On July 12th, 2023 the Atlantic Council’s empowerME Initiative, in collaboration with the U.S. Embassy in Manama and Bahrain FinTech Bay, held a first workshop in a series of four events for the Win Fellowship’s first cohort launched in Bahrain in June. The event, which took place both in-person at Bahrain FinTech Bay offices and virtually, focused on female leadership in the country.

The opening notes were delivered by empowerME’s chairman Amjad Ahmad. Keynote remarks were provided by H.E. Shaikh Abdulla Bin Rashid Al Khalifa, Ambassador of the Kingdom of Bahrain to the United States, and David Brownstein, Deputy Chief of Mission at the U.S. Embassy in Manama.

The event encompassed a moderated discussion featuring esteemed panelists: Jordana Semaan, Head of Human Resources (Gulf and Asia), Global Head of DEI, Investcorp; Nidal Al-Basha, Head of Public Sector Innovation, Amazon Web Services MENA Region; Hollie Griego, Global Wealth Investments North America Head of Strategy & Platforms, Citi; and Marwa Al Saad, Executive Director at Human Capital, Mumtalakat Bahrain, with Suzy Al Zeerah, Chief Operating Officer, Bahrain FinTech Bay, skillfully moderating the session.

These panelists shared profound insights on the current state of gender equality in Bahrain, the successful initiatives and strategies propelling this progress, the remaining challenges, and the influential role of corporate initiatives in endorsing gender equality and promoting women’s leadership within Bahrain’s business landscape.

Key discussion points

Amjad Ahmad, Chairman of the empowerME initiative at the Atlantic Council kicked-off the event by introducing the remarkable achievements of Bahraini women in education, workforce, and politics. Women in Bahrain make up 83 percent of tertiary school enrollments, 54 percent of the public sector workforce, and 45 percent of leadership positions in official state agencies. In the private sector, women comprise 35 percent of the workforce, hold 17 percent of board seats, and occupy 35 percent of managerial roles. The political landscape is no different, as Bahraini women made major strides. They make up 20 percent of the total members of the Council of Representatives and 25 percent of the Shura Council. Ahmad emphasized that these achievements are the result of a number of factors, including government policies that promote gender equality, the strong educational attainment of Bahraini women, and the increasing participation of women in the workforce.

In his opening remarks, Ambassador H.E. Shaikh Abdullah bin Rashid Al Khalifa expressed his strong support for the WIn Fellowship, noting its role in exposing Bahraini top women entrepreneurs to life-changing networking opportunities, mentorship, and workshops, thereby increasing their economic participation. He also highlighted the significance of the transformation brought about by the Supreme Council for Women (SCW Bahrain), which has been instrumental in implementing legislative and societal safeguards for Bahraini women. As a result of these reforms, Bahraini women account for about 43 percent of the labor force. Continued progress is being made in areas of pay equity, entrepreneurship, pensions, and the enhancement of women’s physical and psychological well-being. Furthermore, His Highness underscored Bahrain’s commitment to digital inclusion, manifested in the government’s initiatives to train women in digital skills and motivate them to pursue STEM fields.

David Brownstein expressed his support for the WIn Fellowship, asserting, “we’re incredibly proud to support the WIn Fellowship here in Bahrain. Bahrain is a place where seeds flourish when planted.” He also pointed to the shared goals between the U.S. Embassy and the Bahraini government, with both parties aiming for a peaceful and prosperous state. “Achieving this requires the active participation of all society’s members”, he noted. He also affirmed the U.S. Embassy’s commitment to supporting Bahrain’s national strategy on gender equity and addressing inequality.

The panelists all agreed on Bahrain’s success in promoting women to all levels of the workforce and representation in government and boards, attributing this to both government reforms and a workforce that acknowledges women’s potential. They also recognized persisting challenges, like widespread biases against women, underscoring the necessity of a robust peer-to-peer network of women advocating for each other.

When asked about the factors that have contributed to Bahrain’s high ranking in gender parity among Arab countries, Nidal Al Basha stated several key aspects. Firstly, he mentioned the role of encouraging women to pursue STEM spatializations, which has been instrumental in promoting gender equality. Additionally, he emphasized on the importance of a supportive work environment that grants women extended maternity leaves, ensuring a balance between their professional and personal lives. Al Basha explained that Bahrain offers additional benefits for women, such as dedicated nursing rooms in the workplace, demonstrating a commitment to meeting their specific needs. The implementation of inclusive hiring and promotional policies also plays a significant role in enabling women to succeed and advance in their careers, according to Al Basha.

Marwa Al Saad emphasized further how Bahrain recognizes the immense value of human potential, considering it as one of the most valuable and inexhaustible resources. She stated that the high gender parity in Bahrain is attributed to various factors. “There is a mindset shift in the country that prioritizes growth and development, fostering an environment where both men and women can flourish,” she explained. Bahrain has also implemented robust policy and program reforms that establish a solid foundation for the advancement of all genders. These initiatives created equal opportunities and a supportive framework for individuals to thrive in various sectors. Al Saad also mentioned an exciting new initiative; the Bahrain Defense Force, which further demonstrates Manama’s commitment to gender parity and inclusivity. This initiative showcases the country’s dedication to providing equal opportunities and encouraging the participation of all genders in defense-related fields.

Jordana Semaan, from her side, mentioned that the one lesson that other countries in the region can learn from Bahrain is the emphasis placed on women and celebrating their success stories. “The importance of representation cannot be understated, as it serves as a significant motivator for other women to enter the workforce and unlock their full potential”, she said. By showcasing accomplished women and their achievements, Bahrain inspires and encourages others to pursue their goals and make significant contributions in their respective fields.

Hollie Griego focused on the importance of allyship among women, highlighting how it empowers and propels them into higher positions within the workplace. “Citi, following a similar approach to Bahrain, recognizes the significance of recruiting, training, and retaining women in its workforce” according to Griego. She pointed to the implementation of mechanisms that create an environment where women can thrive, allowing them to strike a balance between their roles as working mothers and providing the flexibility necessary to forge a successful career path leading to long-term security. These mechanisms serve as valuable examples that any country can adopt to promote gender equality and support women’s advancement.

Additionally, the panelists discussed the changing perception towards women in tech sectors, demonstrated by the increased hiring of female engineers at Amazon Web Services. They gave the example of the vital role supportive mechanisms at the workplace play in facilitating women’s advancement into senior roles, enabling them to balance their roles as working mothers. The importance of role models was also stressed, regardless of gender.

When asked about the challenges faced by Bahraini women, similar to women globally, Semaan referred to a UNDP report stating that 9 out of 10 people hold biases against women. This bias is present in both men and women, and is a significant obstacle to overcome. Semaan  explained the importance of alliances and support networks among women, highlighting their role in addressing these challenges. “In this region, there is still a cultural expectation for women to take on caregiving roles,” she pointed.

Al Saad further emphasized the importance of implementing gender-inclusive solutions to address these challenges, while Al-Basha focused onthe importance of mental health support for both women and men, as well as the significance of programs that help women re-enter the workforce after being on leave.

Griego acknowledged that while Citi is one of the few institutions with a female CEO, there is still much work to be done to address the gender pay gap at senior levels and promote women into those roles. She emphasized the significance of mentorship for women, as it plays a crucial role in guiding them through their professional journey and career growth.

Suzy Al Zeerah additionally pointed to the absence of sufficient female role models and mentors in Bahrain and in the Middle East in general.

Closing remarks

According to the Global Gender Gap Report 2023, Bahrain stands as the second highest in terms of gender parity among the Arab countries. This achievement is due to several important themes that have emerged throughout the discussion.

The commitment to supporting working women, as evidenced by extended maternity leave suggests an understanding of the importance of balanced work-life dynamics. This is also apparent in private sector policies, especially in terms of maternity leaves like in the case of Amazon Web Services, among others that are trying to create an enabling workplace for women to join. Research did actually prove that paid maternity leave increases women’s labor force participation and entrepreneurship, thus affecting the country’s’ economy in general.

An equally significant development in Bahrain’s gender equality journey is the strategic emphasis on digital inclusion and the promotion of women in STEM fields. Bahrain is a frontrunner in technological diversity in the MENA region. Digital activities contributed to 8% of Bahrain’s gross domestic product (GDP) in 2020, demonstrating the nation’s committed efforts towards enhancing digital inclusivity. As for the digital gender disparity, it is minimal in internet access (1.1 percent), while none-existent in mobile accessibility.

Furthermore, around a third of the broader ICT workforce in Bahrain are women and approximately 20 percent of startup founders are women, higher than the global average. Given the traditionally low representation of women in the global tech sector, Bahrain’s encouragement of female participation is a drastic step towards a more balanced gender equation.

Role models and allyship were discussed during the workshop. Both are important for women’s economic advancement. Afterall “you can’t be what you can’t see”. Championing female leaders in sectors such as tech and defense can potentially disrupt existing barriers, opening doors for future generations.

Despite this progress, Bahraini women, like many in the region, continue to face a variety of legal, regulatory, and sociocultural obstacles to economic participation and leadership. Initiatives to address this discrepancy are necessary for future growth and development. These barriers highlight the need to invest in women skills, establish strong networks, and develop clear metrics to measure progress in supporting women.

The private sector plays a key role in improving the condition of women and increasing their leadership. For example, the gender pay gap in Bahrain is prominent in the private sector-US$2,300 versus US$1,700 for women compared to only US$200 in the public sector-. Institutions need to actively work towards increasing female representation in leadership, by prioritizing the recruitment, training, and retention of women, play a critical role in creating a more equitable business landscape, concluded the speakers.

The discussion overall underscored Bahrain’s commitment to gender equality and its innovative approach to tackle this issue. However, it also highlighted the persistent challenges that need to be addressed to ensure lasting progress. The workshop served to place Bahrain’s journey as an inspiring model for other nations grappling with similar issues.

Lynn Monzer is the Associate Director with the Atlantic Council’s empowerME initiative at the Rafik Hariri Center for the Middle East.

Nibras Basitkey is the Program Assistant with Atlantic Council’s empowerME initiative at the Rafik Hariri Center for the Middle East.

WIn Fellowship cohorts

Jun 14, 2023

The WIn Fellowship 2023-2024 cohort

Building on the success of its inaugural cohort, the Women Innovators Fellowship (WIn) is expanding to Bahrain and the UAE, in addition to Saudi Arabia, as it continues to empower more women entrepreneurs from the Middle East. The program is thrilled to announce this year’s eighty-six recipients of its 2023 WIn Fellowship. The participants will receive a year-long program of executive education, mentoring, and networking opportunities in collaboration with Georgetown McDonough School of Business and with the support of the United States embassies in the three target countries and PepsiCo.

Feb 24, 2023

2023 WIn Fellowship Roadshow

The WIn Fellowship roadshow is led by the Atlantic Council’s empowerME Initiative in cooperation with Georgetown University’s McDonough School of Business with support from US Embassy Riyadh, UPS, and PepsiCo. The WIn Fellowship Roadshow participants, chosen from a highly competitive cohort of more than thirty applicants, receive a fully sponsored trip to the United States for leadership training at Georgetown and meetings with US business and government leaders.

Jun 14, 2023

WIn Fellowship 2023-2024 Bahrain

The empowerME initiative is happy to present the 2023-2024 WIn fellow cohort from Bahrain. These women entrepreneurs will build on their leadership and executive skills to scale their startups to new heights.

Related content

Jun 29, 2023

Female leadership in Bahrain: progress, potential, and Sustainability

The Atlantic Council’s empowerME Initiative‘s workshop on destigmatizing failure and promoting business risk through policies and culture in Saudi Arabia and the wider MENA region was held on Wednesday, July 12th from 11:00 am-12:00 pm ET/6:00-7:00 pm Bahrain. The WIn Fellowship is led by the Atlantic Council’s empowerME Initiative in cooperation with Georgetown University’s McDonough […]

Event Recap Mar 8, 2023

WIn Fellowship Roadshow Recap: a promising start for the inaugural fellows

By Amira Attia, Lynn Monzer

A recap of the 2023 WIn Fellowship Roadshow

Economy & Business Future of Work

Event Recap Feb 9, 2023

Redefining the meaning of ‘failure’ in policies and culture to promote business risk

By Amira Attia

On January 24th, the Atlantic Council’s empowerME Initiative held a discussion about destigmatizing failure and promoting business risk through policies and culture.

Economy & Business Inclusive Growth

empowerME

empowerME at the Atlantic Council’s Rafik Hariri Center for the Middle East is shaping solutions to empower entrepreneurs, women, and youth and building coalitions of public and private partnerships to drive regional economic integration, prosperity, and job creation.

Explore the initiative

The post An overview of gender parity in Bahrain: Progress, challenges, and the path forward appeared first on Atlantic Council.

But many questions remain about whether creditors truly are prepared to meaningfully reduce debt burdens. These issues likely will be on the table in India this week (July 14 to 18) when the Group of Twenty (G20) finance ministers and central bank governors gather to discuss debt restructuring and other global economic issues.

In Zambia, which defaulted on its debts in 2021, government creditors led by China have resolved months of jostling and agreed to a restructuring of $6.3 billion of the country’s more than $8 billion of debt. The agreement extends for 20 years the country’s debt-repayment schedule and lowers its annual interest bill to one percent until economic growth recovers. Now, the country’s private-sector lenders, who hold billions of dollars of government IOUs, are talking about writing down some of their Zambia loans, and in Ghana are writing off loans and restructuring dollar-denominated bonds. Meanwhile, both classes of creditors are deep in restructuring discussions with Sri Lanka, which has requested a 30 percent haircut on some bonds.

These settlements would pave the way for assistance from the International Monetary Fund (IMF) and provide a way forward—albeit a difficult one—for dozens of low-income countries that are in or nearing debt distress. This represents progress compared with a year ago, when China and the private sector were balking at a transparent negotiating process. But there are still many issues to address—especially how far China really is prepared to go in reducing the burden of its vast lending. Unlike previous global debt episodes, notably the Latin America debt crisis of the 1980s and debt relief to low-income countries early this century, there is unlikely to be a grand bargain this time around.

While the preliminary agreement with Zambia has been heralded as “an epochal shift in global finance,” the reality is that negotiations there and elsewhere are following a well-trodden path: first the seal of approval of an IMF rescue program (which in Zambia’s case was reached in 2022), with promises of IMF money once a debt restructuring is agreed to. Then the hard bargaining with government lenders, followed by talks with private creditors. This slow progress is a far cry from late 2020 when the G20 agreed on a restructuring process for the poorest countries called the Common Framework that briefly raised hopes of a rapid succession of debt reductions—hopes that were dashed largely because of foot-dragging by China and foreign lenders.

Before the emergence of China as a major creditor to middle and low-income countries during the lending spree that accompanied its Belt and Road Initiative, debt negotiations went through the IMF and the Paris Club of advanced-economy lenders. It was arguably a simpler world, not least because private-sector lenders’ debt exposure in developing countries was marginal. That changed after 2010, when institutional investors joined China in shoveling money out the door to what became known as “frontier economy” borrowers. Between 2007 and 2020, an unprecedented 21 African countries accessed international debt markets. Today, debtors must proceed on multiple tracks—the Paris Club, the Chinese government, China’s state banks and state-controlled commercial banks, and Western fund managers and money-center banks.

Some creditors question the true nature of the debt restructuring now on offer. For example, private sector lenders and analysts say privately it is not clear whether, in Zambia’s case, China has negotiated bilateral conditions that have been concealed from other lenders. They say that this could cast doubt on assurances that government creditors have provided to the IMF about restructuring arrangements. In addition, China’s insistence on extending debt repayments for decades conflicts with the Paris Club’s track record of providing relief in the form of reductions in principal owed. That could become an issue if China pursues its approach in countries where other governments are major creditors—for example, India and Japan in Sri Lanka. In that case, the model of the Zambia agreement could quickly become a muddle.

The private sector has arguably made significant strides in recognizing their loan losses, as the situation in Ghana illustrates. Lenders such as the big four South African banks are writing off as much as $270 million of their loan exposures, which equates to a haircut of almost 60 percent. And Standard Chartered Bank has set aside some $160 million for Ghanaian write-downs. This loan-loss recognition serves two purposes. First, it is an effort to inform shareholders about the banks’ overall sovereign exposure and the steps they are taking to reduce it. Second, by setting a floor on the losses they are prepared to absorb, they have a better negotiating hand in the restructuring conversations.

Meanwhile, bondholders are likely to face increasing pressure to restructure Eurobond issues—and accept haircuts—as the repayment schedule accelerates in the next two years.

A looming issue may be the response of Western banks and bondholders to China’s success in having some of its loans by state-controlled banks exempted from the Zambia agreement and classified as commercial lending. How those Chinese loans are treated—in Zambia and elsewhere—while the real private-sector creditors negotiate settlements will be a test of China’s willingness to accept the principle of “comparability of treatment” for all creditors, a key principle that Beijing publicly insisted upon as recently as April.

There are real-world ramifications to these nuts-and-bolts issues that extend beyond the politics of the restructuring process. The human cost of the debt crisis for poor countries has been severe. The UN estimated last year that fifty-four countries with severe debt problems represented about three percent of global gross domestic product, but accounted for more than one-half of the 600 million people worldwide living in extreme poverty. That number has risen sharply since the pandemic hit in 2020.

Debt payments by these countries siphon off resources that are desperately needed for health, education, and other social programs. Defaults and restructuring only make this scarcity worse. That points to the need for new sources of funding. The World Bank is under pressure to free up more money for grants and lending. Meanwhile, the IMF has increased funding for two trusts designed to meet the needs of low-income countries, including one created to help developing countries meet the immediate and long-term challenge of climate change and pandemics. About $100 billion of new resources come, in part, from the 2021 allocation of $650 billion of Special Drawing Rights to IMF member countries.

But demand for help is rising faster than the available resources, especially for the Poverty Reduction and Growth Trust, a perpetually underfunded IMF vehicle that subsidizes zero-interest loans to the poorest countries. As new lending to these nations from China and private creditors dries up, the World Bank and IMF will be hard-pressed to pick up the slack. Debt restructuring that merely extends repayment for decades without any forgiveness will only entrench the imbalance between needy borrowers and lenders whose priority is to recoup their capital.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of Has Asia Lost It? Dynamic Past, Turbulent Future. Follow him on Twitter: @vshastry.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Progress on debt restructuring provides a glimmer of hope for developing countries appeared first on Atlantic Council.

In the past twelve months, Vice President Kamala Harris launched the US-Caribbean Partnership to Address the Climate Crisis 2030, welcomed leaders to Washington, and met in person with leaders in The Bahamas. This has helped build goodwill in the region. But US visits and diplomatic engagement have yet to yield many results. Simply put, if Blinken arrives in the Caribbean with little to announce, frustration is likely to brew. 

Blinken’s visit must start an action-oriented agenda for the region. He should focus on two key areas of cooperation. First, the United States should work with multilateral development banks (MDBs) to provide access to low-cost and low-interest financing to high- and middle-income Caribbean countries. Second, Washington should provide requisite tools to local private sector businesses so they can play a larger role in the region’s own development.  

For the United States, the consequences of insufficient action so far are evident. Given the enormity of the challenges facing the Caribbean, the region’s leaders are seeking solutions to their problems elsewhere. Barbadian Prime Minister Mia Mottley has taken to the global stage to overhaul MDB financing, Guyana is welcoming investment in its oil sector from all corners of the world, and Trinidad and Tobago is increasing engagement with Venezuela over shared gas reserves. Other Caribbean leaders see African countries, India, and China as attractive partners that can provide financing, investment, and aid. 

This does not mean that US presence in the region will evaporate. The Caribbean’s proximity to the United States, strong trade relations, and a large US-based diaspora ties the partners together. But US government officials must realize that the United States will no longer be the only actor with which Caribbean leaders will engage. Therefore, if the United States wants to remain relevant in the region, now is the moment to deliver real solutions to the challenges facing its Caribbean neighbors.

A plan to amplify financial instruments

The first step should be working with MDBs, such as the World Bank and the Inter-American Development Bank, to amplify new financial instruments to support access to concessional financing for Caribbean countries. Most Caribbean countries are classified as high- or middle-income, which means that they are not able to access low-cost and low-interest financing from MDBs to fund needed infrastructure or social programs in times of crisis. Part of this work is ongoing, with the World Bank recently announcing a debt pause on loan repayments for developing countries hit by natural disasters. 

