Last week, the World Bank's Europe & Central Asia region published Diversified Development, a highly readable report written by Indermitt Gill, Ivailo Izvorski, Willem van Eeghen, and Donato De Rosa. The subtitle, making the most of natural resources in Eurasia, indicates that the report focuses on countries that are currently highly specialized as a result of their comparative advantage in natural resources. It addresses the question to what extent these countries have to diversify to ensure long-term prosperity. Clearer than ever before, the authors show that that is the wrong question to ask. That question gets the causality backwards. A diversified economy can result from successful development, but forced diversification is unlikely to lead to successful development.
Photo: "January 25th is the best and most honorable day in the history of Egypt"
In the World Bank office in Cairo, there is a beautiful poster that proclaims January 25th as the best day in history. I do not know its origin, but it looks like a drawing made in the heart of Cairo’s Tahrir Square during the January 25th revolution. Three years later, January 25th has a deep meaning in modern Arab history.
2010 winter Olympic Games in Vancouver were the first Olympic Games impacted by social media. In four years, social media has grown in both scale and influence. This infographic takes a deeper look at the growth of social networks and the potential they have to generate engagement, insight and interaction during the Sochi Olympic Games.
“The most calamitous failures of prediction usually have a lot in common. We focus on those signals that tell a story about the world as we would like it to be, not how it really is. We ignore the risks that are hardest to measure, even when they pose the greatest threats...We abhor uncertainty even when it is an irreducible part of the problem we are trying to solve.” (Silver 2012)
Each year governments invest billions of dollars towards long-term development. Yet their investment decisions are engulfed in deep uncertainty – about long-term demography, economic growth, technological developments, cost of energy, the impact of climate change, and a host of other factors. Deep uncertainties are difficult to acknowledge, understand, and manage. We are more comfortable facing risks we can quantify and solving problems for which we have familiar, well-honed tools. Compounding the problem, analysts and decision makers routinely face pressure to demonstrate that a decision is risk-free. Political and cultural expediency presses them to ignore rather than acknowledge uncertainty and present their decision as advantageous and certain. Such thinking can keep us in the dark about the real threats to our decision, and may lead us to make brittle decisions that fail when the future surprises us.
Financial Markets… Kazakhstan’s central bank devalued its tenge currency by 19% to 185 per dollar in an effort to hinder foreign speculators and adjust to the currency weakening of its main trading partner Russia. The Russian ruble, which is a reserve currency of Kazakhstan along with dollars and euros, has weakened 5.4% thus far this year. This has put additional pressure on the Kazakhstan currency as Russia accounted for nearly 18 % of Kazakhstan’s total trade, second after the European Union at about 41%.
Remittances have been the main source of foreign exchange supporting Somalia during the conflict for the last twenty years. A recent IMF fact-finding mission to Somalia found that about $2 billion in remittances are handled by money transfer companies. These companies are located throughout the country and they are providing shadow banking services since there are no licensed commercial banks. Somalis called this system “xawilaad” which is the Somali rendering of the Arabic word “hawala”.
Since the events of September 11, 2001, many countries have adopted stringent Anti-Money Laundering and Combatting the Financing of Terror (AML-CFT) regulations for funds transfers. Several banks in the US (Wells Fargo, US Bank, the TCF bank, and Sunrise Community Bank) and in the UK closed the accounts of money services business to avoid incurring in penalties for not complying with the new regulations. (Note: HSBC was fined $1.9 billion for not complying with money laundering controls in 2012.)
About once a year, I head off for the plush, Thames-side offices of Gallup Inc, for a fascinating update on what they’re up to on development-related topics. In terms of measurement, they often seem way ahead of the aid people, for example, developing a rigorous annual measurement of well-being across 147 countries. Not quite sure why they talk to me – maybe as part of the wilder shores of their business development – they know they won’t get much business out of it, but some useful ideas might come out of the discussion. This time, Katherine Trebeck, Oxfam’s wellbeing guru (only she prefers to call it ‘collective prosperity’ for some reason) and developer of the Humankind Index, was there too, which added some actual knowledge to our side of the exchange.
First up was Gallup’s partnership with the FAO on their ‘Voices of the Hungry’ project, aimed in part at correcting the alarming weakness of the numbers on hunger (see Richard King’s 2011 post on that). After pilots in Angola, Ethiopia, Malawi and Niger, in part supported by the Government of Belgium, FAO has now got DFID funding to go global, initially for two years. Through ‘Voices of the Hungry’, FAO has developed the Food Insecurity Experience Scale (FIES), modelled on the 15-item Latin American and Caribbean Food Security Scale. This uses interviews to place people along a spectrum from worried about food to seriously hungry.
The announcement comes at a time when growth is slow, unemployment is high and the economy is still suffering from already ballooning subsidies -amounting to 9 percent of GDP- that have kept Egypt’s fiscal deficit at an exceptionally high 13.7 percent of GDP. At least seven countries in the Middle East and North Africa Region —including all those in transition after the Arab Spring (such as Egypt)--are trapped in a low-growth-poor-policy loop.