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South East Europe Six: Growth, please!

Željko Bogetic's picture

Just six months ago, in the previous South East Europe Regular Economic Report (SEE RER) covering the six Western Balkan countries of Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia (SEE6), we looked at the double-dip recession in this region, and structural policies needed for recovery.
 
Now, we are happy to report that recovery is, indeed, under way in each of these countries. In 2013, the SEE6 region is projected to grow 1.7 percent, thus ending the double-dip recession of 2012. Electricity, agriculture, and even some exports are helping with this rebound of output. Kosovo is leading the pack with a growth rate of 3.1 percent, with Serbia (which accounts for nearly half of the region’s GDP) expected to grow by 2 percent on the heels of increased FDI, exports, and a return to normal agricultural crops. (In 2012, by contrast, agricultural output in Serbia dropped 20 percent on account of a severe drought). Albania, FYR Macedonia, and Montenegro are all expected to grow by between 1.2-1.6 percent. Rounding out this group is Bosnia and Herzegovina – with expected growth of 0.5 percent.
 
So, are things finally looking up in the Balkans? Not exactly.

Figure 1: SEE6 Unemployment Rates, 2012

Source: LFS data and ILO. Kosovo’s tentative data suggest unemployment as high as 35 percent.

Nuevos desafíos, nuevas alianzas

Jose Carlos Villena Perez's picture

Los Organismos Multilaterales y los países del Sur de Europa deben cooperar más intensamente para restablecer la competitividad global de sus economías.

Una de las lecciones aprendidas en los últimos años es que los procesos de desarrollo económico son reversibles. Las otrora economías estrellas del Sur de Europa languidecen hoy en día envueltas en un lento y doloroso proceso de reajuste encaminado a la restructuración de sus sectores productivos y a su defintiva entrada en el SXXI, en lo que a términos económicos se refiere.

Cada vez es más evidente que la recuperación de estos países no se logrará simplemente con la reforma de sus estructuras administrativas y normativas debido a la complejidad de los problemas que afrontan. Tal vez, uno de los más complejos sea la interrupción del flujo del crédito a la economía real, el cuál está afectando gravemente los países del sur de Europa. Esta escasez está dañando seriamente la competitividad de los mismos a nivel internacional y comprometiendo cualquier posible atisbo de mejoría, poniendo, en definitiva, en riesgo la recuperación de la economía mundial.

Why do we feel that poor people need financial education?

Ignacio Mas's picture


Does everyone need financial education? (Credit: Bill Ruhsam, Flickr)

I am not at all sure I could live on a few dollars a day. Why would I think that those who do need financial education? Yet in any meeting or conference on financial inclusion, someone will clamor for financially educating the poor and all will readily nod. Please allow me to side-step the substance of the issue, for I have no new empirical evidence to bring to the table either way. What I find curious is why the idea that poor people are lacking essential financial literacy skills is so prevalent among the non-poor. Let me propose five reasons.

1. The poor mis-spend

Who hasn’t wondered why it is you can find Coke bottles in the poorest communities in developing countries? Who hasn’t had a pang of doubt upon seeing reams of shiny bags of candy hanging from the shabbiest stalls in the remotest villages? And you’re thinking: my parents didn’t buy me this stuff! Well, it might be because your parents had plenty of other ways to reward you and each other. Think toys, ski trips, family outing to a restaurant, gifts, etc. Next to these things, splurging one day on some candy and a Coke seems downright meaningless. But for many it might be the easiest way to create magical family moments, to transcend a dreary daily routine. If it helps keep the family going and united, it might be a bargain. We musn’t pass judgment on how the poor spend their money, for we cannot imagine the job that they are ‘hiring’ those seemingly superfluous products to fulfill.

Connecting Economists to Networks

Jean-François Arvis's picture

Consider an image: hubs and spokes sprawling across a map. At the Bank, we work in many fields that could be portrayed this way – finance, trade, transportation, infrastructure or urban and regional development. The position of a country, a city or a bank in its network is vital to explaining its individual economic performance. The property of the network as a whole is also important to understanding the resilience of the system and its parts to shocks or contagion effects.
 
In May, the Bank’s Trade Department and the IMF’s research department brought together, for the first time, a group of experts on various types of networks. The objective was to find out what the "science of networks" can tell us about the practice of international and development economics. The group included network planners from the private sectors, regulators, economists and physicists.

Three Pillars for Prosperity in Montenegro

Željko Bogetic's picture

Over the last decade Montenegro has trebled its gross national income (from $2,400 in 2003 to $7,160 in 2012), has reduced its national poverty headcount from 11.3 percent in 2005 to 6.6 percent in 2010, and enjoys the highest per capita income among the six South East European countries.