However, the pause only applies to new loans, not existing ones. Given the specific vulnerabilities of Caribbean countries, which extend beyond just the effects of climate change–induced events, the United States should work with MDBs to create a specific carve-out for small island development states such as the CARICOM countries. Hurricanes and other natural disasters pose significant risks to the Caribbean. But due to the small size and openness of their economies, so do other external events, such as pandemics, the volatility of commodity prices, and disruptions in supply chains. These external risks should be accounted for as well, because if another COVID-19 pandemic occurred today, Caribbean countries would still be on the hook for loan repayments. 

Charging up the private sector

The United States should also work closer with local businesses to embolden the Caribbean private sector. Big infrastructure projects in the Caribbean, such as roads, bridges, and new buildings, are mostly led by governments. The private sector is often left out, as local banks provide only limited financing or loans with high interest rates. This creates a vast asymmetry between government and private sector resources, with governments scoring political points from new infrastructure projects, while the skills, expertise, and capital that bring these projects to fruition result in little benefit for local companies. Foreign companies, therefore, reap the benefits, with returns on projects benefitting external actors rather than populations in the Caribbean, including the business community. This creates a dependency on the state to provide jobs, resources, and skills to citizens, meaning that the distribution of these resources is tied to the government of the day. 

To address this, the United States should create a US-Caribbean Public Private Partnership program that incubates small businesses in the region. The objective should be to train small businesses and transfer skills and technologies to local companies so that they can scale to a level where they are competitive in bidding rounds for upcoming projects. This is all the more important in the construction and energy sectors, as new climate-resilient infrastructure and energy systems are needed in the Caribbean now and going forward. The benefits would be twofold. First, a stronger and more robust private sector should strengthen and stabilize the region’s financial sector, making Caribbean countries less susceptible to volatility in global markets. Second, the larger the private sector, the more jobs will be available to citizens. This should stimulate domestic growth and create more diverse job opportunities outside of public service and the tourism industry—two sectors highly vulnerable to climate change and growing debt-to-gross-domestic-product ratios. 

It is a consequential moment for the Caribbean—its challenges grow worse each day. To survive the next few decades, it needs the support of its partners, including the United States. High-level visits alone will not suffice. To capitalize on the goodwill the United States has built in the Caribbean, Blinken’s trip should mark the beginning of an active policy toward the region. Working with MDBs and supporting private sector growth would be a giant step forward.  

Wazim Mowla is the associate director of the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center.

The post Success is not just showing up. Blinken’s Caribbean trip needs to deliver. appeared first on Atlantic Council.

The post Tran quoted in Bretton Woods Committee post on Paris Summit appeared first on Atlantic Council.

The completion or near completion of those measures is indeed helpful to DLICs, even if the measures fall short of what is needed—the sustainable development gap of those countries has been estimated to be $2.5 trillion per year. What the DLICs really need are concrete initiatives and the less said about grand strategy the better. Dressing those initiatives up as parts of a “new global financial architecture” risks conflating them with the geopolitical conflict centered around changing or preserving the current world order. That conflation will only make it more difficult to develop the international consensus required to adopt those measures. 

The Paris Summit showcases the potential and limits of the plurilateral approach  

The Paris Summit brought together senior representatives of about thirty-two countries, international organizations such as the World Bank (WB) and the International Monetary Fund (IMF), civil society organizations advocating debt relief and climate financing for DLICs, as well as private-sector businesses. Besides Macron, presidents and prime ministers from South Africa, Brazil, Germany, China, and a dozen or so African countries attended. The United States was represented by Treasury Secretary Janet Yellen and Special Climate Envoy John Kerry. The Summit represents an example of a plurilateral approach where a relatively small group of countries get together around a common agenda instead of the multilateral approach involving all members of the international community. Other examples include the World Trade Organization (WTO), which has been able to push through a few plurilateral trade agreements on specific issues, having failed to facilitate any round of multilateral trade liberalization since its inception in 1995; and the IMF which has recognized that working with smaller groups of like-minded countries can be a practical way forward. 

The Paris Summit exhibited the potential and limitations of the plurilateral approach. The results of the Summit were contained in the Chair’s summary of discussion, essentially reflecting participants’ appeals and statements of wishes rather than new commitments by countries. In fact the United States—a key country in any international undertaking—has been lukewarm at best about several proposals to raise funding, including worldwide taxation of CO2 emission in shipping and aviation, of financial transactions, and of fossil fuels in general. Yellen reiterated that multilateral development banks (MDBs) should try to optimize the use of their balance sheets to provide more finance to climate-related projects before asking members for more capital. 

Concrete results from the Paris Summit 

Nevertheless, the Paris Summit managed to produce two sets of results. One is a Road Map highlighting important events and meetings such as the G20 Summit in September in New Delhi and the IMF/WB annual meetings in October in Marrakech. Also noteworthy is the meeting of the 175-member International Maritime Organization in July to discuss the idea of taxing emissions from shipping, and the United Nations Summit on the Future in September 2024. The road map is useful in focusing international attention on important gatherings to push for further progress on the various commitments and initiatives already on the table. 

More useful to DLICs are announcements of the completion or near completion of previous pledges. Specifically, President Macron expressed confidence that the 2009 pledge by developed countries to spend $100 billion a year to help DLICs deal with the impacts of climate change will be fulfilled later this year. The OECD has reported that in 2020 the total amount reached $83 billion—the failure to meet this promise on time has been a disappointment for DLICs. More positively, the IMF reported that it has met its goal of asking countries with excess SDR reserves to re-channel $100 billion of the SDRs allocated in 2021 to help DLICs—with $60 billion pledged for its Resilience and Sustainability Trust (RST) and Poverty Reduction and Growth Trust (PRGT). In particular, the RST is aiming to help DLICs deal with climate change through an exception to the short-term nature of IMF lending, offering loans with a 20-year maturity and a 10-year grace period. 

The WB also outlined a toolkit that had been in the works for some time and includes offering a pause in debt repayments during extreme climate events (but only for new loans, not existing ones), providing new types of insurance for development projects (to help make those more attractive to private sector investors), and funding advance-warning emergency systems. In particular, it has announced the launching of a Private Sector Investment Lab to develop and scale up solutions to barriers to private investment in emerging markets. Progress has been reported in efforts by MDBs, especially the WB, to optimize their balance sheets according to the G20-endorsed Capital Adequacy Framework in order to be able lend $200 billion more over 10 years—with the hope of catalyzing a similar amount of investment from the private sector (which is easier said than done). 

Most concretely, after years of procrastination, the official bilateral creditor committee agreed to restructure $6.3 billion of Zambia’s bilateral debt, a portion of its total public external liabilities of more than $18 billion. The deal extends maturities of bilateral debt to 2043, with a 3-year grace period; an interest rate of 1 percent until 2037 then rising to a maximum of 2.5 percent in a baseline scenario; but up to 4 percent if Zambia’s debt/GDP ratio improves sufficiently. In the baseline scenario, the present value (PV) of the debt will be reduced by 40 percent, assuming a 5 percent discount rate. This is lower than the 50 percent PV haircut accorded to some other countries in debt crises and is insufficient to meaningfully reduce Zambia’s debt load. Nevertheless it is helpful, especially in allowing Zambia to receive a $188 million disbursement from its $1.3 billion IMF program. The deal was reached contingent on Zambia negotiating comparable agreements with its private creditors and after the multilateral development banks (MDBs) pledged to provide concessional loans and grants to DLICs in crises. 

Key takeaways  

First and foremost, the results of the Paris Summit show that it is useful to maintain pressure on governments and international organizations to deliver on their pledges and commitments to various initiatives, as well as to agree to new ones to help DLICs. Even though each of the measures is insignificant compared to the overall needs, cumulatively many of them can provide tangible support to DLICs.  

Secondly, progress on any of these initiatives requires agreement by all key countries, including China. For example, the Zambia debt restructuring deal was achieved only when China’s preferences have been honored—including no cut in the principal amount of debt, relying instead on maturity extension and low interest rates; classifying several loans including from China Development Bank as commercial, not official; and requiring other creditors including MDBs and private sector investors to participate on a comparable basis in the debt relief. Hopefully, the Zambia deal can represent a template to speed up the restructuring process for DLICs, as flagged in an earlier Atlantic Council post.  

And that leads to the last takeaway from the Paris Summit, mentioned earlier. Countries should not let debt alleviation and climate change mitigation initiatives be used as political scoring points in the geopolitical conflict between the West and China. This will make it difficult to build the consensus required to move forward in these efforts.  

Hung Tran is a nonresident senior fellow at the GeoEconomics Center, Atlantic Council, and former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Lessons from the Paris Summit for a New Global Financing Pact appeared first on Atlantic Council.

This is the 5th installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

How does the private sector perceive Latin America and the Caribbean (LAC)? What opportunities do firms find most exciting? And what precisely can companies do to seize on these opportunities and support the region’s journey toward recovery and sustainable development? To answer these questions, the Atlantic Council collaborated with the Inter-American Development Bank (IDB) to glean insights from its robust network of private-sector partners. Through surveys and in-depth interviews, this report identified five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Meaningfully advancing the green agenda

The private sector identified the green agenda as a major opportunity, with more than half of survey respondents flagging “addressing climate change” as a top sustainable development and business priority to drive full economic recovery from COVID-19.¹ While climate action is critical on a global level, companies recognize that it is particularly pressing in LAC.

LAC is the world’s most economically unequal region and the second-most disaster-prone region in the world, highly vulnerable to climate consequences.² This vulnerability threatens to further entrench inequality and undermine the wellbeing of people and communities. Every year, between one hundred and fifty thousand and two million people in LAC are pushed into poverty or extreme poverty because of natural disasters, while as many as seventeen million people could migrate across LAC by 2050 due to climate change.³ Climate change also threatens food security, which can heavily impact rural communities.⁴ It will generate economic costs of up to $100 billion annually by 2050, which undercut growth and limit the ability of businesses to operate, prosper, and thrive.⁵

Recommendations for the private sector

Advancing the green agenda is not only imperative as a means of addressing the threat of climate change, but also as a means of unlocking massive business opportunities with the potential to drive private-sector-led economic recovery and growth in LAC. In particular, private firms have an important role to play by creating green jobs, promoting the circular economy, and partaking in green finance.

1. Creating green jobs: Firms can help create green jobs by adopting sustainable practices, seizing business opportunities in emerging green sectors, and providing upskilling, reskilling, and other support for workers displaced by the green transition.
2. Promoting the circular economy: Firms can help drive a transition to a circular-economy model by financing circular-economy efforts, supporting multistakeholder initiatives, and adopting and promoting sustainable business practices.
3. Partaking in green finance: The financial sector can help foster a green-finance ecosystem in the region by tightening environmental, social, and governance (ESG) requirements, aligning investments with green objectives, and nurturing green[1]bond markets in LAC.

About the author

Staff

Pepe Zhang

Senior Fellow

Adrienne Arsht Latin America Center

China Coronavirus

Related content

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

The post Meaningfully advancing the green agenda appeared first on Atlantic Council.

• Executive summary
• Introduction
• Overview of key opportunities
• Conclusion
• Annex
• Interviews

Executive summary

How does the private sector perceive Latin America and the Caribbean (LAC)? What opportunities do firms find most exciting? And what precisely can companies do to seize on these opportunities and support the region’s journey toward recovery and sustainable development? To answer these questions, the Atlantic Council collaborated with the Inter-American Development Bank (IDB) to glean insights from its robust network of private-sector partners. Through surveys and in-depth interviews, this report identified five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Introduction

Latin America and the Caribbean stand at a pivotal moment. Hard hit by the pandemic in 2020, the region managed an impressive rebound in 2021 on the back of successful vaccination campaigns and historically intensive fiscal support.¹ However, new uncertainties began to emerge by late 2021. LAC’s growth slowed to 3.5 percent in 2022, and is expected to further weaken to 1.7 percent in 2023.²

Inflationary pressures, rate hikes in both LAC and advanced economies, spillovers of the war in Ukraine, tightening fiscal positions, and still-high debt levels have dampened the regional macro-outlook.³ In addition, countries face structural micro-level vulnerabilities—such as rigid and informal labor markets and low productivity—which made LAC the slowest-growing region globally from 2014–2019 and the region worst affected economically by COVID in 2020.⁴

The above challenges—coupled with a lingering pandemic, a global food crisis and energy crunch, and the effects of climate events—are testing public finances and institutions. Much is at stake as governments seek to better serve the needs of their economies and societies. From sustaining the ongoing recovery against short-term headwinds to boosting inclusive, productive, and sustainable development in the long term, governments cannot, and should not, do it alone.  

In this context, the Atlantic Council’s Adrienne Arsht Latin America Center (AALAC) has partnered with the Inter-American Development Bank (IDB) to highlight the critical role of the private sector in supporting growth and improving lives in LAC. By working directly with IDB’s robust network of multinational private-sector partners through surveys and interviews, AALAC identifies and spotlights five opportunities whereby the private sector can drive economic prosperity, sustainable development, and social progress in LAC. 

1. Enhancing market size, scalability, and regional integration. The private sector can strengthen the hard and soft infrastructures supporting the region’s economies, while drawing them closer together through trade, regulatory, and other integration. 
2. Accelerating digitalization and innovation. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains. 
3. Improving state governance, institutional capacity, and transparency. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government-service delivery, and regulatory quality in LAC.  
4. Addressing multidimensional inequality. Private-sector actions to reduce gender inequality, level the playing field between SMEs and large firms, narrow the urban-rural divide, and prepare for global shocks will enable a more prosperous, inclusive economy for LAC. 
5. Meaningfully advancing the green agenda. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.  

In each opportunity area, the report provides recommendations private firms should consider to maximize their own roles in the region’s recovery and continued development, as well as by working through partnerships with the public sector. To inspire ways forward, such recommendations are accompanied by concrete, actionable examples of successful private-sector leadership and partnerships. 

Where applicable, the report also introduces relevant, complementary policy recommendations for the public sector by drawing primarily on research of the Americas Business Dialogue (ABD), a private-sector initiative facilitated by the IDB. ABD leverages the insights of more than four hundred companies to develop, disseminate, and support the implementation of sound public-policy recommendations. 

Partnerships at the IDB
The report is the product of a close collaboration between the Atlantic Council and the IDB. The IDB is the leading source of development financing for Latin America and the Caribbean, with a long track record of working in partnerships with the public, private, nonprofit, philanthropic, and academic sectors. Through its Office of Outreach and Partnerships (ORP), created in 2008, the IDB has managed to cultivate a robust network of partners, including private-sector firms dedicated to supporting the region’s development in partnership with the bank. The Atlantic Council engaged more than one hundred of these firms as part of the report-building process.

The IDB works with its private-sector partners in many ways, focusing largely on: capturing financing from partners to complement its operations in the region; mobilizing pro-bono knowledge, innovation, and technological solutions from partners that can generate impact in the region, in line with its institutional strategy; and engaging in knowledge sharing, dialogue, networking, and other activities through high-level partnership platforms. To date, the IDB Group has mobilized close to $52 billion from 500+ partners from the private, public and philanthropic sectors, including $5.91 billion in 2022.

Special feature: Private-sector perception of LAC
In addition to identifying the five opportunities of private-sector-led growth in LAC, this report provides a helpful snapshot of business attitudes toward the region, through a series of surveys and interviews conducted in May and July 2022 (see methodology in Annex A). Survey respondents—private-sector partners of the IDB—are predominantly multinational companies and represent fifteen sectors. Seventy-nine percent of these companies operate in two or more LAC countries and 65 percent employ more than four hundred people in the region. The survey yields two salient insights.

The first of these insights is that business leaders perceive the region through a spectrum of optimistic and pessimistic lenses. In brief, survey respondents are almost exactly split on whether the overall business and investment environments in LAC have improved over the last decade. The optimists, which make up 49 percent of respondents, consider the environments to be friendlier or much friendlier than in the past, whereas the pessimists (the other 51 percent) see stagnation or even deterioration in these conditions (Figure 1). Interestingly, the two groups are not defined by discernible differences in terms of the industries or subregions in which they operate, or in the demography of the respondent.



The optimism-versus-pessimism dichotomy reflects more than just two contrasting views of the region’s past trajectory. Rather, dissecting survey responses by optimists and pessimists reveals their respective underlying perspectives on LAC’s strengths and weaknesses—and, implicitly, their disagreements and surprising agreements. For example, while optimists are more hopeful about, and place greater emphasis on, LAC’s digital and innovation potential than the pessimists, optimists fully concur with pessimists that governance and institutions are top challenges facing LAC.

Comparisons like this—see numerous “additional survey insight” boxes throughout the report—add more nuance to the analysis, as well as the resulting, forward-looking recommendations. Although perceptions are hard to change, progress in the five opportunity areas outlined below will be key to tipping the balance of optimism and pessimism in LAC’s favor. This is important because perceptions guide decision-making: perceived risks and weaknesses can undercut investment, while a shift toward more optimistic views of the region can do the opposite.

Second, the survey displays a more favorable perception of LAC than common wisdom or an “international observer” might suggest. On one hand, reputable international assessments of business friendliness and competitiveness— conducted by organizations such as the Economist Intelligence Unit, the World Economic Forum, and the Institute for Management Development—tend to place LAC in the bottom half of all countries.⁵ On the other hand, our survey respondents—including the pessimists—see LAC as slightly more attractive than the global average (see Figures 2 and 3 below). ⁶ Despite the potential positive bias of our multinational survey respondents toward LAC, it offers hope that they suggest—in a global context—that LAC may have more to offer than meets the eye.

To further explore such varied perceptions of LAC, the report compares LAC to other regions through objective metrics, where applicable. More importantly, an obvious takeaway is that, going forward, the region needs to lower its “barriers to entry” and make its opportunities more accessible to everyone, whether knowledgeable observers or those who do not necessarily possess a deep understanding of local conditions. Effective and constructive public-private collaboration and dialogues, including those undertaken in preparation for this report, will be indispensable to rallying international optimism and attention in specific countries, and in the region in general.

Overview of key opportunities

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Conclusion

When asked to identify the main social impact of their companies, survey respondents cited myriad promising areas. Unsurprisingly, the most commonly cited was economic growth and job creation (72 percent), as shown in Figure 11 a few pages ago. But LAC needs companies to consider their contributions far beyond output and employment, especially with the region confronting a number of additional short-term uncertainties and structural socioeconomic obstacles. As evidenced by concrete examples throughout the report, many firms have undertaken commendable efforts and rethinking in this regard. But more can be done. Going forward, the private sector would do well to step up as a leader—and a partner for the public sector—in boosting development, equity, resilience, and sustainability in LAC. This report explored how the private sector can rise to this challenge in a systematic and actionable way, through sixteen recommendations across five concrete opportunities (summarized below). Additionally, it explained why doing so also benefits firms, for those less convinced of the cause (or less optimistic about the region). This is particularly critical to further galvanizing private sector interests at a time when pandemic-induced scarring and other ongoing economic headwinds have eroded corporate revenues and suppressed cumulative investment in certain sectors.⁷ Even with fewer resources available, however, companies can make an impact through well-designed day-to-day operations, strategies, special programs, and partnerships. Finally, the private sector cannot, and should not, do it alone. The report highlighted success stories and the overall importance of multistakeholder partnerships (public-private, private-multilateral, private-civil society, etc.), as a way to complement private-sector actions and amplify developmental impact. On that note, this conclusion section offers some final thoughts and additional insights on how to stimulate public-private partnerships in particular, as well as the critical role of the multilateral sector to advance partnerships and private-sector-led development.

Special feature: Maximizing the potential of public-private cooperation
In addition to the private-sector opportunities and recommendations summarized above, the report showcased scores of successful partnerships with the private sector that helped magnify developmental impact. As governments pursue and expand these partnerships, a central question remains: how to ensure these partnerships are successful. The answer varies greatly depending on the nature of the collaboration (e.g., co-financing an infrastructure project versus developing vocational training with private-sector expertise). Nevertheless, insights from our survey shed light on this. See Figure 12 below.

Firms most commonly cited the two following factors as necessary for successful collaboration with the public sector: regulatory, procedural, and legal clarity (70 percent), and integrity and trustworthiness (70 percent). The next tier of requirements was related to the attributes of specific collaborations themselves: economic viability (60 percent), skilled counterparts (56 percent), and effective negotiation (54 percent).



