halt and many sovereigns have delayed issuance plans (Albania, Angola, Argentina, Indonesia, Kenya, Macedonia, Poland, Tanzania).
Industrial production remains vibrant in Europe—although data for May, when the sovereign debt-crisis in Greece intensified, is not yet available. Export orders have buoyed output in Germany and France, particularly for intermediate goods—suggesting that manufacturing activity and investment among Europe’s trade partners firmed. A weak euro is also boosting competitiveness. Nevertheless, capital spending has lagged the rebound in exports, and domestic demand has remained tepid. More recent data suggests that European debt-woes have undermined consumer and business confidence and EU -activity may weaken as a result. The latest reading of the ZEW index of investor and analyst expectations for Germany plunged to 28.7 in June from 45.8 in May. Moreover, recently announced European fiscal consolidation-measures will weigh on domestic demand.