4 unprecedented disruptions to the global financial system
Climate change, migration, correspondent banking and cybercrime are putting unprecedented and unforeseen pressures on global financial markets.
They aren’t just disrupting the global financial system, but also affect how we approach international development work.
Let’s examine each trend:
“Greening the financial sector” is the new buzz term to finance a transition toward a climate-resilient economy and to help combat climate change. This topic is now getting a lot of attention from the G20 to the Financial Stability Board. The international community is trying to understand what this transition will imply: how resilient the financial sector is to deal with risks stemming from climate change, and how efficiently the financial sector can allocate financial resources. What we know is that currently fossil fuel subsidies and a lack of carbon tax are hindering the market from shifting financial resources from brown to green.
Globally, an estimated 65 million people are forcibly displaced. Migration, resettlement or displacement, of course, impact where and how to channel aid to those in need. But more importantly, as displaced people settle down -- no matter how temporary or long-term -- to become self-sufficient and thrive, they will need to establish new financial relations. This can be for simple transactions such as receiving aid through payment cards (as opposed to cash) or for sending remittances. Or it can be for something more complex as getting a loan to start a business.
At the same time, as the global banking industry is tightening regulations, large banks are withdrawing from correspondent banking and shutting down commercially unsustainable business lines. This recent phenomenon can have a huge impact in some regions on SMEs and on money transfer operators, which largely handle remittances.
Cybercrime is no longer a sci-fi thriller plot, but a tangible potential risk to both national and international financial markets. The focus on cybersecurity risk has increased along with the proliferation of internet and information technology. Fintech is transforming the financial industry -- by extending access to financial services to people and small- and medium-sized enterprises (SMEs) previously left out of the formal financial system – but is also raising many questions, including concerns about cybersecurity. The same technology advancements that are propelling fintech are also addressing cybersecurity risk. However, there is a need to develop an appropriate regulatory framework in combination with industry best practices. This framework is evolving and regulators are grappling with how and when to regulate.
From addressing the forced displacement crisis to helping indigenous communities, and from implementing the “New Urban Agenda” to enhancing resilience to disasters and climate change, one thing is clear: we must step up efforts to build and grow economies and communities that are inclusive, resilient, and sustainable for all—especially for the poor and vulnerable.
In the timeline below, revisit some of the stories on sustainable development that resonated the most with you last year, and leave a comment to let us know what you wish to see more of in our “Sustainable Communities” blog series in 2017.
Between the social, political, and economic upheavals affecting our lives, and the violence and forced displacement making headlines, you’d be forgiven for feeling gloomy about 2016. A look at the data reveals some of the challenges we face but also the progress we’ve made toward a more peaceful, prosperous, and sustainable future. Here are 12 charts that help tell the stories of the year.
1.The number of refugees in the world increased.
At the start of 2016, 65 million people had been forcibly displaced from their homes, up from 60 million the year before. More than 21 million were classified as refugees. Outside of Sub-Saharan Africa, most refugees live in cities and towns, where they seek safety, better access to services, and job opportunities. A recent report on the "Forcibly Displaced" offers a new perspective on the role of development in helping refugees, internally displaced persons and host communities, working together with humanitarian partners. Among the initiatives is new financial assistance for countries such as Lebanon and Jordan that host large numbers of refugees.
These are some of the views and reports relevant to our readers that caught our attention this week.
Commodity crash has dragged back world’s poorest countries, finds UN Public Finance International
In a report on the progress of the world’s least developed countries (LDCs), published yesterday, the United Nations warned that a drop in international support also means these countries are likely to remain locked in poverty. It predicted the world will miss its target to halve the size of the LDC group by the end of the decade. The 2030 Sustainable Development Goals, which were agreed by world leaders last year and include targets on ending extreme poverty, are also at risk. “These are the countries where the global battle for poverty eradication will be won or lost,” said Mukhisa Kituyi, secretary general of the UN Conference on Trade and Development, which produced the report. “A year ago, the global community pledged to ‘leave no one behind’, but that is exactly what is happening to the LDCs.” Global poverty is increasingly concentrated in the 48 LDCs, which comprises mostly of African and Asian nations alongside some Pacific island states and Haiti.