Here again, interesting differences appeared between our survey’s optimists and pessimists. The latter—who showed greater skepticism of government institutions—are more likely to prioritize regulatory and legal frameworks and engage with trustworthy and honest counterparts. Optimists, meanwhile, focused more on the specifics of a given collaboration (in particular, economic viability). See Figure 13 below.

Ultimately, as with all relationships, successful public-private cooperation in pursuit of recovery and sustainable development in the region will depend on a shared vision for success, a clear sense of what each partner brings to the table, trust and communication, transparency and honesty, and a shared belief in the unique potential of multistakeholder partnerships to improve lives in the region.

Special feature: The role of the multilateral sector

Multilateral actors have a critical role to play in these partnerships. Indeed, many interviewees, including Telefonica, pointed to the multilateral institutions as key partners that can help private actors unlock their full potential to support the region’s development.

First, multilateral entities bring profound sectorial, country, and development expertise to partnerships. This knowledge helps ensure partnerships are designed in line with country and sector needs, that they respond to the realities on the ground, and that they are soundly implemented and carefully monitored to maximize impact.

Second, multilaterals are trusted partners of governments, civil-society actors, and private firms, and therefore can serve as a bridge connecting these diverse actors. This is particularly relevant in LAC, where trust in the public and private sectors is low, and where mistrust is a significant obstacle to development.⁸ As an honest broker, multilaterals can unlock progress and prosperity by convening and building trust among public, private, and civil-society actors, and by opening the hearts and minds of local partners and beneficiaries to the ways in which private-sector partnerships can improve the region’s environmental, social, and economic wellbeing. A salient example here is IDB’s leadership in convening public-private dialogue, through platforms like the Americas Business Dialogue, on diverse topics of strategic development importance. These dialogues have effectively fostered public-private-multilateral ties in the region and involved nontraditional stakeholders, such as MNCs, in the region’s development journey.

Third, multilaterals can play a supporting role to empower partnerships with the private sector, even without being directly involved in the partnerships themselves. For example, they can partner with governments to provide anchor investments or de-risking facilities that may crowd in the private sector. Their support of private-sector operations with a meaningful development impact creates significant demonstration effects for other private firms to follow. Their commitment to fostering domestic private-sector development lays the groundwork for private firms to thrive, generating opportunities for future partnerships.

Such financial and technical assistance is particularly important in today’s uncertain economic and political context. On one hand, multilaterals are well positioned to act as countercyclical lenders during credit crunches and other crises. On the other hand, the multilaterals’ focus on the long-term growth and competitiveness agenda helps induce similar behavior in the public and private sectors, which helps overcome certain short-termism (for example, caused by elections, protests, or political polarization) potentially counterproductive to ultimate development goals.

Finally, multilaterals are also well placed to extract and disseminate the lessons generated from partnerships and use them to inform future partnerships and public policymaking—an essential component and objective of this collaborative report between AALAC and IDB. Moreover, their robust government ties, network of stakeholders, and in-country presence facilitates the exchange and cross-pollination of know-how across different geographies and industries. Like MNCs, many multilaterals have extensive coverage and memberships across LAC. The IDB, for example, has physical presence across twenty-six countries in the region.

Annex

Interviews

Related event

Public Event Mon, June 26, 2023 • 2:00 pm ET

Unlocking development in LAC: What role and opportunities for the private sector

An in-person conversation on pathways for the private sector to boost regional development across Latin America and the Caribbean.

Americas Climate Change & Climate Action Economy & Business Energy & Environment

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

The post Unlocking economic development in Latin America and the Caribbean: Five opportunities for private-sector leadership and partnership appeared first on Atlantic Council.

This is the 4th installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

How does the private sector perceive Latin America and the Caribbean (LAC)? What opportunities do firms find most exciting? And what precisely can companies do to seize on these opportunities and support the region’s journey toward recovery and sustainable development? To answer these questions, the Atlantic Council collaborated with the Inter-American Development Bank (IDB) to glean insights from its robust network of private-sector partners. Through surveys and in-depth interviews, this report identified five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Addressing multidimensional inequality

A fourth private-sector-led opportunity for accelerating socioeconomic development in LAC is tackling one of the region’s most long-standing issues: inequality. Inequality in LAC is multidimensional in that it affects a wide range of issues and population groups based on gender (recommendation 1 below), geography (recommendation 3 below), socioeconomic status, occupational sector, age, ethnicity, digital access, healthcare, and other factors.¹ Tackling these multidimensional and often interrelated inequalities can improve economic wellbeing. For example, evidence suggests that reducing gender inequality alone—in terms of lifetime earnings losses—could boost regional GDP by at least 8 percent.² Since these and other inequalities are often interconnected, mitigating them will often require a holistic approach.

Recommendations for the private sector

Tapping into the financing, expertise, and technological capabilities of private firms will be crucial to mitigating multidimensional inequality in LAC. Practical training, mentoring, capacity building, supply-chain integration, and other programs help bring new talent into the region’s workforce, expand business operations, and increase productivity in LAC. This will particularly benefit underprivileged groups such as women, SMEs, and rural populations, making LAC’s growth more inclusive and resilient against future shocks.

1. Addressing gender-based inequality: Companies must empower female professional advancements, e.g., by addressing constraints arising from caregiving and unpaid domestic work, or by providing skills, entrepreneurial, or other training for women.
2. Empowering SMEs: Larger firms can shore up SME competitiveness by facilitating access to financing, supply-chain integration, and capability-building opportunities.
3. Tackling place-based inequality: Public-private collaboration and investment can make rural areas more accessible to basic services (like water and Internet) and more economically productive, thus reducing the rural-urban divide.
4. Preparing for shocks: Employer-led relief initiatives not only serve to cushion the impact of financial, climate, and other shocks on the lives and livelihoods of employees, but fortify societal cohesion and broader economic resilience.

About the author

Staff

Pepe Zhang

Senior Fellow

Adrienne Arsht Latin America Center

China Coronavirus

Related content

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

The post Addressing multidimensional inequality appeared first on Atlantic Council.

The rise of sustainable investing in the private sector

Mobilizing private sector capital to boost sustainable development and ESG priorities makes sense given the numbers. With the top 500 asset managers holding $131.7 trillion in Assets Under Management (AUM) and the combined market capitalization of the top ten global companies reaching over $10 trillion in 2022, the private sector is well-positioned to contribute. Moreover, sustainable investing, mostly in renewable energy, was the fastest growing Foreign Direct Investment (FDI) theme in 2021—with 70% directed to developing countries. Up until 2021, financial markets have also experienced large shifts toward sustainable investing, with ESG fund issuance increasing by 53% to $2.7 trillion in 2021, while the green, social, sustainable and sustainability-linked bond market rose $1 trillion, grabbing 10% of the global debt market share. Sustainable companies also issued $48 billion in new equity, while sustainable lending reached close to $717 billion in borrowing. For example, in Indonesia, companies like Pertamina Geothermal Energy are looking to issue green bonds to help grow its business but also facilitate the transition to clean energy.  

Meanwhile, multinational corporations (MNCs) are integrating sustainability metrics into their supply chains, based on the Science Based Targets Initiative (SBTI). Financial and reputational risks from poor ESG practices can negatively impact a company’s future profits and resilience, which filter down to its local value chain. Many MNCs, including, Nestle, PepsiCo, and Unilever, are working towards preventing this by establishing and adhering to SBTI targets to increase sustainable practices within their global supply chains. Others, including Starbucks, are diverting funds to support climate and water projects in developing countries in an effort to conserve or replenish 50% of the water they deplete through their operations, including the agricultural supply chain. 

Together, ESG investing and SBTI targets should contribute significantly to sustainable development and lower the cost of hitting the SDGs. However, last year revealed several barriers that threaten that potential.

Roadblocks to investing in sustainable development

Sustainable finance faced challenges in 2022 as increased global regulatory scrutiny and divergent ESG standards led to a dip in ESG investing. Reuters reported that in 2022, sustainable investments reversed course for the first time in a decade, with sustainable bond sales decreasing by 30% and green bonds down 23%. Overall, ESG performance declined by nearly 9%, as international investment in ESG, especially climate change, declined.

Varying ESG rating standards, methodology, and data sources, that are often reclassifying sustainably labelled products, contributed to lower levels of ESG investing in 2022. Several ESG labelled securities were downgraded due to criteria conflicting with both major ratings agencies, while conflicting or overly prescriptive requirements led to a decline in support for ESG related shareholder proposals and the withdrawal of several financial industry members from regional ESG alliances. With over 600 ESG data providers, globally, it is not surprising a lack of consistency and standardization leave investors confused about the true risks and rewards from sustainable finance. Recent research reported that 20 of the 50 largest global asset managers assess their sustainable finance products using four or more ESG rating providers, while the other 30 use internal models for the same purpose. Underlying biases in ratings can often exclude developing countries struggling to attract sustainable finance due to inherent country-specific risks, like fossil fuel dependence, budget constraints, and high sovereign debt from external shocks, market access, and lack of technological innovation. However, some asset managers, like Abrdn, have developed in-house ESG ratings system based on data and metrics from external sources, like the World Bank and IMF, to consider unique factors when evaluating alignment with the SDGs for companies listed in their Emerging Markets Sustainable Development Corporate Bond Fund. 

Global regulations for ESG have also complicated cross-border sustainable investing, potentially leading to an increase in compliance costs and reduction in the number of eligible sustainable funds for firms.  Although evolving European, UK, and US frameworks regulating ESG have similar objectives, the approaches towards sustainable investing vary among the jurisdictional regulations and oversight bodies, especially around labelling and reporting. This disparity has also encroached on the Asia-Pacific financial industry, where many banks are starting to require local asset managers to comply with European ESG standards despite the existence of similar local regulations.  An analysis of ESG and sustainable-labelled funds identified that less than 4% meet the standards of all three jurisdictions, while 85% do not comply with any of them.  Additionally, different jurisdictional requirements and contradicting assessments of how to measure sustainable supply chains brought an additional level of uncertainty to MNC’s ESG initiatives in FDI. Companies are starting to realize they may not have fully assessed the impact of carbon emissions on its operations in other countries, specifically in the developing market.  Streamlining allowing for flexibility in the global ESG regulatory framework will be critical to ensuring sustainable investments increase and assist with countries in meeting their ESG goals. 

A way forward

To help meet the SDGs, the World Bank recently announced the creation of a roadmap that focused on three main objectives, including increasing private sector funding, improving country-level engagement and analysis, and establishing a global taxonomy for sustainable investment tools. UN Deputy Secretary-General Amina Mohammed recently warned that “the SDGs will fail without the private sector,” because private sector actors can “invest in the transitions necessary to accelerate development progress and get the SDGs back on track.” The private sector has not only the financial capacity, but also the commitment, to fuel sustainable investing, but faces barriers to keep up the momentum. The IMF and World Bank have an incredible opportunity to address the current ESG investing challenges. The World Bank roadmap is an important first step, but more will be needed to ensure globally consistent standards and data for ESG. The potential for greenwashing or indiscriminate exclusion of countries can be avoided by working with governments and ratings providers, and by improving country-level engagement to both align metrics and to integrate unique country risks in sustainable investing and supply chains. With many firms already leveraging IMF and World Bank data, creating a formal framework will encourage the expansion and scaling up of private sector ESG financing for regions in urgent need of funding.

Nisha Narayanan is a Non-Resident Senior Fellow with the GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post How ESG investing can better serve sustainable development appeared first on Atlantic Council.

In the aftermath of such disasters, there is often a rush to quickly rebuild and restore affected areas. However, Turkey must rebuild its affected cities in a sustainable way that provides for both the short- and long-term needs of its residents. This requires holistic planning, community engagement, and integrating urban sustainability and resilience.

In Turkey, more than 160,000 buildings containing 520,000 apartments collapsed or were severely damaged across provinces such as Hatay, Kahramanmaraş, Adıyaman, Gaziantep, and Malatya. According to data from the Turkish Ministry of Environment, Urbanization, and Climate Change, the vast majority of the affected buildings were built before 1999. In addition, official estimates in the months after the earthquake indicated that more than 230,000 buildings would have to be demolished, representing approximately 30 percent of the existing building stock.

In response, the Turkish government announced an ambitious plan to build 488,000 homes in the affected region within a year. It also pledged to build an unspecified number of nonresidential buildings such as schools and hospitals. The plan also includes retrofitting and strengthening the existing properties that have sustained light, nonstructural damage, as well as redeveloping infrastructure such as roads and bridges.

The plan is overseen by the Ministry of Environment, Urbanization, and Climate Change, and the work is being assigned to the Turkish Housing Development Administration (TOKI), a government agency that has been building public housing for the last four decades. TOKI had recently reported that 134,000 of the houses it built in the earthquake zone did not suffer any structural damage. It did not, however, rule out that any of its buildings were affected.

Construction is already under way in some areas. On May 3, the outgoing minister of environment, urbanization, and climate change announced that 132,000 housing units are already under construction. The total reconstruction cost is estimated to exceed one hundred billion dollars.

Sustainable reconstruction

As long as builders follow Turkey’s earthquake codes for construction, those units and others will be built to be earthquake-resistant. Yet to capitalize on this massive investment and to reduce future risks, the planned neighborhoods and buildings should not merely be resilient to future earthquakes: They should also be rebuilt resilient to known hazards caused or intensified by climate change.

According to the United Nations Intergovernmental Panel on Climate Change, Southern Turkey is expected to experience more frequent heatwaves and droughts, in addition to higher temperatures and sea levels. If newly built homes become unlivable in a just few decades because builders didn’t take into account future cooling and ventilation needs, or if neighborhoods rebuilt after this earthquake suffer from congestion and pollution in the future, such large-scale investments could become stranded assets. Major reconstruction at this scale should also not only adapt to climate change but also mitigate it; cities should be sustainably rebuilt so that their damage to the environment—and contribution to climate change—is limited.

Turkish officials’ desires to reconstruct quickly is understandable given the urgency to restore normalcy. However, the benefits of rebuilding with long-term viability in mind—by taking the time to plan for more sustainable, resilient, and inclusive neighborhoods—far outweigh the short-term gains of hasty reconstruction.

In order to rebuild sustainably, builders should approach reconstruction with a wider focus on districts and neighborhoods rather than a narrow focus on individual buildings and infrastructure. These new neighborhoods should use land efficiently, with buildings that have smaller footprints, in order to make more land available for public green spaces—which offer nearby residents improved air quality, among other benefits—urban agriculture, and pedestrian and cycling paths.

Despite the availability of bus networks, cars still represent a significant share of transportation in the five most affected provinces, which contributes to air pollution and traffic congestion. Planning for future neighborhoods should mix residential and commercial areas to reduce the need for commuting. The planning should also develop reliable and sustainable transportation networks, similar to the Kahramanmaraş 2030 transportation plans. This includes measures to reduce air pollution such as encouraging residents to use public transportation and minimizing spaces dedicated to car parking.

The planning that shapes these new neighborhoods should also aim to create a more comfortable environment for residents. This includes orienting the street network and designing buildings in a way that allows for breezes during hot seasons. It also includes planting trees and vegetation and using new materials for roofs and pavements. These measures help keep the sun’s heat at bay while managing rainfall naturally to reduce flooding risk. Local ecosystems such as forests, wetlands, and agricultural lands under threat from deforestation, pollution, and climate change should also be restored.

New neighborhoods also need to be planned with future energy and water use in mind. This includes reducing peak electricity demand by designing buildings that require minimal energy to heat and cool and providing spaces for power installations on rooftops and above pedestrian walkways. Improving water efficiency is also critical given that the five most affected provinces already face high levels of water stress.

The new neighborhoods should also be planned so that they do not displace vulnerable communities and disrupt their social networks and livelihoods. These risks can be avoided by including these communities in the planning, including at the local community level, and engaging stakeholders in the decision-making process.

Leveraging international assistance

In any humanitarian crisis, the pressure on local and national decision makers to act quickly is always immense. Yet, hasty reconstruction brings many risks: inefficient land use; the increased use of energy, water, and material resources; increased carbon emissions; a higher flooding risk; increased congestion; poor air quality; limited access to public spaces; loss of biodiversity; increased vulnerability to climate change impacts; and increased social and economic inequality. The long-term cost of failing to address these issues is nothing short of a failure to protect the surviving earthquake victims and other residents from future disasters.

Being less constrained by the pressure to rebuild hastily, international donors could play a role in ensuring a more positive outcome in Turkey. The European Union pledged six billion euros in grants and loans, while the World Bank pledged $1.78 billion in initial assistance to help with relief and recovery efforts in Turkey. If those institutions and future international donors encourage Turkish policymakers to create sustainable, resilient, and inclusive neighborhoods, they could have a positive impact on the trajectory of the reconstruction efforts.

The window of opportunity to create the foundations for more sustainable and resilient cities is narrow and closing quickly. Thoughtful and inclusive planning requires additional coordination and consultation and may result in a delay of a few weeks or months. Yet it remains the only way to capitalize on this opportunity for Turkey and to address the needs of both current residents and future generations.

Karim Elgendy is an urban sustainability and climate expert based in London. He is an associate director at Buro Happold, an associate fellow at Chatham House, and a nonresident scholar at the Middle East Institute in Washington. Elgendy is also the founder and coordinator of Carboun, an advocacy initiative promoting sustainability in cities of the Middle East and North Africa through research and communication.

The post A blueprint for Turkey’s resilient reconstruction and recovery post-earthquake appeared first on Atlantic Council.

This is the 3rd installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

How does the private sector perceive Latin America and the Caribbean (LAC)? What opportunities do firms find most exciting? And what precisely can companies do to seize on these opportunities and support the region’s journey toward recovery and sustainable development? To answer these questions, the Atlantic Council collaborated with the Inter-American Development Bank (IDB) to glean insights from its robust network of private-sector partners. Through surveys and in-depth interviews, this report identified five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Improving state governance, institutional capacity, and transparency

The private sector has a strong opportunity to contribute to, and benefit from, a better business climate in LAC by partnering with governments to improve state governance, particularly in three areas: “regulation and institutional environment,” “political instability,” and “corruption.” Every survey respondent named at least one of these issues as a regional detriment, while 85 percent selected two, as seen in Figure 8. Several indices of governance, such as the World Justice Project’s Rule of Law Index, rank LAC below the OECD average for measures of accountability, political stability, and government effectiveness, among other indicators, and below the global average for rule of law.¹

Quality of government and respect for the rule of law—including transparency, accountability, and enforceability—are instrumental in improving effective delivery of public services, as well as creating a business climate that incentivizes domestic and foreign investment and supports private-sector development.

Recommendations for the private sector

Businesses in LAC can assist governments in combating institutional capacity and governance challenges. Private-sector know-how and technology, including digital and cloud-based tools, can streamline government-service delivery and improve user experience. Public-private collaboration on information access and analytics, regulatory issues, and integrity mechanisms can help expose graft, boost transparency, and establish best practices, while keeping citizens informed. Together, these steps can help mitigate the region’s trust deficit, cultivate an attractive business climate, and boost economic growth.

1. Improving digital-government services: Private-sector technology and expertise should be leveraged to optimize the provision of government services and boost trust in government.
2. Promoting information access and analytics: Firms and citizens can examine and disseminate governments’ open data in ways that enforce transparency and accountability in the public sector (for example, in public procurement).
3. Improving integrity and regulatory quality: Commitment by the private sector (and the public sector) is critical to enhancing governance in LAC, from combating corruption to improving regulations.

About the author

Staff

Pepe Zhang

Senior Fellow

Adrienne Arsht Latin America Center

China Coronavirus

Related content

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

The post Improving state governance, institutional capacity, and transparency appeared first on Atlantic Council.

This is the 2nd installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

How does the private sector perceive Latin America and the Caribbean (LAC)? What opportunities do firms find most exciting? And what precisely can companies do to seize on these opportunities and support the region’s journey toward recovery and sustainable development? To answer these questions, the Atlantic Council collaborated with the Inter-American Development Bank (IDB) to glean insights from its robust network of private-sector partners. Through surveys and in-depth interviews, this report identified five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Accelerating digitalization and innovation

When asked about areas where they see themselves making an important social impact, 47 percent of surveyed services firms selected “digital transformation,” making it the second most impactful area only after “economic growth and job creation” (as shown below in Figure 7). Indeed, the private sector can unlock the three enablers (infrastructure, skills, and adoption), thus helping the region materialize its digital friendliness into better digital outcomes. In particular, firms in the services industries (financial, telecommunications, and information technology) consider digital transformation a vital part of their responsibility and contribution to society.