Despite this considerable progress, however, Montenegro remains a country in need of a new economic direction. The global financial crisis has exposed Montenegro’s economic vulnerabilities and has called into question the country’s overall growth pattern. The period between 2006 and 2008 was characterized by unsustainably large inflows of foreign direct investments (FDI) and inexpensive capital, which fueled a domestic credit consumption boom and a real estate bubble. When the bubble burst in late 2008 and in 2009 real GDP shrank by almost 6 percent, triggering a painful deleveraging and a difficult recovery that is not yet complete. With the base for Montenegro’s growth narrowing and the country’s continued reliance on factor accumulation rather than productivity, it has become clear that this old pattern cannot deliver the growth performance seen just a few years ago.
 
So, what kind of growth model can drive Montenegro’s next stage of development in the increasingly competitive environment of today’s global economy?
 
As spelled out in the recent report “Montenegro – Preparing for Prosperity” this country can go a long way toward returning to the impressive economic gains it was making just a few years ago by emphasizing three critical areas of development: sustainability, connectivity, and flexibility.
 

If I had three minutes with President Jakaya Kikwete…

Jacques Morisset's picture

Imagine that you are in an elevator. It stops to pick up the next passenger going up.  It turns out to be H.E. Jayaka Mrisho Kikwete, yes, the President of Tanzania himself, accompanied by a group of high anking officials.  The President turns and asks you what you think is the most important thing that he could do for his country. You have less than three minutes to convince him.  What would you tell him?

I know what I would say, loud and clear: “Your Excellency, that would have to be improving the performance of the port of Dar es Salaam.”

No doubt there are plenty of issues that matter for Tanzania’s prosperity: rural development, education, energy, water, food security, roads, you name it. They are all competing for urgent attention and effort; yet it is also true that each of them involves complex solutions that would take time to produce impact on the ground, and it is hard to know where to begin and to focus priority attention.

This is not the case for the Dar es Salaam port, as most experts know what to do.

So why the port of Dar es Salaam?

The port represents a wonderful opportunity for his country. The port handles about 90%  of Tanzania’s international trade and is the potential gateway of six landlocked countries. I would tell him that almost all citizen and firms operating in Tanzania are currently affected, directly and indirectly, by the performance of this port.

Financial Inclusion in Europe and Central Asia

Douglas Randall's picture

The countries of Europe and Central Asia have made undeniable, if uneven, progress in expanding financial inclusion in recent years. The well-developed microfinance industry and relatively widespread use of wage accounts in some countries are signs of success, though low savings rates and high levels of mistrust in the formal financial sector signal that much work remains to be done. The exclusion from the formal financial system of more than 175 million adults—disproportionately located in Central Asia—presents particularly difficult challenge for policy makers in the region. Our recently published Findex note takes an in-depth look at financial inclusion in the ECA region.

After 25,000 interviews in 23 ECA economies, a subset of the larger Global Financial Inclusion (Global Findex) database , we now know that 45 percent of adults in that region have an account at a formal financial institution. This is on par with the rest of the developing world. But of course we know that there is more to financial inclusion than account ownership, it is equally important to have data on how accounts – and other basic financial tools - are used. Account holders in ECA are much more likely to use their account to receive wages or government payments, as compared to account holders in the rest of the developing world (77 percent vs. 41 percent). This is an interesting insight as to what mechanisms are already working to engage adults with formal financial systems, and something to keep in mind when we think about how to move forward.

Putting $8.7 billion back in the pockets of Asia’s migrants

Massimo Cirasino's picture


Governments and private sector actions can drive down remittance prices for migrants (Credit: DFID-UK, Flickr Creative Commons)
An estimated 215 million people – 3 percent of the world’s population – have emigrated far from home in order to earn enough to support their families. They include workers from Bangladesh who go to Saudi Arabia to work in the construction trade, Afghans who go to Iran to work in the oilfields, and workers from Burkina Faso who go to Cote d’Ivoire to work on the cocoa or coffee harvests.

Toiling far from their loved ones is not their only burden. When migrants send their money home, they are often charged exorbitant fees, which can account for a large portion of the small sums being sent - sometimes upwards of 20 percent – and can inflict a punishing burden on poor migrants.

In the long run, we all want to be alive, and thrive

Hans Timmer's picture

Ninety years ago, in his A Tract on Monetary Reform Keynes famously wrote “In the long run we are all dead”. That observation recently stirred a lot of debate for all the wrong reasons, after Niall Ferguson obnoxiously claimed that Keynes did not care about the future because he was childless. Whether Keynes cared about the long-term future or not (and whether he had children or not) is completely irrelevant in this context, as many (e.g. Brad DeLong and Paul Krugman) have pointed out.

The actual context in which Keynes wrote this observation was a discussion about the quantity theory of money, which states that doubling the supply of money will only double the prices, but will have no consequences for other parts of the economy. This is the classical dichotomy between real and nominal variables. Keynes argued: “Now in the long run this is probably true”. But “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”  So, Keynes’ point was obviously not that the future doesn’t matter. His point was that simple theories that might describe long-term relationships are just not good enough to deal with current issues. In the short run, changes in money supply can have all kinds of important consequences beyond the price levels. Economists will have to make their hands dirty and delve into the complicated dynamics of the here and now.