OECD Recommendation of the Council for Development Cooperation Actors on Managing Risks of Corruption OECD
There is strong awareness among the global community that corruption poses serious threats to development goals and that international development agencies have a common interest in managing and reducing, to the extent possible, the internal and external risks to which aid activities are exposed, in order to obtain effective use of aid resources. This Recommendation of the Council for Development Co-operation Actors on Managing the Risk of Corruption (Recommendation) promotes a broad vision of how international development agencies can work to address corruption, including the bribery of foreign public officials, and to support these agencies in meeting their international and regional commitments in the area of anti-corruption.
The plight of forcibly displaced people, who are fleeing conflict and violence, is best summed up by the lyrics of the plaintive 1970 classic by Argentine troubadour Facundo Cabral: "No soy de aquí ni soy de allá"("I'm not from here nor there").
Those lyrics convey both the sense of uprootedness felt by those displaced from their native lands and habitual routines, and the feeling of “otherness,” emotional detachment, and powerlessness when relocated to foreign surroundings and societies, which in some cases, are unwelcoming to outsiders.
These are some of the views and reports relevant to our readers that caught our attention this week.
Middle-Class Heroes: The Best Guarantee of Good Governance
Center for Global Development
The two economic developments that have garnered the most attention in recent years are the concentration of massive wealth in the richest one percent of the world’s population and the tremendous, growth-driven decline in extreme poverty in the developing world, especially in China. But just as important has been the emergence of large middle classes in developing countries around the planet. This phenomenon—the result of more than two decades of nearly continuous fast-paced global economic growth—has been good not only for economies but also for governance. After all, history suggests that a large and secure middle class is a solid foundation on which to build and sustain an effective, democratic state. Middle classes not only have the wherewithal to finance vital services such as roads and public education through taxes; they also demand regulations, the fair enforcement of contracts, and the rule of law more generally—public goods that create a level social and economic playing field on which all can prosper.
The State of Broadband: Broadband catalyzing sustainable development
Broadband Commission for Sustainable Development/UNESCO
The report finds that global broadband connectivity shows strong growth, with 300 million more people connected in 2016 than in 2015, putting the number of people online by the end of 2016 to 3.5 billion. However, more than half the world’s population (some 3.9 billion people) remains offline. The report highlights that offline populations, who are now found in more remote, rural areas, consist disproportionately of poorer, minority, less educated, and often female, members of society. The report traces the progress made towards achieving the Broadband Commission’s targets for broadband. Progress has been mixed.
For several decades now, Uganda has been generously hosting refugees and asylum seekers from the conflict-affected countries in its neighborhood, especially the Democratic Republic of Congo, Somalia, South Sudan, Rwanda and Burundi. Since achieving its independence in 1962, the country has been hosting an average of approximately 161,000 refugees per year; and the numbers crossed 550,000 in August 2016. In three weeks since the latest fighting in South Sudan broke out on 8 July, nearly 37,491 people were forced to flee to Uganda, more than in the first six months of 2016, according to UNHCR.
We observed that over 78 percent of refugees in rural settlements, where they receive agricultural land, are engaged in agricultural activities compared to 5 percent in urban areas. Crop surpluses attract Ugandan traders to the refugee settlements, operating as a direct supply chain for sale of agriculture produce but also supply of agriculture inputs like fertilizers and seeds.
However, about 66 percent of respondents reported that local traders use faulty scales when weighing produce, which shortchanges them. Seventy percent decried the extremely low prices offered by local traders for produce, with implications for the ability and timing of refugees to become self-reliant. This was made worse by the significant losses in quality and quantity of agriculture produce due to poor harvest handling techniques and inadequate storage facilities, and surpluses were sold immediately after harvest at the lowest point in the price cycle. This shows that while refugees have land to cultivate, they are unable to realize the potential due to lack of technical, infrastructural and marketing support, contributing to food insecurity and under nutrition among smallholder farming refugee families, especially during lean seasons.
Business enterprises such as bars, hair dressing, milling, transportation, money transfers, and retail are run by refugees. Twenty-eight percent of female refugees are involved in agriculture, trade, or are self-employed; their participation in the formal sector is low—only 9 percent. Initiatives such as Community Savings Groups and women savings and credit groups have provided female refugees with seed money to start businesses. There is reportedly some level of gender discrimination with respect to access to land, credit, employment, and self-employment opportunities.