Recommendations for the private sector

The private sector is well positioned to help LAC economies, governments, and citizens make the most of its digital-innovation potential. As employers, service providers, consumers, partners, and investors, companies can leverage an ecosystem approach to enhance digital infrastructure, skills, and adoption within and across countries, delivering better digital outcomes conducive to economic inclusion and competitiveness.

1. Improving digital infrastructure: Firms can help strengthen digital connectivity in LAC, both operationally (as information and communication technology (ICT) product and service providers and investors can help strengthen digital connectivity in LAC operationally and financially.
2. Fostering skills: Employers and employees should stay innovative and competitive in an increasingly digitized economy through upskilling, reskilling, and workforce-development programs.
3. Promoting adoption: Multinational corporations (MNCs) can accelerate digital development by undertaking internal digital transformation and spurring adoption among suppliers and other businesses within their entrepreneurial ecosystems.

About the author

Staff

Pepe Zhang

Senior Fellow

Adrienne Arsht Latin America Center

China Coronavirus

Related content

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

The post Accelerating digitalization and innovation in Latin America and the Caribbean appeared first on Atlantic Council.

The post Mezran and Melcangi in Decode39: Italy, US, and the Saied dilemma appeared first on Atlantic Council.

This is the 1st installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

How does the private sector perceive Latin America and the Caribbean (LAC)? What opportunities do firms find most exciting? And what precisely can companies do to seize on these opportunities and support the region’s journey toward recovery and sustainable development? To answer these questions, the Atlantic Council collaborated with the Inter-American Development Bank (IDB) to glean insights from its robust network of private-sector partners. Through surveys and in-depth interviews, this report identified five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Enhancing market size, scalability, and regional integration

Latin America and the Caribbean’s market size and scalability make it an attractive environment for businesses, but the public and private sectors have an opportunity to strengthen its appeal further through deeper regional integration. Private-sector leadership and participation will be crucial for efficiently improving hard and soft infrastructure for trade, energy, and other forms of integration. Together with public sector efforts, these improvements will help pull more nearshoring and reshoring investment to the region.

Recommendations for the private sector

The private sector, in coordination with the public sector, has a key role to play in scaling regional potential and furthering regional integration in trade, climate, digitalization, and other areas. Three promising opportunities for private sector action in this space include:

1. Financing and managing hard infrastructure: Competitive construction, services, and other firms can help boost the cost and operational efficiencies of physical infrastructure underpinning LAC integration (achieved through intraregional trade, energy, etc.)
2. Improving “soft” infrastructure: Private-sector expertise and actions can inform and spur regulatory modernization and harmonization in LAC and internationally, which helps attract investment conducive to regional integration.
3. Prioritizing nearshoring and reshoring efforts: Firms across a wide range of sector may contribute to, and benefit from, better integrated regional supply chains and subsequent export gains.

About the author

Staff

Pepe Zhang

Senior Fellow

Adrienne Arsht Latin America Center

China Coronavirus

Related content

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

The post Enhancing market size, scalability, and regional integration in Latin America and the Caribbean appeared first on Atlantic Council.

While some of the most powerful economic institutions in the world are led by women at the moment, Calviño is unfortunately right. With Kristiana Georgieva at the International Monetary Fund, Ngozi Okonjo-Iweala at the World Trade Organization, Christine Lagarde at the European Central Bank, and Janet Yellen at the US Treasury, we’re given the impression that women are at the helm of economic policymaking. However, this success has not translated into broad representation. Structural barriers continue to prevent many women from reaching top roles in finance and economics—and the problem is more pronounced than in other areas of policymaking.

A leaky pipeline

Of the 190 member countries of the IMF, 26 have women as finance ministers and only 17 have women as central bank governors. That means just 11.3% of policymakers in those two roles are women. The average proportion of women serving as cabinet ministers globally is meaningfully higher, at 22.8%. What is it about the economic portfolio that results in such a drop off?

The reasons for this disparity can be attributed to a variety of factors, such as male-dominance in the study of economics, barriers that prevent women from being promoted, and social perceptions of women’s abilities. These structural and social barriers create a “leaky pipeline,” where small gender gaps in participation at early stages can accumulate over time to result in large disparities at the top of institutions.

Economics requires mathematics and quantitative skills. However, girls often receive the message that they are not as competent in these areas from a young age. The lower participation of women and girls in STEM-related activities is well-documented, and similar patterns are present in economics. Across major US and European academic institutions, women represent around 35% of PhD candidates in economics. Women also tend towards more social research areas such as health, education, and labor while men dominate areas like economic theory, macroeconomics, and finance—the subfields from which top policy leaders are often drawn from. There is nothing preordained about these trends in specialization. They are driven by social expectations, gender biases, and a lack of role models.

However, educational differentials don’t fully explain the disparity. After all, while the role of finance minister or central bank governor requires experience with economics, that doesn’t have to include a PhD. We can look to US Federal Reserve Chair Jerome Powell and ECB President Christine Largarde (both lawyers) as examples of such exceptions.

Women are also held back by an array of barriers to promotion in big economic and financial institutions. Men are more likely to be promoted than their female counterparts with comparable qualifications. For example, the US financial sector employs around 9 million workers, with women comprising the majority of the entry-level workforce but holding less than a fourth of the top leadership positions. Women are impacted by the “motherhood penalty” caused by gendered expectations around parenting and work. This penalty can be exacerbated by a lack of parental leave, but even when leave is available, women use it more than men and are stigmatized for it. The promotional gap makes it more difficult for women in economics and finance to achieve the caliber of resume that candidates for finance minister or central bank governors usually have.

Finally, there is an unconscious bias against women’s ability to effectively conduct economic research and policy. As a whole, both men and women rate male applicants higher for positions that require quantitative skills, and female financial advisors are punished more severely for misconduct. Surveys in the US found that when central bankers were introduced without their credentials in a media announcement, people were more likely to doubt the commitment and ability of the Federal Reserve to balance inflation and employment if a woman was the spokesperson. Another study found a correlation between countries with high inflation and a lack of female central bank governors, and suggested that women are hindered by a bias that men are more “hawkish” and therefore more committed to fighting inflation.

Not a quick fix

In 2013, after over two years without a woman sitting on its six-member Executive Board, the ECB committed to a gender diversity action plan. At the time, only 14% of senior managers were women. The ECB’s action plan includes up to 20 weeks of paid parental/adoption leave for either parent and a target of a minimum 50% women in new hires across all levels of staff. As of the end of 2022, 38% at the senior managerial level are women. While 38% is not parity, it does represent a real increase as a result of the ECB’s diversity policies.

As President Lagarde said, “Being surrounded by men is not something new, but it is something that is always disappointing.” The barriers that women face aren’t new and neither are the suggested solutions. There is no magic pill for improving gender representation. Instead, there are a myriad of policies that tackle the different aspects of the “leaky pipeline.” From improving opportunities in education, to committing to equitable hiring practices, the approach to gender equality in economics must be holistic.

Jessie Yin is a Young Global Professional with the GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Only 11 percent of finance ministers and central bank governors are women appeared first on Atlantic Council.

Commentators have urged major countries to clearly identify the high-tech areas which require heightened government control to safeguard national security, and to ensure that, as Wolf writes, “security-oriented interventionism should be as precise and non-protectionist as possible, with a view to continuing to gain from the economies of scale granted by cross-border trade.”

Those concerns and proposals are well intended but will likely remain aspirational until policymakers can come up with economically credible and politically acceptable policies to deal with the root causes of fragmentation. The two most important are the resentment and resistance of the people left behind by globalization and the crisis of trust between major countries.

Globalization won’t work until we assist those left behind

Globalization has significantly lifted overall economic growth and helped many emerging market countries develop, bringing hundreds of millions of people out of poverty, but it has had a mixed impact in developed countries.

In developed economies, globalization has greatly benefitted consumers, owners of capital, and technologically skilled workers while depressing wage growth, exacerbating income inequality, and displacing low-skilled workers. It has hollowed out manufacturing sectors and communities which used to be the bedrock of the middle class and social stability. The numerous so-called losers have become the springboard for populist political movements that are pushing back against globalization. Some of the ire against globalization mistakes the true cause of job loss—technology has played a bigger role than trade—but that doesn’t change what needs to be done.

It is wrong-headed to blame the dismal outcome in developed countries on globalization. Instead, the blame should be put on the failure of national efforts to educate, train, and generally prepare workers to be able to compete internationally in a technologically driven world. In particular, many developed countries have implemented trade adjustment assistance (TAA) programs when they concluded free trade agreements to mitigate labor displacement impacts. In the US, the TAA program was launched in 1962. However, TAA programs, especially in the US, have been grossly inadequate, not well conceived and poorly executed, difficult for intended beneficiaries to access, and generally ineffective.

The US TAA program focused in its earlier years on workers able to document their displacement by trade with countries that had a free trade agreement with the US. It was later expanded to cover the impact of outsourcing—but it was always inadequate relative to the scale of the problem. In the US, 8 million manufacturing jobs were lost from a peak of 19.5 million in 1979 to a trough in 2010.

Only about a third of manufacturing workers who were displaced between 2001 and 2008 were eligible to apply for TAA benefits (including income assistance to extend unemployment benefits for up to 130 weeks and training for up to one year). Of those who applied, about one third actually received benefits.

Inadequate as it was, the US TAA program was better than nothing. Sadly, it was terminated in July 2022. By contrast, the European equivalent program has been expanded into the European Globalization Adjustment Fund to deal with all displacement effects of globalization. Active labor market adjustment programs in Europe have been much better funded than in the US—for example Germany spends 0.66% of GDP and France spends 0.99 percent, while the US spends only 0.11 percent. While Europe has done better than the US, it has not done nearly enough either. And its programs have been criticized as “narrow, piecemeal… hard to access at scale” and “reactive”.

Until there are credible efforts in developed countries to enable the people left behind by globalization and technological changes to participate in the benefits of inclusive growth, popular resentment and resistance to open and free trade will persist, especially in the US—leading to more protectionism, not less.

How to deal with the crisis of trust

The world is also suffering from a crisis of trust. As ably demonstrated by the NYT’s Thomas Friedman, that is especially true between the US and China and it is pushing them further apart. This collapse of trust has several dimensions. As China and several other emerging market countries have developed their economies, they want to reshape the rules facilitating international relations, including trade, which were established decades ago by developed countries. Today, those developed countries account for less than half of the global economy. The US as an incumbent leading power has viewed these developments with an increasing sense of national insecurity and has tried to protect its position.

Furthermore, international trade in goods has progressed from benign “shallow goods” like textile and garments, footwear, and similar consumer items to high-tech “deep goods” like electronics/IT and telecom enabled by semiconductors which have dual uses—civilian and military. Naturally cross-border trade and investment in such high-tech dual use goods have become areas of competition and conflict between the two superpowers.

Fundamentally, the problem is the absence of a mutually agreed framework allowing for the peaceful coexistence between two different and largely incompatible political and economic systems—represented by the US and China. Clearly the postwar institutions, especially the World Trade Organization, have shown signs of fractures and dysfunction, and need to be changed. Until the issues causing the crisis of trust are addressed, it is futile to simply call for international cooperation to restore the practices of global open free trade.

As the world becomes more fragmented politically and economically, the costs will mount and the risk of military conflict will rise. There will be calls to reverse such a dangerous trend. The way to do that is to address domestic challenges and build more inclusive economies in order to create the necessary internal political support for international cooperation. This will allow countries to figure out how to reconcile their different political and economic systems. The fact that these two challenges are interrelated makes their solutions much more difficult to conceive and implement. But there is no alternative but to try.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The root causes of geopolitical fragmentation appeared first on Atlantic Council.

The local economy of the earthquake-affected provinces accounts for 9.8 percent of Turkey’s gross domestic product (GDP), 8.6 percent of exports, and 15 percent of agricultural products. With a lower GDP per capita and a higher unemployment rate than the national average even before the disaster, the region employs over 3.8 million people, primarily in the agriculture, trade, textile, and food sectors, almost 40 percent of whom are employed informally. The local private sector—made up of more than 538,000 enterprises—now needs wide-ranging support to recover from the earthquakes.

Recovery and rebuilding will require a multi-faceted approach prioritizing private-sector support for local development along with social impact. This approach will need to ensure that the region continues progressing toward United Nations Sustainable Development Goals (SDGs) and does not leave vulnerable communities behind, including the displaced. Of the 3.7 million Syrian refugees who fled to Turkey since the Syrian war began, half of them lived in this region, constituting over 11 percent of its overall population, and were affected by the earthquakes. Turkey is now home to over three million internally displaced people, who are looking for economic and social support after this disaster.

One of the essential tools at Turkey’s disposal to tackle these daunting challenges and to design a more sustainable, resilient recovery is impact investing. These are “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return,” according to the Global Impact Investing Network, targeting a spectrum of returns depending on the type of capital and instruments used. As Turkey’s Impact Investing Advisory Board stated in a report published shortly before the earthquakes, urban resilience—which will need to be a priority following this disaster—will benefit from “innovative, sustainable capital allocation and commercial value generation” with an impact focus. Thankfully, the local impact investing ecosystem has been taking root to enable this.

Impact investing can also aim to create self-reliance for refugees and internally displaced people through “refugee lens” investing, which is a framework to qualify and track investments developed by the Refugee Investment Network (RIN), where I work with enterprises and investors focused on impact.  

Forced displacement cuts across at least thirteen of the seventeen SDGs around the world, according to RIN. Actively investing in displaced populations leads to new and sustainable solutions. In the aftermath of the earthquakes, that could include supporting the thousands of refugee-owned small businesses in the earthquake region, providing microfinance to local farmers and artisans, or facilitating tech-based remote employment. The goal is to increase displaced people’s livelihoods, financial inclusion, and continued skills development (especially to respond to workforce losses due to the earthquake), thus leading to equitable economic and social revival. Funding the communities and employers around the country that welcome the displaced will also be important.

Having value chains focused on supplier diversity, economic inclusion, and job creation will also help this cause. The public and private sectors can strengthen community resilience by prioritizing local and displaced suppliers affected by the disaster, including social enterprises and cooperatives employing and supporting vulnerable communities through “social procurement.” For instance, Innovation for Development (i4D), a local economic development organization, aims to connect three hundred local producers from the earthquake-affected region with buyers to ensure business continuity and new contracts.

In international trade, proponents of a “Turkiye Compact” call for trade concessions from the European Union, United States, and Canada to incentivize the private sector to hire both Syrian refugees and locals in Turkey with the goal of boosting the local economy and improving social cohesion. According to a United Nations Development Programme feasibility study conducted prior to the earthquakes, such a policy could create 284,000 new jobs (including 57,000 jobs for refugees) and boost exports by 3 percent, primarily of labor-intensive agricultural, processed food, and textile products. Furthermore, local enterprises participating in the Turkiye Compact would become attractive investment opportunities given their tangible impact on displaced communities through employment and sourcing.

Finally, Turkey’s vibrant entrepreneurial ecosystem is more crucial than ever. Accelerators, specialized funds, and growing communities of practice can nurture innovative, impact-driven ventures for earthquake-affected communities and create inclusive solutions. Examples so far have included a waste management start-up facilitating food aid, e-commerce solutions enabling microentrepreneurs, online mental health platforms offering therapy to survivors, and tech innovations in rescue and relief, among many others. Additionally, catalyzing entrepreneurship by underserved communities, especially those experiencing intersectional disadvantages, such as the refugee women entrepreneurs featured in an Atlantic Council documentary last year, will create new pathways to self-reliance.

Bringing all of these solutions together and amplifying their impact through the resources of the global impact investing community, local partnerships, and blended financing—with guarantees, concessional loans, or grants to attract private investments, for instance—will yield tremendous, complementary results.

With such a comprehensive toolbox, it will be possible to rebuild better after this terrible disaster and create more inclusive economies and resilient communities.

Selen Ucak is a social impact professional working at the intersection of private sector and international development. She currently leads a global community of refugee-led and refugee-supporting businesses and social enterprises at the Refugee Investment Network, as well as serving as a consultant on additional projects.

The post Impact investing can help rebuild an inclusive, resilient Turkey after the earthquakes appeared first on Atlantic Council.

Central bankers, finance ministers, executives, and civil-society leaders are meeting at the International Monetary Fund (IMF) and World Bank Spring Meetings this week with an ambitious economic-reform and fiscal agenda. The talks come six months after IMF Managing Director Kristalina Georgieva told the world’s economic leaders to “buckle up and keep going” in the face of multiple financial crises stemming from the pandemic, Russia’s invasion of Ukraine, global debt distress, high inflation, and more.

Amid all the uncertainty, a parade of central bank governors and finance ministers are visiting the Atlantic Council on the sidelines of the meetings and getting together with our experts to decode what is—and is not—happening behind the meeting’s closed doors. Below are our experts’ takeaways from our convenings, which feature leaders such as World Bank Group President David Malpass, and insights as the meetings unfold.

The latest from Washington

• Three new ways to support Ukraine, from Poland’s finance minister
• Sovereign debt restructuring: The kitchen lights are on, but where’s the beef? 
• The UAE’s trade minister on the new multilateralism
• How Ukraine’s digital innovations will shape reconstruction
• Economic policymakers shouldn’t fall into the trap of complacency
• The IMF missed an opportunity to take on the US debt ceiling debate
• What the World Economic Outlook didn’t say
• Who’s first and what’s second is this week’s central debate
• Central banks shouldn’t use IMF projections as an excuse to get too loose again
• Inside the World Bank’s digital governance agenda
• Spain’s economy minister aims to fight ‘fragmentation’
• ‘Sustainability, resiliency, and inclusion’ must top the reform agenda, says Cameroon’s minister of economy
• Senegal’s economy minister: ‘the US private sector is missing’
• David Malpass: Today’s economic double whammy may slam development into reverse

Three new ways to support Ukraine, from Poland’s finance minister

As Russia’s war on Ukraine puts major stress on the Polish economy, Poland’s Minister of Finance Magdalena Rzeczkowska visited the Atlantic Council on Friday to outline three ways how Western partners and multilateral institutions can support Poland’s goal of increasing military and financial assistance to Ukraine:

1. The European Union (EU) should provide funds to Poland for covering Ukraine-related expenses. Rzeczkowska drew attention to the fact that Poland’s total Ukraine-related spending, including military equipment and refugee accommodation, amounts to 2 percent of Poland’s gross domestic product. But Poland has not received funding from the EU to cover those expenses. Poland plans to increase spending both on Ukraine’s military equipment and its own defense. “It’s something that needs to be done because Ukraine is fighting for our future and freedom”, she said.
2. Multilateral organizations should allocate more funding for Ukraine. Rzeczkowska said that Poland is “very engaged with the IMF and the World Bank” and praised the institutions for the “proper answer” to the war, a program that has helped maintain Ukraine’s macro financial stability. Poland pushed the IMF to allocate its funding package for Ukraine, which will close Kyiv’s immediate budgetary needs and “give financial stability to Ukraine for four years.” Moreover, the European Bank for Reconstruction and Development has provided humanitarian aid to Ukrainian refugees in Poland. Rzeczkowska said that “Poland also wants to contribute to the fund which was created for Ukraine” by the European Investment Bank.
3. The Three Seas Initiative portfolio should include Ukraine’s reconstruction. Rzeczkowska believes that the Three Seas Initiative—a forum supported by the Atlantic Council—“is an important instrument for leveraging Central and Eastern European countries and building the North-South axis of infrastructure.” She argued that apart from its regular infrastructure-building and digitization agenda, the Three Seas portfolio should also include Ukraine’s reconstruction. While the Initiative struggles with the financing of projects and often requires compromises from member states, Rzeczkowska said it can be a strong and resilient instrument for Ukraine’s reconstruction and future growth of Europe.

—Maia Nikoladze is an assistant director with the Economic Statecraft Initiative in the Atlantic Council’s GeoEconomics Center.

Sovereign debt restructuring: The kitchen lights are on, but where’s the beef? 