Liberia: New laws, new challenges


Liberia's new AML/CFT law is a step towards good governance in a country looking to the future (Credit: Kenneth Harper, Flickr Creative Commons)
On May 2nd, the President of Liberia signed into law a long anticipated bill to counter money laundering and terrorism financing (AML/CFT).  The new Act, which included amendments to various other laws, will provide more effective legislative tools with which to fight corruption, money laundering and other financial crimes.  The new Act will provide the legal basis to establish a Financial Intelligence Unit as the central coordinating agency in these efforts, provide better tools for authorities to seize and freeze the proceeds of crime, and improve cooperation in information- sharing and investigations. It will also require financial institutions and other entities often used to launder proceeds of crime, to identify and report suspicious transactions to authorities.   

Can Islamic Microfinance spur Inclusive Prosperity?

Ahmed Rostom's picture


Can Islamic Microfinance give more people access to the financial services they need to grow their business? (Credit: DFID, Flickr Creative Commons)
Research has shown that financial sector development and the efficiency of financial systems are closely linked to economic growth. Ensuring the provision of financial services to the poor can also address the challenge of poverty alleviation and directly target financing towards economically and socially underprivileged groups. Appropriate financial services, such as savings services, investment, insurance, and payment and money transfer facilities,  enable the poor to acquire capital to engage in productive ventures, manage risks, increase their income and savings, and escape poverty.

Across the universe of firms in Tanzania

Isis Gaddis's picture

Let's think together: Every Sunday the World Bank in Tanzania in collaboration with The Citizen wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a few questions.
In industrial countries, small and medium firms are the vectors of economic innovation and job creation. In the USA, small-businesses account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do. Small business owners are also in general more educated and wealthier than the rest of the active population.
The reality is different in Tanzania. The vast majority of firms are very small and predominantly confined to self-employment. They are also highly concentrated in agriculture and trading activities:

- In 2010/11, there were approximately 11 million family-owned businesses operating in Tanzania, including farms. This is equivalent to a rate of entrepreneurship of 40 percent, which is about the rate reported in Uganda and Ghana, but three and 10 times higher, respectively, than in the United States and France.
- Half of the firms operating in Tanzania have only one employee, typically the owner; while an additional 40 percent report less than five employees. Firms with more than 10 workers represent only 0.6 per cent of the firms’ universe (still almost 70,000).

Saving is the key to future growth for Kenya

Wolfgang Fengler's picture

How do countries and individuals become rich? Human history provides a clue. One of our most defining moments as a species took place some 10,000 years ago, when a group of humans started to switch from hunting and gathering food to growing it. This allowed them to settle down (in an area called Mesopotamia). If they produced more than they consumed, they could save for the future. With proper storage facilities, they no longer needed to eat and drink everything they had; instead they could put some aside literally for "rainy days", and, even more importantly, invest some of the agricultural output to produce even more.

Now zoom forward several thousand years: saving has become central to individual and collective prosperity. As a rule of thumb those who save more become wealthier because foregoing consumption today allows one to invest in the future (e.g. you can save to buy a bicycle, a car, or a house). Businesses can invest in new equipment and governments in new roads, schools and health facilities. All of these investments are associated with better economic futures.

People and companies tend to save and invest if they can trust the institutions that manage their money and the economy at large. In the past, it was not always safe to keep deposits at banks in many African countries. It is different today. In fact some may feel more secure entrusting their savings to African banks than those in Europe (as depositors in Cyprus’ banks recently realized). But you need more than robust and credible banks for increasing savings and investments. Investors will only enter and stay in large numbers if they can trust that the state won’t change the rules of the game in mid-course.

Tax Lessons From Peers

Munawer Sultan Khwaja's picture

Read the first of this two-part blog post here.

The idea of a peer learning network for tax administrators came when I realized that tax authorities in different countries had many of the same questions: How do we initiate risk management? How are other countries dealing with compliance issues? How do countries ensure speedy VAT refunds and yet prevent fraudulent claims? And so on.

So why not get the tax officials from different countries together and provide a platform to discuss their challenges, experiences and innovative ways of solving problems. Mix them with a dose of tax experts from developed tax systems, et voila! That’s how TAXGIP (Tax Administrators eXchange for Global Innovative Practices) was born – it provides opportunities to exchange knowledge and good practices, and share experiences.
 

Mapping the Kyrgyz Republic’s Poverty Distribution

Sarosh Sattar's picture

A significant share of the population in the Kyrgyz Republic – 37 percent – lived below the poverty line in 2011, according to the latest available data. And despite a relatively modest population of about 5.5 million, poverty rates across oblasts (provinces) span a striking range -- from 18 percent to 50 percent.

Why? Well, that is a surprisingly difficult question to answer.  


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