We observed that almost 43 percent of the refugees are actively engaged in the labor market of their host communities: 12 percent in the formal sector and 31 percent self-employed. However, refugees expressed constraints accessing formal employment both in urban areas and rural settlements, relating to unfamiliarity with the language, legal issues, poor interview skills, discrimination, and a lack of relevant documents. Refugees are mainly engaged in occupations that provide little income, social protection, or job security.
Refugee settlement areas have attracted the attention of Ugandan private enterprises, such as the Ugandan telecom companies, which launched several initiatives aimed at targeting refugee users of SMS banking and transfer services. For example, Orange Uganda Limited, a provider of telecommunication and Internet services in Uganda, invested in a large radio tower in the Nakivale settlement to promote its "Orange money" services. In Rwamwanja and Adjumani, a number of refugees operate as mobile money unit agents providing employment for them, while facilitating other refugees in accessing remittances from their relatives and friends within or outside the country. This mobile money is hugely helpful to refugees trying to meet expenses, including school fees for their children.
But in Uganda, and across the rest of the Horn of Africa, refugee camps and settlements are located in areas where the host communities are among the most underserved, with significant development deficits of their own. The majority of refugee settlements in Uganda are in the relatively stable north, though it has communities still in a state of latent conflict, driven by new and long-standing grievances, poverty, perception of marginalization, competition over national resources, and societal fracture as legacies of decades of violent conflict. The region also has high levels of poverty and youth unemployment which poses challenges to refugee efforts at self-reliance.
We see a huge opportunity in Uganda with the recent government-led efforts to address the development challenges of settlements that are home to locals and refugees with the inclusion of the Settlement Transformative Agenda (STA) as part of National Development Plan II (NDP II 2015/16–2019/20). The STA aims to promote social and economic development in the refugee hosting areas for both locals and refugee communities in partnership with the UN agencies in Uganda, the World Bank and other stakeholders. The World Bank is supporting this effort through the Development Response to Displacement Impacts Project (DRDIP) in Uganda, which will help improve access to basic social services, expand economic opportunities, and enhance environmental management for communities hosting refugees in Adjumani, Arua, Isingiro and Kyriandongo districts.
There is a round metal tray surrounded by four children and their parents. In it, there are plates filled with instant noodles, hummus, lebne, olives and pickled eggplant. I look left and there is a silver tea pot. I look right and my eyes catch a plastic bag of pita bread.
The tray is put on an unfinished concrete floor covered with a bunch of heavy winter blankets. The brick walls are partially covered with bedding sheets, while heavy winter clothes are hanging on a water pipe.
I lift my head up. I see a light bulb hanging from an unfinished cement ceiling. When I look back down, I see a toddler approaching me trying to poke my eyes, until I realize that I am not actually there and she is only trying to poke the 360 camera!
June 21 was World Refugee Day and a new UN report put the total number of ‘forcibly displaced’ at 65.3 million. Most of those remained within national boundaries (internally displaced). Oxfam researcher John Magrath summarizes a recent study on the causes of internal displacement.
Why do people become displaced? That is, forcibly displaced in that they have, or believe they have, no other choice but to leave their homes? You would think we would know. After all, the Internal Displacement Monitoring Centre (IDMC) in its latest annual report points out that in 2015 a record number of 27.8 million people were newly displaced; and the reasons were conflict, violence and disasters. We are familiar with the overall picture: the Middle East and North Africa account for over half those displaced by conflict and violence; South and East Asian countries, especially India and China, saw the most people displaced by disasters. Once people are displaced, they tend to stay displaced so the numbers add up cumulatively; in 2015 there were nearly 49 million in total living as internally displaced people just because of conflict and violence.
But dig beneath and beyond those figures, as IDMC does, and an even more disturbing picture emerges of reasons and trends. IDMC puts the spotlight on three issues that demand more attention. One is drought, of the kind exacerbated by this year’s El Niño event. That may seem unsurprising; after all, it is obvious that drought dries up precious water sources and scorches crops and as this moving video from Oxfam in the Dominican Republic shows, the result is that farmers get into debt and can end up selling their farms – their homes – and becoming wandering labourers.