As the Spring Meetings of the IMF and World Bank are winding down, more details are beginning to emerge from the closed-door meetings that were held on the touchy question of sovereign debt restructuring. The atmosphere around the new Global Sovereign Debt Roundtable appears to have been friendly and constructive, no doubt helped by the fact that Chinese officials were able to participate again in person. After all, despite extensive Zoom contacts over the past months, face-to-face meetings remain indispensable for finding a path through controversial, and possibly expensive, policy disagreements. 

The upshot is that the roundtable came to an agreement around several technical steps that could eventually facilitate the operation of the Group of Twenty (G20) Common Framework, but expectations for any concrete decisions or debt deals were (again) disappointed. Nevertheless, the areas of future work are concrete enough to suggest that progress on specific country cases may not be too far off. They include steps toward improving transparency around restructuring needs (where the IMF and World Bank would provide earlier insights into their debt sustainability assessments), a clarification of the role of multilateral development banks (MDBs), and further work on defining what constitutes comparable treatment of different credit classes. 

While China has not yet abandoned its demand that the World Bank and other MDBs share in any haircuts to official and private creditors, the latest signal from Beijing opens room for compromise, depending on the amounts of fresh concessional financing (and grants) that may be provided by multilateral lenders. One should of course not underestimate the capacity of international finance officials to make process look like progress, and it will be primarily up to China to demonstrate its willingness to help some of its poorest creditor countries back on its feet. 

China may still be hesitant to move fast, given that the long-overdue restructuring of Zambia’s debt could provide a hard-to-reverse model for the Common Framework. But there are now clear signs that the chefs are back in the kitchen, and one might hope that, with a few more ingredients, a palatable compromise may yet emerge.

—Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF chief of staff.

The UAE’s trade minister on the new multilateralism

Economic fragmentation may be the hot topic at this year’s World Bank-IMF Spring Meetings, but that does not mean that all countries have lost faith in multilateralism. Just ask Thani Al Zeyoudi, the United Arab Emirates’ (UAE) trade minister. “While others talk about de-globalization,” he said at the Atlantic Council on Thursday, “we’re focused on economic expansion.” 

For Al Zeyoudi, that means establishing a wide network of trade partnerships from Israel to Indonesia, while liberalizing trade and foreign ownership regulations at home. The UAE’s aspirations to become a “global market” are vital to its economic health: With a post-hydrocarbon future on the horizon, the country is banking on finance, transport, and logistics as the foundation for future growth. But as we have heard throughout this week, the UAE is only one of a growing number of countries unconvinced by rising protectionism.

Countries in the Global South and their major hubs, like the UAE, have been some of the most vocal supporters of multilateralism. But this does not mean that these new champions are content with the trading order as it is. Al Zeyoudi argued that “there is a consensus that we need urgent reform for the multilateral trading system,” and his country has sought modernized trade mechanisms and new free trade agreements even as many of its partners pursue stricter trade controls. At this week’s meetings, we may see whether more countries heed his call.

—Phillip Meng is a young global professional at the Atlantic Council’s GeoEconomics Center.

How Ukraine’s digital innovations will shape reconstruction

Ukraine has emerged as an example of resilience against all odds, and on Thursday morning, Deputy Minister of Digital Transformation Alex Bornyakov discussed the digital infrastructure that will enable better outcomes for Ukrainians a year into the war. He was joined at the Atlantic Council by Mark Simakovsky, deputy assistant administrator at the US Agency for International Development’s bureau for Europe and Eurasia; Denelle Dixon, the CEO of Stellar Development Foundation; and Anatoly Motkin, president and founder of StrategEast. 

The panelists discussed the Diia app, which has become a hub for services such as education and skill improvement, health care, digital identification, and other government services. “We have shown through example how the interaction between the government and the citizen can be done in the twenty-first century, ” Bornyakov said.

The panelists emphasized the resilience of technology during the war, the role of the private sector (both domestic and international) in reconstruction and development, and the challenges of corruption and accountability. “The private sector will have to be induced to go to Ukraine,” Simakovsky said. “Ukrainians will have to accelerate the reform and have to ensure that the decentralization that happened before the war is going to continue.”

Both Dixon and Bornyakov spoke about the role of women in building resilient infrastructure for the future and how technology can bridge the existing gap. The panelists also discussed innovation in payments architecture, such as central bank digital currencies, as well as the role of cryptocurrency in Ukraine’s economy. 

—Ananya Kumar is the associate director of digital currencies at the Atlantic Council’s GeoEconomics Center.

Economic policymakers shouldn’t fall into the trap of complacency

During the IMF/World Bank Spring Meetings, some officials—in particular US Treasury Secretary Janet Yellen—have downplayed the risks and negative impacts of last month’s bank failures, repeating the mantra that major banking systems are healthy. While banking turmoil has indeed subsided, it is important to guard against being complacent about the threat of “further bouts of financial instability… [due to] stresses triggered by the tighter stance of monetary policy”—as the IMF pointed out in its Global Financial Stability Report.

Tellingly, the report estimated that almost 9 percent of US banks with assets between ten billion and three hundred billion dollars would become undercapitalized (with their Common Equity Tier 1 capital ratios falling below the regulatory minimum of 7 percent) if forced to fully account for the unrealized losses on their holdings of US Treasuries and agency mortgage-backed securities (due to rising interest rates). Going forward, if the coming recession turns out to be more severe than expected, credit risk losses on bank lending, especially in the commercial real estate sector, would be significant.

On top of banks’ interest rate and credit losses, there have been tremendous deposit outflows from banks to money market funds. JPMorgan Chase has estimated that “vulnerable banks” have lost about one trillion dollars of deposits in the past year. Specifically, the top three US banks (JPMorgan, Wells Fargo, and Bank of America) have revealed a huge $521 billion deposit drop over the past year. The combination of losses on assets and deposits proved fatal to the failed banks last month and could yet strike vulnerable banks again.

More broadly, banking stresses have significantly tightened financing conditions, leading to a record contraction in US bank lending of nearly $105 billion in the two weeks ending on March 29. If this continues, declines in bank lending will tip the US economy into a recession sooner than expected, causing credit losses in a negative feedback loop. Policymakers need to be aware of this trend and try their best to mitigate it.

—Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance, and former deputy director at the IMF.

The IMF missed an opportunity to take on the US debt ceiling debate

Rarely have the IMF’s World Economic Outlook and associated documents been written under as much uncertainty as now, with two significant bank failures happening in the middle of the drafting process. Yet, the IMF has managed to get together a set of sensible reports, with the uncertainty reflected not so much in this year’s growth projections than in the fairly sober medium-term outlook and the extensive discussion of risks.

The reports highlight the tight constraints on growth and policy faced by policymakers around the globe, and the IMF is right that, barring major financial shocks, monetary policy will need to focus on bringing down inflation expectations and fiscal policy will need to be supportive in this regard.

Given that they are vetted by the IMF membership in what is usually a very long board discussion, it is normal that the reports end up a little on the bland side, with carefully worded country-specific references, if any. Still, it is surprising that there is no discussion of the debt ceiling talks that currently appear stalled in the US Congress. The risk of a breach of the United States’ fiscal obligations, even if temporary, would have major repercussions both for the United States and the world economy—and possibly for the broader global financial system. 

The IMF missed a major opportunity this time around to remind the United States of the severe consequences for itself—and the rest of the world—of not living up to its responsibilities as the issuer of the world’s major reserve currency. One would hope that IMF delegates still use these Spring Meetings to drive home this point to their US counterparts. 

—Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF chief of staff.

What the World Economic Outlook didn’t say

On Wednesday, Atlantic Council senior fellows gathered to discuss the World Economic Outlook (WEO) report that was released by the IMF this week. The WEO is published twice a year and presents the IMF’s analysis of global economic developments over the near and medium term. This year, the report comes in the midst of tightening financial conditions in most regions and the aftermath of a banking crisis. The IMF forecasted that global growth will slow from 6 percent in 2021 to 2.7 percent in 2023.

The former IMF officials led a discussion to decode the WEO and address which elements they felt were missing. While participants cannot be quoted directly as the conversation was conducted under Chatham House rules, the experts generally agreed that the report was missing important discussions in several areas: the US debt ceiling, artificial intelligence, structural reforms to address aging populations and declining productivity, and the normal analysis of specific countries or regions. The group talked about the report’s increased attention toward economic fragmentation despite the political sensitivity of this issue. In addition, they discussed the potential for stagnation versus stagflation and the complexity of debt relief with China and private creditors. The experts also gave a defense of the WEO and why it matters in an economically divided world.

—Jessie Yin is a young global professional at the Atlantic Council’s GeoEconomics Center.

See more expert reactions from our WEO roundtable:

Who’s first and what’s second is this week’s central debate

Whether the topic at hand is COVID-19 debt fallout, the Ukraine conflict, climate finance, food security, or supporting small states, a common theme in deliberations thus far during the IMF-Word Bank Spring Meetings has been how to balance clear but competing needs in the short term versus the medium and long term. The threat of a “lost decade” of global growth adds urgency to figuring a path forward quickly.

There does seem to be consensus that multilateral financial institutions—and indeed, the entire global financial and development system—need to walk and chew gum at the same time. That is, they need to respond to urgent and basic needs, such as widespread food insecurity, while simultaneously investing in what is needed for economic recovery and inclusive growth; for example, investing in infrastructure and health systems. Some argue education is a medium-to-long term economic development need, but the 70 percent of the world’s ten-year-olds in low- and medium-income countries who cannot understand simple text and the hundreds of millions of unemployed youth might disagree. Climate change is seen as both an immediate and an existential threat—and, increasingly, a market opportunity. 

The debate this week in Washington, then, is less about which crises or challenges to address, and more about who should do what, when, and how. There are arguments for the IMF returning to a focus on liquidity and macro-fiscal and short-term stabilization, while the World Bank should focus on medium- to longer-term recovery and economic growth and development. It is too soon, however, to know if the arguments for this way forward will win out. Importantly, there is agreement that to tackle these problems both sides of 19th Street, along which the institutions sit (with the International Finance Corporation just up the road), need to incentivize and mobilize more private-sector capital and engagement, and better coordinate with other multilateral and bilateral agencies. Watch this space.

—Nicole Goldin is a nonresident senior fellow at the GeoEconomics Center and global head of inclusive economic growth at Abt Associates, a consulting and research firm.

Central banks shouldn’t use IMF projections as an excuse to get too loose again

The IMF’s World Economic Outlook expects global growth to remain around 3 percent in the next few years—lower than the 3.9 percent annual average from 2000-2009 and 3.7 percent from 2010-2019. This low growth estimate is based on expectations of a return to secular stagnation driven by long-term trends such as aging populations and slowing productivity growth, pushing the natural real interest rate (known as r*) to ultra-low levels comfortably below 1 percent.

This may or may not be the case. But the World Economic Outlook does not clearly mention the chance that secular stagflation is equally likely as secular stagnation to happen—especially since geopolitically driven fragmentation will likely reduce output and increase costs and prices. This comes on top of the fact that deglobalization has reversed the disinflationary benefits of the globalization period when hundreds of millions of low-wage workers in China and other emerging markets joined the global economy.

Consequently, the possibility of ultra-low r* should be viewed cautiously, as both inflation and nominal interest rates may be higher than in previous decades. Central banks should not use that as an excuse to implement extraordinary loose monetary policies like they did in the decade or so after the Global Financial Crisis—policies that boosted financial asset prices, causing recurring financial instability and now persistently high inflation requiring central banks to sharply raise interest rates. This is a hard-earned lesson that should not be quickly forgotten.

—Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance, and former deputy director at the IMF.

Inside the World Bank’s digital governance agenda

As global conversations accelerate around digital-first governance, the emerging agenda must be based on “inclusion, competition, and trust,” said Priya Vora, managing director at Digital Impact Alliance (DIAL). 

Vora spoke Tuesday at an Atlantic Council event along with Arturo Herrera Gutiérrez, global director for governance at the World Bank, and Tim Murphy, chief administrative officer at MasterCard, to discuss how the World Bank should address digitalization. 

Participants in the roundtable, conducted in partnership with the Mastercard Policy Center for the Digital Economy, had one clear message: “The public sector cannot sit back anymore.” The real role of the US government, as Vora underscored, is to create the tools for an equitable and safe digital economy, then lead by setting global standards. 

This process starts with people-centric innovation coupled with comprehensive regulation. Gutiérrez stressed that countries cannot simply provide a technical solution, rather they need to create an “engagement strategy” to best inform consumers about the benefits and risks of that technology. 

The United States, as Murphy noted, is falling behind. As countries trend towards digitalization, Murphy warned about the threat of fragmentation, in which different countries have their own siloed digital priorities and issues of privacy, data protection, and consumer transparency are often ignored because of a focus on geopolitical competition. Therefore, the panelists agreed, global leadership and cooperation are crucial, especially to understand both the negative and positive opportunities of technology development.

The World Bank’s governance agenda will need to adapt to reflect the dynamics of the digital economy, including issues of privacy, cybersecurity, consumer protection, and sustainability. The next wave of innovation should be about “giving more tools of transparency and control to people,” said Vora. 

—Alisha Chhangani is a program assistant at the Atlantic Council’s GeoEconomics Center.

Spain’s economy minister aims to fight ‘fragmentation’

Nadia Calviño, Spain’s vice president and minister of economic affairs and digital transformation, declared on Tuesday that economic fragmentation would be a “lose-lose” situation for major economies. At an event at the Atlantic Council, Calviño noted that a “massive tectonic plates shift” is taking place within the post-World War II geopolitical order that has benefited the global economy. Economic ties are increasingly linked to geopolitical allies, and new research from the IMF shows that if geoeconomic fragmentation were to deepen, the global economy would contract by about 2 percent. This contraction would be far worse for developing economies.

Calviño believes that the World Bank and IMF will play key roles in avoiding such fragmentation and ensuring prosperity for all. Difficult discussions around debt relief, climate change, and economic slowdowns should not weaken the role of the institutions as financial stabilizers and promoters of development, she said. If the Bretton Woods Institutions didn’t already exist, “we’d have to invent them now.”

As the chair of the IMF’s International Monetary and Financial Committee, Calviño has three goals for the meetings this week. First, she aims to generate a consensus on reinforcing the global safety net and supporting the most vulnerable economies. Second, she plans to deliver a message of confidence that will also bring confidence to global economic markets. And third, which would be a bonus, she hopes to build a framework to coordinate economic policies that would encourage financial stability and prevent geoeconomic fragmentation.

This will not be an easy task. But Calviño is “neither optimistic nor pessimistic but determined” to make progress on these issues in a period of global economic uncertainty and volatility.

—Mrugank Bhusari is an assistant director at the Atlantic Council’s GeoEconomics Center.

‘Sustainability, resiliency, and inclusion’ must top the reform agenda, says Cameroon’s minister of economy

At the Atlantic Council, Cameroon’s minister of economy laid out the country’s economic trajectory in conversation with Julian Pecquet, the Washington/UN correspondent for Jeune Afrique and the Africa Report. Despite modest growth in the face of significant global pressures, it is “not enough for [Cameroon] to get to [its] goals of becoming an emerging country by 2035,” Ousmane Mey said.

A “paradigm shift” is underway in Cameroon’s economic planning, the minister of economy explained, as the country continues to learn from the disruptions of the COVID-19 pandemic and the pressures of the war in Ukraine. He said that in particular, the Cameroonian government wants to “take advantage of the situation to reengineer [its] production capacity to be able to produce more locally, cover the national demand, and export more in this environment.” At a broader level, the African Union is also working to “integrate and trade more between the countries” to promote resiliency and insulation from global crises at a continental level, Ousame Mey explained.

At the same time, he said, the stressors climate change is imposing on Africa, even though the continent contributes the least to global pollution, are closely tied to Cameroon’s economic goals. The minister noted that “sustainability, resiliency, and inclusion” must be at the forefront of the agenda for international monetary institutions. These issues are informing Cameroon’s position going into the Spring Meetings, explained the minister, who expects the talks to focus on “the future of the [Bretton Woods] institutions,” “reforms,” and “global challenges.” Particularly on the topic of reforms, he praised the “debt service suspension initiatives” that were introduced in 2020 under the Group of Twenty common framework to alleviate Cameroon’s burden in a time of crisis. “This is certainly something we should include in the reform of the financial architecture in the future,” he said.

—Alexandra Gorman is a young global professional at the Atlantic Council’s Africa Center.

Senegal’s economy minister: ‘the US private sector is missing’

Senegal’s newly appointed Minister for Economy, Planning, and Cooperation Oulimata Sarr has one clear message for international partners going into the IMF/World Bank Spring Meetings: “Senegal is open for business.”

In a conversation at the Atlantic Council with Julian Pecquet, the Washington/UN correspondent for Jeune Afrique and the Africa Report, Sarr acknowledged that she wants “the private sector to a play a much bigger role” in the country’s economy, which has grown rapidly in the past few years. In particular, “the US private sector is missing” in Senegal, she acknowledged, because it tends to view “Africa as a whole as a risky investment place.”

A major factor that shapes these views is sovereign debt credit ratings, which have historically been administered by foreign-based entities that rely on faulty metrics, Sarr said. The rise of credit rating agencies on the continent (currently there are two) will more accurately reflect the reliability and investment potential of African economies, Sarr noted.

Ultimately, “development cannot wait,” she told US viewers, noting the urgency of the issue. “Fast-tracking” solutions is the country’s top priority in all economic considerations, from “the reform of the Bretton Woods Institutions” to the choice of partners between the US and China. The current Biden administration clearly sees “Africa as a very, very important player” and “as a land of opportunity,” but she believes that the “US can do much more.”

—Alexandra Gorman is a young global professional at the Atlantic Council’s Africa Center.

David Malpass: Today’s economic double whammy may slam development into reverse

As World Bank President David Malpass prepares to hand over the reins to his successor, he has one big worry about the global economy: a “reversal in development.” 

“That means poverty is higher… than five years ago, that education and literacy problems are worse than they were five years ago,” he said at an Atlantic Council Front Page event on Tuesday hosted by the GeoEconomics Center. That reversal is unfolding, he explained, because of the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine, which together hit the global economy with a “double whammy.” 

But even if these crises come to an end, development won’t necessarily get right back on track, warned Malpass, who will be succeeded in the coming weeks by former Mastercard Chief Executive Officer Ajay Banga. Next week, the boards of governors of the World Bank and International Monetary Fund (IMF) will meet in Washington to discuss reshaping development for a new era as central banks around the world raise interest rates to fight inflation.  

“The dislocation is huge,” Malpass said, explaining that countries looking to continue their growth strategies from the past decade will now see higher interest rates reflected on their contracts. Thus, instead of looking to return to pre-COVID development economics, Malpass explained, countries should be looking at this moment as “an inflection point into some new [economic] growth model”—and adjusting their strategies accordingly. 

“We don’t want it to be a lost decade for growth,” Malpass said. Preventing one, he added, will require sorting out global debt restructuring and increasing the resources available to the World Bank. 

—Katherine Walla is an associate director of editorial at the Atlantic Council.

Read more

New Atlanticist

Apr 5, 2023

David Malpass on China’s role in the World Bank and how to prevent a ‘lost decade for growth’

By Katherine Walla

The president of the World Bank, speaking at the Atlantic Council as he prepares to hand over the reins to his successor, has one big worry about the global economy: a “reversal in development.” 

Digital Currencies Economy & Business

Dive deeper

IMF-World Bank Week at the Atlantic Council

APRIL 10–APRIL 14, 2023

Highlights from the Atlantic Council’s IMF-World Bank Spring Meetings. Watch the special events with finance ministers and central bank governors from around the world.

The post Highlights from the sidelines of the IMF and World Bank Spring Meetings appeared first on Atlantic Council.

Watch the full event

Online Event Tue, April 4, 2023 • 10:00 am ET

Special event with President of the World Bank Group David Malpass

AN #ACFRONTPAGE EVENT – Malpass shared his vision for how the World Bank Group can respond to global challenges and help foster inclusive growth around the world.

Economy & Business Fiscal and Structural Reform Inclusive Growth International Financial Institutions

As World Bank President David Malpass prepares to hand over the reins to his successor, he has one big worry about the global economy: a “reversal in development.” 

“That means poverty is higher… than five years ago, that education and literacy problems are worse than they were five years ago,” he said at an Atlantic Council Front Page event on Tuesday hosted by the GeoEconomics Center. That reversal is unfolding, he explained, because of the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine, which together hit the global economy with a “double whammy.” 

But even if these crises come to an end, development won’t necessarily get right back on track, warned Malpass, who will be succeeded in the coming weeks by former Mastercard Chief Executive Officer Ajay Banga. Next week, the boards of governors of the World Bank and International Monetary Fund (IMF) will meet in Washington to discuss reshaping development for a new era as central banks around the world raise interest rates to fight inflation.  

“The dislocation is huge,” Malpass said, explaining that countries looking to continue their growth strategies from the past decade will now see higher interest rates reflected on their contracts. Thus, instead of looking to return to pre-COVID development economics, Malpass explained, countries should be looking at this moment as “an inflection point into some new [economic] growth model”—and adjusting their strategies accordingly. 

“We don’t want it to be a lost decade for growth,” Malpass said. Preventing one, he added, will require sorting out global debt restructuring and increasing the resources available to the World Bank. 

Below are more highlights from the event, moderated by Bloomberg Surveillance co-host Lisa Abramowicz, as Malpass dove into the World Bank’s role in the world, its relationship with its contributors, and global financial and monetary challenges. 

World Bank, global problems 

• Malpass pointed out how over the past few decades, as countries face increasing costs, the bank’s contributions from shareholders and donors have “been relatively flat.” Given that “there were no more donations from the advanced economies,” the World Bank instead leveraged its balance sheet to expand funding for programs such as its International Development Association, which works to combat extreme poverty. 
• The flat donations are, in part, due to countries allocating spending to their own international development programs, Malpass admitted, but he noted that all bilateral aid hasn’t grown very much.  
• There’s one big exception to this trend. “China has substantially increased its contribution to the World Bank,” he explained. In response to critiques about China’s lending practices, Malpass argued that the country is the “world’s second-biggest economy, so… there needs to be some component of China’s involvement and engagement.” 
• At the same time, Malpass explained, the World Bank is working with Beijing on improving its development practices and avoiding such practices as requiring nondisclosure clauses and asking countries for collateral. “Billions and billions of dollars… are flowing with insufficient transparency,” Malpass warned. “That’s a high priority as the world interacts with China in a global context.” 
• “What we want China to see is that it is strongly in its interest to see the world growing,” Malpass added. “That can be done through a difference in lending practices—also a faster restructuring of debt.” Why hasn’t that debt restructuring happened yet? Beijing is “looking for a way to have a constructive restructuring dialogue with the world,” Malpass explained. 
• In discussing which countries the World Bank prioritizes for its lending programs, Malpass said the question often involves whether to focus on long-term projects or fast disbursements of money. “There’s a lot of pressure on the World Bank to just lend the money to the country, even if they’re not doing well” on governance and corruption. “We still operate in those countries, but we tend to do it more with social safety nets” and “direct assistance to the people of the country” so that they can survive food shortages and economic hardship. 

Currency: Dollar and digital

• Despite today’s high inflation, the dollar is still strong, Malpass said, adding that he isn’t worried about preserving the dollar’s status as the world’s reserve currency. “You earn that by dependability and by how fast you can trade the currency,” he said. “The US still has dominance in that.”  
• In the meantime, China’s renminbi, which is one of a handful of currencies that make up the IMF’s Special Drawing Rights reserves, has the potential to grow as a reserve currency, Malpass argued. But “competition is good for a currency,” he said, adding that it will push the United States to “really have strong financials… so that the dollar can remain the world’s most important currency.” 
• Malpass briefly discussed the risks that cryptocurrencies pose: He noted that, for example, they grant a measure of anonymity, making it easier to lose track of terrorism financing. Central banks will have to “speed up their settlement process,” he said, to offer a digital currency option that competes with cryptocurrencies while avoiding those risks.  

Crises underway—and on the horizon

• Malpass said that the recent string of bank failures starting with Silicon Valley Bank has increased the risk of a recession. As small and regional banks are under increasing stress, he added that the financial system needs to maintain access to the kind of small loans and local community service these banks provide. 
• With members of the OPEC+ oil cartel, which includes the Persian Gulf countries and Russia, announcing a voluntary cut to oil production on Sunday, Malpass had a grim outlook for global growth. He explained that as oil prices go up, the costs of agricultural inputs and healthy food will rise as well, with devastating impacts on food systems and health. 
• The World Bank responded to Russia’s full-scale invasion of Ukraine by offering direct grants to Kyiv and setting up trust funds that the United States has used to send non-military support to Ukraine. The bank has also conducted damage assessments to help international partners understand the amount of money needed to rebuild the country—and it will continue working on reconstruction with the United States and the European Union, Malpass said. 

Katherine Walla is an associate director of editorial at the Atlantic Council.

Watch the full event

The post David Malpass on China’s role in the World Bank and how to prevent a ‘lost decade for growth’ appeared first on Atlantic Council.

But what should policymakers know about the lingering challenges that women in the region face? And what are the specific measures that can bring about real change? Below, five experts on the region provide their recommendations for strategies that can help promote gender equality and advance women’s rights across Latin America and the Caribbean.

How should Latin American and Caribbean countries begin their renewed efforts to narrow the gender gap?

Latin America and the Caribbean have historically struggled with gender inequality and discrimination, particularly against women.

Economic empowerment is a crucial way to help attain gender equality. However, achieving economic empowerment requires solutions that are designed with more than the near term in mind. It is essential to create opportunities for women in which they can earn a sustainable long-term income, and it is equally essential to design these opportunities in a way that meets the needs of all women and the girls or elderly women in their care. Regrettably, gender biases are rampant not only in the workplace but also in the policymaking sphere, which significantly hinders female candidates from reaching their full potential. According to a report by the World Economic Forum, the global gender gap in politics will take more than a century to close if the current gender biases continue. To overcome this obstacle, policymakers need to introduce targeted policies aimed at reducing gender discrimination.

Closing the digital gender gap is also an important step. According to the US Agency for International Development, 1.1 billion women and girls in middle- and low-income countries do not have access to mobile internet, putting them at a disadvantage and limiting their economic opportunities. By closing the digital gender gap and by ensuring women can gain access to digital skills and literacy, societies—and their economies—will reap significant spillover rewards.

Additionally, the issue of violence against women and girls in the region cannot be ignored. Domestic violence correlates with juvenile violent behavior, meaning that as young people grow up in the presence of domestic violence, they are more likely to replicate the same behavior later in life. Furthermore, women are vulnerable to becoming subject to emerging crimes (like trafficking) due to higher levels of insecurity. According to a United Nations report, 35 percent of women worldwide have experienced physical or sexual violence, and this percentage is even higher in Latin America and the Caribbean. To achieve true gender equality, policymakers must prioritize measures that address violence against women and girls. These measures include providing adequate support to survivors and holding perpetrators accountable for their actions.

—Isabel Chiriboga is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.

What is the relationship between women’s economic empowerment and broader social issues such as poverty, inequality, and gender-based violence? How can these problems be addressed?

Economic empowerment must be understood as a holistic, cyclic process in which multiple social and economic-development dimensions are linked, building upon each other over time. It is necessary to enact immediate solutions for women in vulnerable situations. A first solution could include making cash transfer systems available to women; these systems allow them to not only survive but also thrive, by respecting and guaranteeing their decision-making capacity. A second solution could include creating systems that allow women to ensure they have a steady flow of income for the medium and long term; to accomplish this, those systems could offer them support in entering into the formal labor market or in pursuing a self-employment opportunity in specific cases. It is important that these programs target not only women but also their dependents— both minors and seniors whose care, often provided by women, presents one of the biggest barriers to women’s economic and job stability. A third solution could include economic empowerment policies that particularly address girls, giving them employment skills and protecting them from threats to their independence that loom from childhood, such as teenage pregnancies or forced marriages.

Finally, it is important to note that women’s empowerment processes in some social spaces, especially patriarchal or sexist ones, can generate conflict or violence against women. Mechanisms for preventing violence and protecting women must be provided, including social and institutional support for empowerment projects and the women at the center of them.

—Erika Rodríguez is a nonresident senior fellow at the Atlantic Council’s Adrienne Arsht Latin America Center, a professor and associate researcher at Complutense University, and a special advisor to Josep Borrell, the EU high representative for foreign affairs and security policy and vice president of the European Commission.

What policies can best address institutionalized gender biases and discrimination in Latin America’s political and official leadership structures?

To address women’s underrepresentation in politics and leadership, policymakers should look at some of the factors that contribute to a significantly lower number of women on the ballot and in official leadership structures. In other words, rather than create an expectation of more female candidates, leaders should try to address some of the persistent gender biases that present obstacles for female politicians already on the scene. The data on the various gender biases exists—and the region sees the unfortunate outcome of those gender biases: Mostly men are elected or appointed to key leadership roles.

There is copious data now available on women being more frequent targets of abuse and threats online in comparison to their male counterparts. On March 5 this year, Costa Rica’s Latina University published research that showed there is significant political digital violence toward women, with most of the attacks included in the research focusing on casting doubt on the capacity for women to be in public service, on disparaging women’s appearances, and on issuing physical threats. That kind of consistent harassment becomes a deterrent for women when they decide whether to take a step forward and aspire to political leadership roles. That digital violence should be addressed.

Policies aimed at reducing gender discrimination should not only focus on recruiting and electing, but also on supporting and protecting women in public leadership roles. Those policies can offer an effective strategy to minimize existing gender inequality and create a safer and more democratic environment.

—Erika Mouynes is the chair of the Atlantic Council Adrienne Arsht Latin America Center’s Advisory Council and former Panamanian minister of foreign relations.

How can the development of digital skills and literacy among women in Latin America help promote innovation and gender equality? How can public-private partnerships help foster women’s digital literacy?

In Latin America, women still lag behind men in terms of their access to the internet and mobile broadband, mastery of digital skills, and representation in digital jobs. Leveling this playing field is an economic imperative—it can help grow the pool of qualified talent for local and regional companies, empower women to access good-paying jobs, and close gender gaps in pay and labor-market participation, which are directly correlated with gross domestic product growth. This economic imperative has captured the attention of business leaders across the region who recognize that businesses benefit from employing qualified women and that limited digital parity is a drag on growth.

But while the economic case for closing the digital gender gap is strong, it’s important to look at it as a social imperative too. Empowering women with digital skills and digital literacy allows them to successfully navigate an increasingly digital world. Indeed, digital literacy is now needed to open a bank account, access health care, take full advantage of quality education opportunities, grow a business, and thrive at work. Around the world, women are known to invest more in their families and their communities than men. This means that the benefits of closing the digital gender gap will generate positive spillover effects that will be felt by societies and economies more broadly.

The private sector has a vested interest in closing the digital gender gap. My experience working in the consulting sector and with clients has shown me firsthand that diverse teams think more creatively and operate more dynamically. This, combined with the many other socioeconomic benefits of gender parity, makes it clear that the private sector must play a role in closing the digital gender gap and that the business case for doing so is strong.

The private sector has an important role to play as a partner for governments. Private-sector businesses, as significant employers, can help public officials design better policies that take into consideration the skills gaps in the labor market. And the private sector can provide insights about how policies—related to everything from health to education—impact women every day. Finally, the private sector can lead by example by creating an environment in which women can thrive and learn and using peer pressure across the sector to push all companies to get on board.

—Ana Heeren is a member of the Atlantic Council Adrienne Arsht Latin America Center’s Advisory Council and senior managing director at FTI Consulting.

How do crime and violence affect women and girls in Latin America and the Caribbean? What strategies can governments employ to help prevent, address, and respond more effectively to that violence?

In Latin America and the Caribbean, women and girls are at greater risk of facing violence. According to estimates conducted in 2018, one in four women in the Americas have experienced physical and/or sexual violence by their partner. Recent evidence shows a correlation between juvenile violent behavior and exposure to domestic violence during childhood. Women also report higher levels of insecurity: A study in three cities in the region showed higher levels of concern among women than men regarding their safety while taking public transportation (72 percent versus 58 percent in Buenos Aires, 61 percent versus 59 percent in Quito, and 73 percent versus 59 percent in Santiago). In addition, women and girls are more likely to be affected by emerging crimes. Women and girls constitute the majority of victims of human trafficking. Women environmental or human-rights activists also face attacks (1,698 violent acts in Mexico and Central America from 2016 to 2019), and about nine out of ten women have experienced or witnessed online violence.

My team at the Inter-American Development Bank proposed a strategy to respond to this complex problem in a coordinated way. The approach includes initiatives focused on empowering women and preventing violence. It includes recommendations on how to ensure that any actions or initiatives intended to solve this problem are targeted toward the most vulnerable women and girls and are tailored toward the specific social, political, and economic contexts of each community. It also includes guidance on strengthening the capacities of the citizen-security and justice sector to detect, prevent, address, and respond to violence. Moving forward, it is necessary to have better data to generate evidence-based policies.

—Nathalie Alvarado is a technical leader and coordinator of the Citizen Security and Justice Cluster at the Inter-American Development Bank.

The post What policymakers should know about improving gender equality in Latin America and the Caribbean appeared first on Atlantic Council.

Fifty-three economies—including Argentina, Egypt, Pakistan, and Nigeria—are in an especially fragile condition because they have either defaulted on some of their debts, or have debt levels that the IMF considers unsustainable. Given their 5 percent share in the global economy, this may not sound alarming. However, considering the contagion phenomenon in financial markets—and the fact that these fifty-three economies are home to about 20 percent of the world’s population—debt distress, and its social, political, and economic ramifications could pose serious threats to the global economy. Acknowledging these dire conditions, the IMF has redoubled its efforts to help its member countries avoid the worst of debt crises.  

How does IMF financial assistance work? 

The IMF’s financial assistance is intended to provide financial support for countries that are experiencing or at risk of financial crises, including balance of payment (BoP) crises, banking crises, currency crises, or external/internal debt crises. The IMF’s financial assistance provides breathing space for governments to devise and gradually implement corrective policies. Hence, the IMF’s financial assistance is always associated with a set of reform policies tailored for the country in crisis. These may include monetary policy and exchange rate policy reforms, and other sets of economic-wide reforms broadly referred to as Structural Adjustments or Reforms. By implementing these reforms, the country is expected to restore long-run financial stability and growth in its economy and rebuild domestic and foreign investors’ faith in the country’s economy.  

Table 1 provides a breakdown of the IMF’s financial assistance accounts and types. Broadly speaking, IMF financial assistance can take three forms. First is lending at an interest rate determined by the average of interest rates in world major currencies. Loans extended under the General Resources Account (GRA) are of this type. Second is lending at concessional terms which are extended at very low or no interest rates to low-income economies. Financial assistance through the Poverty Reduction and Growth Trust (PRGT) falls under this category. The third form of IMF financial assistance is through the Catastrophe Containment and Relief Trust (CCRT). This is a debt relief grant for heavily indebted, low-income economies facing debt distress and financial turmoil. Figure 2 shows the value of all IMF financial assistance between 2020 and 2022 for each type and recipient country. More than three-quarters of all IMF financing during the 2020-22 period was through the Flexible Credit Line (58 percent of the total) and the Extended Fund Facility (19 percent of the total). 

Latin America and the Caribbean have been the IMF’s largest clients. 

In fiscal year (FY) 2022, the IMF provided $113 billion of financial assistance to twenty three of its member countries, 90 percent of which is dedicated to Latin American and Caribbean economies. Two economies in Latin America accounted for $91 billion (or 80 percent of the IMF’s financial assistance in 2022): Argentina with $43 billion and Mexico with $48 billion. FY2022 was not an anomaly in the IMF’s financial assistance pattern. As seen in Figure 3, 71 percent of all IMF financial assistance between 2020-22 (including FCL) was allocated for the Latin America and Caribbean region.

However, it is important to note that the type of financial assistance IMF has provided in the form of FCL —for example to Mexico and Columbia— is drastically different in nature from the assistance provided to Argentina in the form of EFF. In particular, FCL is designed as a crisis-prevention and crisis-mitigation credit line for countries that have strong policy frameworks and solid track records in their economic performance. Hence, the country may or may not decide to use all or even a portion of this line of credit that is allocated to them. For example, Mexico has drawn nothing from the total amount of 80.214 billion SDR made available to them through FCL facility between 2020 and 2022. In contrast, Argentina has drawn 17.5 billion SDR from the 31.914 billion SDR EFF assistance provided to them. It must be noted here that IMF extends EFF to a country facing major medium-term BoP challenges because of various structural issues that will necessitate some time to address. IMF’s lending commitments site provides updated detailed information on the type and amount of assistances IMF has allocated for each member country from its first day of inception, the amount drawn from the allocated funds, and the outstanding balances.    

After Latin America, the Sub-Saharan Africa region is the IMF’s main client. It is followed by a few countries in other regions such as Egypt in the Middle East and North Africa, and Pakistan in South Asia, which are highlighted in Figure 4.

The IMF should reexamine the uneven distribution of its financial resources.

The case in hand is the IMF’s uneven response to economies in Latin America versus those in Sub-Saharan Africa. While both regions suffer frequently from debt and BoP crises, Latin American economies tend to get larger IMF packages than African economies, even when their IMF quotas are considered. For example, Argentina’s most recent IMF package (arranged March 25 2022) was about $43 billion, which is about 1,000 percent of its quota and $950 million per capita. Moreover, program aimed to help Argentina repay its outstanding IMF debt from an unsuccessful 2018 $57-billion IMF program.  

In contrast, Zambia’s most recent IMF package (approved August 31 2022) was about $1.3 billion, or 100 percent of its quota and about $73 million per capita. A careful look at the IMF’s financial assistance history will surface many more such examples of potentially uneven treatment. Pakistan and Egypt are two other countries that have received substantial and frequent financial assistance from the IMF over the past decades while other countries in their respective regions have had less luck in that front.  While citizens and policymakers in Latin America, Pakistan, and Egypt may reject the notion that the IMF has treated them favorably over the years, a close look at other countries such Sri Lanka and Lebanon provides a glimpse of what could happen to economies in crises when IMF assistance is not immediately there to support them.  

Conclusion 

The global economy is facing multifaceted challenges that are increasingly interconnected and transnational in nature. Bretton Woods Institutions, such as the IMF and the World Bank, are tasked with addressing many of these challenges—including the debt distress faced by many low income and emerging economies. However, as shown above, their responses to crises have not been equitable across different regions and countries. As firefighters of the global economy, these institutions should respond to crises on equitable terms across all their members. Otherwise, they risk being viewed as politically motivated, undermining their effectiveness and relevance in the governance structure of the global economy and financial relations.  

Recent debt relief grants allocated to many low-income economies in Sub-Saharan Africa through the CCRT and the last month’s visit of IMF’s managing director, Kristalina Georgieva, to Africa and engaging with African leaders are steps in the right direction. However, they must be followed by more favorable and creative financing schemes for debt-distressed low-income African economies, where debt vulnerabilities were exacerbated by the global pandemic and skyrocketing global food and energy prices. 

Amin Mohseni-Cheraghlou  is a macroeconomist with the GeoEconomics Center and leads the Atlantic Council’s Bretton Woods 2.0 Project. He is also an assistant professor of economics at American University in Washington DC. @AMohseniC

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Essential but unevenly distributed: IMF’s response to sovereign debt and financial crises appeared first on Atlantic Council.

World Genealogy Day is on March 11 this year, and it serves as a reminder that genealogy is important for any individual or family. Yet, it is perhaps even more important for societies and communities that have been shaped by forces that have taken them far from their roots. For global Africans, like me, genealogy is a valuable resource that can promote greater insight, connectedness, and cultural preservation.

‘Global Africa’—as defined by various academics and scholars like W.E.B. Du Bois, Henry Louis Gates Jr., Robin D.G. Kelly, and Kwame Anthony Appiah—refers to the concept of a transnational and interconnected African diaspora that exists beyond the continent of Africa. It acknowledges the cultural, economic, and social ties that connect people of African descent around the world, including those in the Americas, Europe, Asia, Latin America, and the Caribbean. The term Global Africa recognizes that the history, culture, and experiences of African people have been heavily impacted by colonialism, slavery, and immigration. It also highlights the diverse contributions that people of African descent have made to various fields, such as literature, music, art, and politics, and underscores the importance of building solidarity among different communities of African descent to address shared challenges and promote mutual understanding.

If the United States truly wants to embrace the African diaspora that resides there, as stated at the US-Africa Leaders’ Summit, it must reduce the prices to access genealogy records, increase public awareness campaigns to help young people everywhere to learn about their ancestors, and foster economic ties that can grant the diaspora freedom to travel and explore their genealogy first-hand.

Journey through time

I used DNA services and genealogy platforms to trace my family lineage. Through years of research and accessing free records on websites like Slave Voyages and the Freedmen’s Bureau of the National Archives, I was able to piece together my family’s story going back six generations: from the 1700s to the present day. From my research, I discovered that my African roots go back to the Mali Empire where my distant cousins were once kings.

While the desire to know one’s family lineage is universal, each culture faces a unique set of challenges. For instance, while some Africans don’t feel as directly impacted by slavery as many African Americans, colonization left stains that persist in young African minds after many European powers had captured people, artifacts, and resources from Africa during the sixteenth to twentieth centuries. Initiatives like African Ancestry help in rediscovering roots, while others like H3 Africa—a consortium of research projects led by African scientists—are playing a significant role in researching African genetics to help people better understand whether they are at risk, through genetics or their environment, for developing specific diseases.

Countries around the world have different laws and regulations regarding access to genealogy records. While the United States is fortunate to have access to millions of historical records, the US Citizenship and Immigration Services charge high fees for access to genealogy records, creating a barrier for many everyday Americans. Gatekeepers must strike a balance between protecting privacy and making genealogy accessible to those who seek it.

And with the United States becoming the site of fierce discussion over migration and mobility, improving access to genealogy is one important way it can communicate a more welcoming message to the African continent—and a more supportive one to the African diaspora community at home.

Control of the narrative

Today in the United States, school systems are facing complex questions about what should be taught regarding African American history, how lessons should be delivered, whether interpretations of historical moments are accurate, and which students should be receiving these lessons.

For example, in my home state of Virginia, new proposed history and social-science Standards of Learning are facing criticism for avoiding and downplaying Black contributions to society. In Florida, state officials blocked a proposed advanced placement African American history course, saying it “significantly lacked educational value.” The Texas House of Representatives is considering a bill that would remove all diversity, equity, and inclusion programs in state universities. The largest proportion of Black immigrants lives in Southern states where these debates about Black history and inclusion are unfolding.

What signal is the United States sending to African students who want to study in the country? This is a question that’s particularly relevant at a time when the global competition to attract African students is sharpening. Europe hosts the biggest group of Sub-Saharan African students outside the continent. But while France, which has 92,000 students enrolled according to the latest data, has long dominated in attracting African students, the United States (41,700), South Africa (30,300), and the United Kingdom (27,800) have also grown as major players in recent years.

If young people, such as students, can meaningfully engage with genealogy, they can strengthen diaspora communities by connecting together via their cultural and familial ties, which then boosts religious, social, and political connections across communities. Ultimately, this can create a heightened sense of identity and belonging across borders. Jeanine Stewart, a psychologist with expertise in inclusion and belonging, shared in a Forbes interview that, “being surrounded by other human beings doesn’t guarantee a sense of belonging.” Instead, she said, “belonging actually has to do with identification as a member of a group and the higher quality interactions which come from that. It’s the interactions over time which are supportive of us as full, authentic human beings.”

The United States’ message in attracting African students to study in the country extends beyond the education sector. Having a positive message would signify a broader commitment to diversity, globalization, and engagement with the African continent. The United States sees Africa as a vital partner in shaping the world’s future, and welcoming African students is a way to build lasting relationships and promote economic growth. Additionally, by attracting more young, talented individuals from Africa, the United States could bolster its own population growth by attracting a diverse range of perspectives and skills; it could also help make genealogical information more available, as young people from various family trees may carry their genealogical stories with them to the United States.

Genealogy awareness and access: What’s needed next

Many African societies have traditionally used oral history to pass down stories and genealogical information from generation to generation. This connective experience between the young and old is important.

At the same time, there is a need for genealogy thought leaders to collaborate with the public sector and other organizations to generate public awareness campaigns about the advances in the field. These campaigns can highlight the value of understanding one’s identity, connecting with distant relatives, and providing insights into past societies. Public awareness campaigns can also help dispel myths about genealogy and DNA to promote its legitimacy as a valuable field of study.

Institutions such as the Robert F. Smith Explore Your Family History Center—which is part of the Smithsonian Institution’s National Museum of African American History and Culture—is facilitating free genealogy expert consultations for those interested in tracking down their ancestry.

That said, there is still much work to be done to make genealogy and DNA records more accessible worldwide. Governments, including the United States, should create policies that promote the digitization of records and the creation of databases that are affordable and accessible to the public, especially given the fact that the genetic testing market size is anticipated to grow, reaching almost $18 billion by 2030.

Private companies currently access genealogy and DNA records to monetize direct-to-consumer DNA testing, medical research, DNA research services, data sharing and collaborations, and affiliate marketing.

Access to genealogy records can provide individuals with a sense of identity and belonging, connect them with distant relatives, and help them understand their place in the world. It can also inform understanding of past societies and help the world build more sustainable and prosperous communities.

Therefore, organizations around the world must work together to create policies that promote free access to genealogy records. Governments and institutions must work to strike a balance between protecting the privacy and providing access to history that is at the core of how families and communities have evolved over centuries.

Together, citizens of the world can ensure that genealogy remains a valuable resource for individuals and societies worldwide. By understanding the past, people can build a more prosperous and connected future.

Tyrell Junius is the associate director of the Atlantic Council’s Africa Center and a US returned Peace Corps volunteer of Zambia.

The post How genealogy can help restore historical ties through meaningful diaspora engagement appeared first on Atlantic Council.

Inflation affects women by raising the prices of goods and services they consume. Global inflation climbed to nearly 9 percent in 2022, more than double the pre-pandemic worldwide average of 3.5 percent. Emerging and developing economies saw higher inflation, with some experiencing staggering rates of 25 percent or higher. Soaring food and fuel prices, in particular, have pushed more than seventy million people into poverty worldwide.

But the already-high prices of products that women often buy (the so-called “pink tax”) are rising even higher. For example, the consumer price index of beauty products in Mexico and France rose about 13 percent, while in South Korea, the index rose 10 percent. An inflation analysis in the United Kingdom showed that price hikes were higher on women’s shoes, blouses, socks, and other products than those aimed at men. Feminine-hygiene product prices have also soared worldwide, impacting generations of women.

At the same time, women are also deeply impacted by surging food, fuel, and fertilizer prices—driven up by Russia’s war in Ukraine—which are worsening food insecurity. As compared to men, women worldwide tend to do the majority of household shopping and therefore are confronted with the burden of choosing how to adapt weekly purchases. They also spend a larger share of their incomes on food than men, with even greater disparities shown across the Global South, meaning that inflation cuts deeply into their disposable income or ability to save.

Women also play a significant role in farming, agricultural production, and other activities across food systems; however, they have less access to resources such as land or transport, and the increased prices of fertilizer disincentivize its use, inhibiting yields and earnings. According to the Food and Agriculture Organization of the United Nations, in 2021, 31.9 percent of women faced moderate or severe food insecurity compared to 27.6 percent of men. The disparity—4 percentage points—is expected to be even larger in 2022 due to inflation.

The widening gender pay gap is compounding inflation’s impacts. While there had been limited progress in some countries over the past decade, women’s wages generally remain lower than men’s, and inflation is putting any recent advances in gender parity at risk. Moreover, men are more likely to receive a raise at or over the inflation rate, as evidenced, for example, by a 2022 US survey that found that men are 33.3 percent more likely than women to see their salary keep pace with inflation. In low- and middle-income countries—where women often make up a larger share of lower-skill, lower-paying jobs, including in the informal sector—issues of wage disparity and stagnation are even more problematic.

Inflation further bears down on older women who, after leaving the workforce, face not only rising health care costs but also a significant pension gap—26 percent across Organisation for Economic Co-operation and Development countries. In addition, the asset values and investment performances of their pensions are generally more at risk with high inflation. And of the people worldwide who are not receiving a regular formal pension, two-thirds are women.

Interest rates are rising in response to inflation, worsening a picture that is already bleak for women searching for loans to pay for their education, homes, or small businesses. Given the perceived risk of lending to them, women already tend to face higher interest rates and tighter credit markets. In the United States, for example, women pay more for mortgages in nearly every state. Because women in lower-income countries are generally less able than men to receive loans or credit from commercial banks, they utilize microfinance institutions which are generally more accessible to them but historically have higher rates. The rising debt crisis further threatens the ability of lower- and middle-income governments to provide relief or fiscal stimulus to their citizens, including those most vulnerable.

Womenomics 101

Inflation, the gender pay gap, and unequal access to loans all undermine economic recovery and inclusive growth, especially in the Global South. Womenomics—initially launched by then Japanese Prime Minister Shinzo Abe in 2013 as a policy agenda to increase women’s labor-force participation and reduce pay disparity—recognizes that advancing women’s economic empowerment increases growth. But what does a Womenomics agenda for an inflationary era look like?

As a matter of practice, it should start with listening to women of diverse ages, identities, ethnicities, geographies, education levels, marital statuses, or socio-economic statuses to understand their lived experiences, aspirations, and constraints so that the most effective solutions can be created.

Here are some of the measures that can start to tackle gender gaps in wages, wealth, and well-being:

Tax and tariff reductions. These can be used to reduce the economic burden of shocks on women. In 2004, Kenya repealed its value added tax on pads and tampons; many countries and jurisdictions have followed suit, but more such policies are welcome and could prove a powerful counter-inflationary tool for hundreds of millions of women. (Even better would be making period products free altogether, like Scotland has.) On tariffs, a recent World Bank study of fifty-four developing countries found that, because women tend to spend a larger share of their income on food, a high-tariff good, eliminating import tariffs could allow female-headed households to gain 2.5 percent real income (adjusted for inflation) relative to male-headed ones.

Funds for emergencies. In the near term, governments, multilateral institutions, and development partners should allocate more resources and funding to emergency measures and social protections that can greatly impact women including food aid, cash transfers, and pensions. At the same time, governments, multilateral institutions, and development partners can shore up women’s economic resilience for the long term with investments and initiatives geared toward increasing their earnings, wealth, skills, savings, and financial security—and thus their abilities to withstand shocks when prices spike. In India, for example, one experiment found that when governments gave women COVID-19 workfare payments, those women were able to find and take on additional earning opportunities.

Lifting of capital constraints and support for counter-inflationary financial inclusion. Service providers and investors (in both the private and public sectors) can offer loan moratoria and debt restructuring, increase targeted and concessionary lending, and provide insurance or other agriculture, asset, and wealth protections for women. For example, the Australian government funds the Investing in Women program that uses blended finance, private-sector engagement, and other tools to promote women’s economic empowerment and equality across Southeast Asia. Service providers and investors could also extend the special programs they previously introduced to help people, farms, and firms weather COVID-19 economic shutdowns. For example, the South African government introduced its Small, Medium, and Micro Enterprise Debt Relief Scheme in 2020, prioritizing businesses owned by women, youth, and disabled people.

Improvements to women’s technological access. In the three policies above, leveraging digital tools is essential for expanding the reach, inclusivity, and scale of a gender-sensitive response to inflation and to advancing a Womenomics agenda more broadly. The United Nations acknowledged this importance by giving this year’s International Women’s Day the theme, “DigitALL: innovation and technology for gender equality.” Digital tools have great power in advancing a Womenomics agenda, for example by improving labor-market information systems or government technology services, or by facilitating safer blockchain or digital-currency payments and fintech services. Research from the International Monetary Fund found that fintech increases the number and ratio of female employees in the workforce and also mitigates the financial constraints that female-headed firms face.

Improvements in care infrastructure and availability. Childcare, eldercare, disability care, and the addition of such care facilities in the workplace can help pave the way for women’s economic participation and financial security. A recent study of publicly provided childcare in Brazil showed positive effects on the incomes and labor-market activity of caregivers, the majority of whom are women.

Above all, ensuring women with diverse experiences are at the table and playing a more meaningful role in economic and fiscal policy and decision-making—and implementation—is critical to closing the gender gaps in wages, wealth, and well-being.

Nicole Goldin is a nonresident senior fellow at the GeoEconomics Center and global head of inclusive economic growth at Abt Associates, a consulting and research firm.

The post Inflation comes with a big gender gap. Here are five ways to narrow it. appeared first on Atlantic Council.

This work empirically examines China’s growing footprint in Sub-Saharan Africa’s investment, trade, cultural, and security landscape over the past two decades. It highlights China’s increasing appetite for Sub-Saharan Africa’s natural resources and growing young labor force—identifying the region’s consumer market as an important destination for Chinese goods and services over the next few decades. 

The analysis identifies more than 600 Chinese investments and construction contracts in Sub-Saharan Africa (SSA), valued at over $303 billion, signed between 2006 and 2020. Four sectors attract 87 percent of China’s investment and construction in the region: energy at 34 percent; transport, 29 precent; metals, 13 percent; and real estate, 11 percent. This is very similar to the Middle East and North Africa Region, where the energy sector attracts close to 50 percent of China’s investment, followed by transport, 19 percent; real estate, 15 percent; and metals, 6 percent.

In terms of trade, this work shows that between 2001 and 2020, China’s merchandise trade with the region increased by a whopping 1,864 percent—surpassing SSA’s trade with both the United States and the European Union. In other words, from 2001 to 2020, China’s share in total merchandise trade in SSA rose from 4 percent to 25.6 percent, while during the same period, the shares of the United States and the EU in SSA’s total trade declined by 10 percentage points and 8 percentage points, respectively.

The report also takes a look at China’s arms trade with the region. Twenty-two percent of SSA’s arms imports are sourced from China, making China the region’s second-largest supplier of arms and military equipment, with Russia in the lead (24 percent). 

Finally, the report highlights the fact that the size of Chinese migrants in Africa is estimated at one to two million, with around one million permanently residing in the region. The largest numbers are in Ghana, South Africa, Madagascar, Zambia, and the Democratic Republic of the Congo.This work is the first in a series of empirical analyses that will be conducted on China’s presence in developing economies and low-income countries.

Explore the data in the Issue Brief

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post China in Sub-Saharan Africa: Reaching far beyond natural resources appeared first on Atlantic Council.

This report is part of an ongoing partnership on the Power of African Creative Industries between The Policy Center for the New South (PCNS) and the Atlantic Council’s Africa Center.

“Critical connectivity: Reducing the price of data in African markets,” by Africa Center Senior Fellow Aubrey Hruby, analyzes the current state of the digital transformation in Africa and outlines how affordable and accessible data is imperative for further development. Finally, it provides concrete recommendations to the key actors and facilitators of the transition outlined in the Digital Transformation with Africa; a new initiative the Biden administration announced at the 2022 US-Africa Leaders Summit, which emphasizes the importance of reducing data costs in Africa to spur growth and employment.

In outlining why data remains so costly and inaccessible across Africa, Hruby profiles four main detriments: infrastructure, competition, policy, and consumption patterns. Through case studies and success stories from other developing nations who struggled with high-priced data and implemented successful mitigation measures, Hruby develops a framework for reform and showcases how key changes can rapidly reduce data costs, spur development, and transform entire industries. Her recommendations directly address the current US administration, African governments seeking to build and benefit from a digital economy, and global development finance institutions (DFIs) that are already investing and making much needed transformative inroads into African markets.

Throughout the 21st century, African markets have unleashed the globe’s most significant digital revolution, and they are poised to continue doing so over the next few decades as the world’s youngest population reaches maturity. Currently, 40 percent of the continent’s total population is under the age of 15 and represents 27 percent of the entire world population. From 2000 to 2010, the African mobile phone market grew at a rate of 44 percent per year, bringing the number of subscriptions to around 700 million, more than in both the European Union and the United States combined. For African creative and mobile industries, which are emerging at the forefront of this digital revolution, infrastructure and technological systems are critical to the sector’s continued growth. The African Continental Free Trade Area connects 1.3 billion people across fifty-five countries with a combined GDP of over $3 trillion. Digital infrastructure is a vital economic opportunity and a crucial security issue for African nations and their partners.

The African vision is increasingly shaped by the digital tools and platforms African consumers use and the new opportunities that have emerged in a growing start-up ecosystem. According to the UN, the digital economy is set to expand in Africa by 57 percent between 2020 and 2025. With projections by the Alliance for Affordable Internet forecasting that the continent’s digital economy will grow six times over by 2050 to $712 billion and the fact that African startups raised more than $4 billion in venture capital in 2021, it is clear that this sector is booming. Undoubtedly the future is digital, and Africa must be able to access this future affordably if it is to share in the benefits of this global revolution.

The Atlantic Council is the only DC global think tank to have placed African creative industries at the center of its security and prosperity work. The Africa Center’s focus on the creative industries was launched by the Africa Creative Industries Summit of Washington in October 2021 at the Smithsonian National Museum of African Art and was opened by a message from Vice President Kamala Harris. The program is now fully supported by strong sponsors and partners, from ADS Group and Afreximbank to OSF and OCP, allowing the Atlantic Council to continue its leadership in the field by hosting events such as the Sports Business Forum, held in Dakar, and the financial engineering task force for African creative industries. This work was crowned by the Africa Center’s partnership with the US Department of State and its participation in the organization of the African and Young Leaders Diaspora Forum on the first official day of the US-Africa Leaders Summit of December 2022 at the African American Museum of History and Culture in Washington.

Report author

Fellow

Aubrey Hruby

Nonresident Senior Fellow

Africa Center

Economy & Business Future of Work

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

Learn more

Related content

AfricaSource Jun 16, 2022

Better data is the key to unlocking major investment in Africa

By Tom Koch

As COVID-19 and the war in Ukraine continue to hurt the African continent, many countries will require significant investment to revitalize their economies. But a persistent attribute of many African markets will continue to be a barrier to private investment: a relative lack of data. This drives up diligence costs, creates difficulties in valuing assets, […]

Africa Digital Policy

New Atlanticist Dec 5, 2022

Can the US and Africa usher in a new era for globalization?

By Katherine Walla

US Trade Representative Katherine Tai discussed the future of US-Africa trade with the African Continental Free Trade Area’s secretary-general, Wamkele Mene, at an exclusive Atlantic Council event.

Africa Trade

AfricaSource Jul 8, 2022

Europe’s Green Deal plan is Africa’s green finance opportunity

By Emilie Bel

Can natural gas and nuclear power be green? “Sometimes, and for a limited period of time,” said the European Parliament on July 6, as part of an ongoing negotiation over the EU taxonomy, a key component of the European Green Deal (EGD). The EGD is the European Union’s ambitious plan to create the first emissions-neutral […]

Africa Climate Change & Climate Action

The post Critical connectivity: Reducing the price of data in African markets appeared first on Atlantic Council.

The international community must apply pressure so that China and private-sector lenders join in facilitating a collective haircut that includes all lenders.

As this year’s G20 chair, India clearly wants to position itself as the voice of the Global South, and resolving developing-country debt distress will serve as validation of its approach. The International Monetary Fund (IMF) estimates that 60 percent of low-income countries are in, or at high risk of, debt distress—double the 2015 level. However, the international community has struggled to offer a cohesive solution to resolve the most urgent cases, as the damage from COVID-19 continues to deepen, global growth remains slow, and high inflation continues.

The debt issue will be front and center when G20 finance ministers meet in India this week, with the Indian chair clearly prepared to turn up the heat on recalcitrant creditors. But representatives of the bondholders and some bankers who are major lenders to developing countries were expected to be absent from the discussions as the governments seek to resolve their differences. The meeting, however, can be a hopeful, fresh start.

India’s tongue-lashing of China, coupled with pressure on Beijing from the United States, World Bank, and IMF, brings unprecedented pressure to bear on a single sovereign lender. It is the inevitable result of Beijing’s decision to move at a snail’s pace to resolve the debt crisis that is resulting from its extensive lending—more than eight hundred billion dollars to developing countries between 2000 and 2017. But Chinese flexibility alone will not be enough to resolve the crisis. Comprehensive debt solutions will only become possible when the arm-twisting turns to private-sector creditors (such as powerful asset managers BlackRock and Aberdeen Asset Management and Swiss commodities giant Glencore) whose lending represents a large proportion of several countries’ debt.

Baby steps  

To be sure, there have been small steps in that direction. Creditor committees have been established for some of the worst-off debtors—Zambia, Chad, and Ethiopia—with varied results. Committees for Ghana and Sri Lanka are likely to follow suit. But those talks have dragged, offering little hope to nations on the brink of default. The scale and depth of debt issues faced in particular by many African countries require a magnanimous, multilateral approach from all classes of creditors

By some estimates, China’s collection of official and quasi-official lenders accounts for around 13 percent of Africa’s stock of private- and public-sector external debt, much of it made at commercial rates. The private sector, by contrast, accounts for about 40 percent. Multilateral lenders such as the IMF and World Bank, which lend at zero or extremely low interest rates, account for an additional 32 percent. That has led Beijing to call for those institutions to take a haircut as well—a position that lacks support from the rest of the international community, including some borrowers. That’s because multilateral institutions need to retain their preferential status as creditors since they are often the only agencies willing to provide financial assistance during a crisis—when other lenders are unwilling to help. This impasse underlines that there can be no meaningful resolution to developing-country debt distress without the active participation of all lenders.

Of all the failures in global cooperation in recent years, the debt crisis stands out as a sad example of government lenders and private creditors working at cross purposes. At the outset of the pandemic, the G20 appeared to have found a response to the rising cases of debt distress by agreeing to a Common Framework for Debt Treatment (which governs the negotiations in Chad, Ethiopia, and Zambia). Multilateral agencies stepped in to provide emergency loans and some debt relief, and G20 lenders agreed to suspend interest payments until the end of 2021. These actions provided some breathing room for countries at the front line of debt distress and gave creditors the opportunity to organize and resolve the most urgent cases.

But debt resolution in the post-pandemic era has turned into a four-legged stool comprised of national governments, the Paris Club coalition of long-time government lenders and multilateral agencies, China, and private creditors—and if two legs break, the whole stool collapses. That appears to be the case in a world with shifting power dynamics as the Paris Club, led by the Organisation for Economic Co-operation and Development, has found itself out-flanked by more powerful creditors such as China and the private sector. To be sure, the latter two have sharply varying objectives when it comes to debt resolution, and there is no suggestion that they are colluding. While the private sector hopes to extract favorable terms by way of debt repayments or an outright haircut, China’s position is more ambivalent: Geopolitics plays a role, and Beijing prefers having leverage over countries in debt distress. The end result is an international community that cannot deliver.

A study in contrasts

This is starkly evident in the cases of Zambia and Sri Lanka. US Treasury Secretary Janet Yellen met with Chinese Vice Premier Liu He (who is expected to retire soon) in Zurich before she visited Lusaka, Zambia’s capital city, last month to, as she said, “press for all official bilateral and private-sector creditors to meaningfully participate in debt relief for Zambia, especially China.” IMF Managing Director Kristalina Georgieva followed with her own trip to Lusaka, urging a “swift resolution.” Yet there are few overt signs of Chinese flexibility on the six billion dollars it is owed by Zambia. Meanwhile, private holders of Zambian Eurobonds, who account for about 20 percent of Zambia’s external obligations, have largely sat on their hands while the governments try to work out their differences—a stance that hasn’t helped the restructuring process across Africa.

In the case of Sri Lanka, while some major official creditors (India and the Paris Club) have provided financing assurances that are critical to unlocking an IMF loan, China has merely agreed to a two-year moratorium on debt payments, with no indication of any future forbearance. Private-sector creditors—who represent about 40 percent of the country’s outstanding debt—have pursued a more constructive approach, with one group writing to the IMF earlier this month committing to “design and implement restructuring terms.”

Why is the private sector apparently being more cooperative with Sri Lanka than Zambia? In private conversations, bankers say that Sri Lanka has better credit credentials and should be judged as a middle-income country on its capacity and ability to repay in the future. The implied conclusion here is that low-income African countries in debt distress have neither the capacity nor the means to recover from the pandemic-induced shock. If these perceptions are widely held, it is a scathing indictment of the global financial architecture, which incentivized poor countries to reduce aid dependence and encouraged them to access international capital markets to finance their development needs.

What’s next in this never-ending saga of debt and distress? The G20 will try to work out some solutions this week. Two things need to happen to signal to the international community that this year’s G20 will not be business as usual.

First, the G20 has to decide if a new sovereign debt roundtable convened last week by the World Bank and the IMF, which includes China, is a more effective way of addressing debt restructuring cases compared with the Common Framework, which appears to be mired in bureaucratic reporting requirements that have little bite. The private sector’s enthusiasm to participate in the Sri Lanka debt negotiations offers a helpful model for addressing existing and future cases of debt distress, with a focus on a few large individual institutions driving the agenda rather than cumbersome industry associations.

Second, the G20 will have to delicately make a choice regarding China’s role. If the private sector and Paris Club creditors speak with one voice, Beijing may feel isolated enough to come to terms with aligning with the international community.

A new approach is needed, but the G20’s track record of stalemate on difficult issues over the past decade hardly offers confidence. In the absence of a breakthrough, it will be up to the individual governments, led by India, to maintain public pressure. That would likely prove less effective, but Beijing has already shown it will respond to pressure on some debt-related issues—for example, when it agreed to the Common Framework.

The international community needs to build momentum in 2023 for a comprehensive debt resolution. After initially facing the risk of a lost decade of development due to the pandemic, many low-income countries in Africa now face the prospect of several lost decades. To prevent this, the private sector and China need to be shamed into joining forces with the rest of the G20 and do what India has wisely suggested—get a haircut.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of Has Asia Lost It? Dynamic Past, Turbulent Future. Follow him on Twitter: @vshastry.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

The post China and private lenders are blocking a solution to the global debt crisis. The G20 must step in. appeared first on Atlantic Council.

A joint report by the Atlantic Council’s Adrienne Arsht Latin America Center, the University of Texas at El Paso’s Hunt Institute for Global Competitiveness, and El Colegio de la Frontera Norte.

Executive summary

The announcements and commitments made at the North American Leaders Summit in January 2023 reiterated the importance of North American competitiveness, inclusive growth and prosperity, and the fight against drugs and arms trafficking.¹ To achieve the goals and deliverables established during the summit, it is critical that the US-Mexico border be managed and perceived as an essential contributor to national, binational, and regional security and economic development.

A more efficient US-Mexico border has the potential to reduce border crossing times for commercial and noncommercial vehicles, generating positive externalities for the United States and Mexico including enhanced security and economic growth.² This report – the second in a two-part series – outlines the economic impact of reduced wait times at the border, focusing on the costs and benefits for border states in both countries.³

This report shows that a mere 10-minute reduction in wait times – without any additional action – can create thousands of Mexican jobs, grow the gross domestic product (GDP) of several Mexican states, and generate hundreds of thousands of dollars in new spending in the United States. Ten minutes is then hopefully the starting point for even shorter wait times and even greater economic gains and job creation.

More precisely, increasing border efficiency by 10 minutes can result in more than 3,000 additional jobs across Mexico’s six border states while increasing their combined GDP by 1.34 percent.⁴ Additionally, this reduction would allow for an additional $25.9 million worth of goods to enter the United States every month and lead to $547,000 in extra spending across the United States’ four border states.⁵ A forthcoming standalone short report will evaluate the final destination of traded goods and the economic benefits for states beyond the border.

In terms of Mexico’s border states, Tamaulipas would see the greatest growth in GDP (1.9 percent), followed by Baja California (1.6 percent) and Chihuahua (1.5 percent). Overall, this would generate a $2.2 billion increase in GDP and a $167 million increase in intermediate demand and a $3.2 million increase in labor income across Mexico’s six border states.

A 10-minute reduction in wait times would also lead to an average of 388 new loaded containers entering the United States from Mexico monthly. This translates to $25.9 million worth of cargo crossing through the United States’ four border states (Arizona, California, New Mexico, and Texas), a figure identified in the part-one of this study.⁶ New research shows that approximately 222 (57.2 percent) of these containers would enter via Texas ports of entry, carrying $17 million in cargo every month.

Separately, the 10-minute reduction in wait times would lead to 5,020 additional noncommercial monthly crossings, resulting in $547,000 in extra monthly spending by families and individuals traveling from Mexico to the four US-border states every month. The model estimates that these individuals would spend an additional $256,000 in California alone, representing nearly 50 percent of the total increase in spending. The clothing retail industry would experience the greatest gains across the board, with $132,000 in additional annual revenue from streamlined noncommercial crossings.

Results were informed by engaging local and regional stakeholders in roundtables, focus groups, and one-on-one interviews to identify areas for practical improvement in border management. These include investing in technologies, infrastructure, management, staffing, and supply chains. For instance, deploying high-tech screening technologies further away from ports of entry would facilitate a greater and faster flow of cargo and passenger information. Similarly, a collaboration between the United States and Mexico to develop joint, decentralized tools for border management and processing could ensure a more efficient flow of legitimate cross-border traffic while detecting illegal activity. Improvements in infrastructure and an increase in personnel staffing ports of entry would prevent bottlenecks and decongest queues that regularly spill over onto interstate highways and local roads.

While this report outlines the potential economic impact of a more efficient US-Mexico border for the border region, it also identifies new spaces for growth and new questions to be asked, studied, and addressed. For example, a lack of data in non-border Mexican states makes it difficult to estimate what the impact of enhanced efficiency in non-border inspection points would be for overall binational commerce and within each individual state. Similarly, limited US data exists to determine the final beneficiaries of new economic activity. New, reliable data is essential to understand the greater implications of streamlined border processes and tools in the United States and Mexico.

Made possible by

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

Issue Brief Dec 15, 2022

Road to the tenth North American Leaders’ Summit: Spotlight on competitiveness and supply chains

By María Fernanda Bozmoski, Jacob Kaufhold, and Isabel Chiriboga

North American competitiveness and supply chains are at an inflection point. The three leaders must take the momentum of the last meeting and continue to advance key priorities. In an increasingly complicated global context, close collaboration and partnership on all fronts is key.

Report Sep 27, 2022

The economic impact of a more efficient US-Mexico border: How reducing wait times at land ports of entry would promote commerce, resilience, and job creation

By Alejandro Brugués Rodríguez, John Byrd, Noé Arón Fuentes Flores, David Gaytan, John Gibson, Camila Hernández, Mayra Maldonado, Jason Marczak, Jorge Eduardo Mendoza Cota, Roberto Ransom, and Ignacia Ulloa

Improvements in border management and the adoption of new technologies at the US-Mexico border have the potential to enhance border security and generate economic benefits for the United States and Mexico through expedited flows of goods and people.

Economy & Business Latin America

The post The transformative power of reduced wait times at the US-Mexico border: Economic benefits for border states appeared first on Atlantic Council.

This was the fourth in a series of four events for the first cohort of the WIn (Women Innovators) Fellowship[SA1]  launched in Saudi Arabia led by the Atlantic Council’s empowerME Initiative in cooperation with Georgetown University’s McDonough School of Business with support from US Embassy Riyadh, PepsiCo, and UPS. The American Chamber of Commerce Saudi Arabia’s Women in Business Committee is the program’s in-person event partner. The yearlong program, which is taking place from March 2022 – March 2023, enables more than thirty Saudi women entrepreneurs to enhance their networks, gain practical knowledge, and develop US-Saudi people-to-people and business ties that will help them scale their business locally, regionally, and globally.

The key points from the discussion are summarized below.

Learning how to accept failure as part of the learning process:

• Dalal Almutlaq reflected on the times she has failed and how to move forward from them, saying: “if you just reflect and learn from those mistakes, that’s how you grow. That pain you get from failure is what helps you become more resilient, it teaches you to surpass difficult times. It’s always difficult times that teach us and helps us how to grow. I don’t like the word failure…it’s just lessons learned.”
• Helen Al Uzaizi talked about learning to accept that failure will be a constant: “I think the minute we recognize that life happens and things happen that are beyond our control, absolutely [we need] accountability, but [we need to] recognize that life happens. Sometimes it might just be that life happened, not necessarily a failure…once you’ve failed as many times as I have, and many of us have, you start to realize that it’s all just part of life and the process.”

How to find the balance between taking bold risks and being reckless:

• Hela Cheikhrouhou explained how to mitigate risk: “You don’t take reckless risk as such, but you have to be willing to lose for the greater impact that you’re hoping to achieve and of course, it has to be relatively well structured to increase the chance of success, because with success comes impact. However, if it is a failure like others today have said in an inspiring manner; we learn from those lessons.”
• Thereshini Peter talked about how sharing the responsibility of risk-taking makes it less intimidating: “The biggest part – depending on how big or small the risk is – the environment is different in how you tackle that. If there is a large risk and high reward, the level of assessment goes very deep. I think the big part in a larger organization is that the shared responsibility meets certain areas. But also, there is deep accountability to make sure that we grow and learn from that.”
• Al Uzaizi spoke on the importance of risk when pursuing an entrepreneurial path: “One of the key entrepreneurial mindset characteristics is risk-taking. And I think without being a risk-taker you really cannot be an entrepreneur. You can be someone that has a side hustle, and that’s a wonderful thing. But really entrepreneurship is about risk-taking.”

The kind of culture that incentivizes teams to be more creative and risk-taking:

• Almutlaq described her passion for creating a work culture that promotes risk:“You can make a mistake as long as you’re held accountable for it, if you know how to come ask for help if you need help. That safe environment for the team is what is core for pushing creativity because you need that safety net for creativity.”
• Kelly Blackaby noted that mangers should focus on inspiring their team through several key points: “I think in terms of focusing on that team, it really is about the freedom to be creative…your flexibility [offering hybrid or remote schedules]…and your reward policy; making sure that people are really motivated to keep trying.”

Steps that can encourage women to take risks while having an entrepreneurial mindset:

• Blackaby stressed the importance that mentors can have on your career: “I think a lot of women do suffer from imposter syndrome and sometimes it’s really hard to believe in yourself, but I think if you can access that encouragement either from peers, managers, or from outside organizations, [they] can really support you to believe that you can do this.”
• Cheikhrouhou stated that a key way to encourage more women to have an entrepreneurial spirit is to accept failure as an option: “I come from a conservative family; you’re supposed to be perfect…mistakes are not well tolerated, and that’s the opposite of entrepreneurial behavior…yes you do your best but sometimes [the timing and market] are wrong”.

The most important advice to give to an aspiring entrepreneur:

• Almutlaq spoke about how not taking the first step of starting is a failure in itself: “We were taught that an ‘F’ is wrong and ‘you cannot fail in university or at your job’…you’ll never know if you’re failing or not unless you take that first step.”
• Al Uzaizi talked about the importance of teaching youth to reframe their mindsets about traditional work culture: “We don’t teach [children] failure, and we don’t teach them how to fail because you cannot. But what we do is reflect: what worked, what didn’t and what risk did you take? When you do that, you’re automatically reflecting and building that resilience to failure and risk.”

How attitudes towards entrepreneurs have shifted in recent years:

• Al Uzaizi reflects on how differently society views entrepreneurship since she started her company in 2016: “Last week I got an email from the Ministry of Education in the UAE about entrepreneurship innovation and that went out to all schools and we concluded a program with the Ministry of Economy, which was entrepreneurship. This was never the case a few years ago. This is a testament to how much people believe in the development of these skills because it is the future.”

The importance of anti-fragility in the workplace:

• Blackaby spoke about the importance of adapting the mindset of anti-fragility: “The concept of anti-fragility is to think about how you grow and flex with stress…it’s a concern because organizations that cannot adapt to that are going to swept by organizations that can…having flexible policies and procedures in place that help you to adapt.”

How large organizations can promote effective risk taking and learning from their mistakes:

• Peter speaks from her personal experience working at multiple large organizations: “It is extremely important [for large companies] to be able to covet and to allow themselves to actually change and take risk…the difference with large corporations and the change that they are doing, is that they do see that they need to stop being so bureaucratic and start being more flexible.”

Amira Attia is a Program Assistant with the Atlantic Council’s empowerME Initiative at the Rafik Hariri Center for the Middle East.

The post Redefining the meaning of ‘failure’ in policies and culture to promote business risk appeared first on Atlantic Council.

How grave is Britain’s stagnation?

As Britain faces a historical rupture from its historical trend with flatlining productivity growth, Ben Judah spoke with Professor Adam Tooze, Director of the European Institute and Kathryn and Shelby Cullom Davis Professor of History at Columbia University on how this crisis looks from a historical perspective.

Why does the economic data suggest this is more serious than previous moments of feared decline? How does this stagnation compare to previous instances in the 1930s and 1970s? What impact has Brexit had on this trend? Would a Labour government under Keir Starmer be able to turn this around?

You can watch #BritainDebrief on YouTube and as a podcast on Apple Podcasts and Spotify.

Fellow

Ben Judah

Director

Europe Center Transform Europe Initiative

Economy & Business European Union

Europe Center

Providing expertise and building communities to promote transatlantic leadership and a strong Europe in turbulent times.

The Europe Center promotes the transatlantic leadership and strategies required to ensure a strong Europe.

Explore the program

The post #BritainDebrief – How grave is Britain’s stagnation? | A debrief from Dr. Adam Tooze appeared first on Atlantic Council.

Online Event Thu, February 2, 2023 • 9:30 am ET

Freedom and Prosperity Research Conference

Scholars and policymakers from around the world present their research and analysis on the relationship between freedom and prosperity.

Africa Corruption Democratic Transitions Eastern Europe

Event transcript

Uncorrected transcript: Check against delivery

Speaker

Michael Fisch
CEO, American Securities; Chairman of the Advisory Council, Freedom and Prosperity Center, Atlantic Council

Moderator

Frederick Kempe
President and CEO, Atlantic Council

FREDERICK KEMPE: So Michael, before I get into conversation with you, which I’m really looking forward to, how typical is that of Dan to give the credit to others when he has just done the most remarkable thing we could possibly imagine, executing on your vision, which we’re going to talk about, calling me the founder, which is a little laughable, because we know you are the founder and you are the founding senior director. And I’m really delighted to be along for the ride and [be given] the credit.

I want to say a couple of things about Dan before you and I get in the conversation because I think you need to know who this person is. We have an intellectual-entrepreneurship model. Inside of him, he has—the intellect and the entrepreneur—he has public-private partnership built into his own body: a defector from communist Romania; finance ministry official who negotiated with the [International Monetary Fund] and World Bank; and then, in the United States, three decades on Wall Street—I think he raised fifteen billion dollars over that period of time, a little bit more than I’ve raised in my career; and then senior official at the State Department, special rep for commercial and business affairs, other jobs. But what really sets him apart is, wherever he goes, he makes a difference.

So Dan, thank you so much for everything you’ve done here.

And now, Michael, let’s get into a conversation. None of us are here, none of you would be listening to us online from fifty-six countries around the world if it weren’t for Michael Fisch and his vision. So I think a really great way to kick off this day would be to have you tell us where it came from. What are the origins of this vision? What motivates you to back this—it used to be a dream. Now it’s a reality.

MICHAEL FISCH: Well, thank you, Fred. And thank you for having me. And you stole some of my words for Dan, which, you know, I’ve known the man for almost thirty years. And he’s going to come back full circle at the end of my remarks. But I’m very, very grateful to Dan, as I am to you and the Atlantic Council, and grateful to be here and so proud of the work that’s being done.

So the origin story here is in 1980, I’m sitting in an early economics class in college, and it’s macroeconomics. And, of course, when you have macroeconomics, lots of numbers in it. Numbers are changing a lot. That makes good graphs and lots of data because, you know, early students aren’t so good at small changes.

And so we were studying a lot of time in South America. And it was amazing to me, you know, Argentina after the coup in 1962 and 1966, you know, Brazil after their coup in 1964, and other countries that did, and the longitudinal and latitudinal data. Every time a country went away from free markets and free elections, it typically trashed the economy. And of course, that hurts the poor and the marginalized. And this idea just stayed with me, and I periodically came back to it and didn’t really know what to do with it.

And then in addition to my work stuff, I became very involved with Human Rights Watch and sat on their board for many, many years, and about a decade ago Chris Stone, who was then running the Open Society Foundation, was answering a question that we’ll get to maybe which are what are the problems of the world and whatnot, and he was up there in a podium as we were on some board retreat and it just—this what I call a Venn diagram came back to me that the best outcomes were, as Dan and you eluded, countries that had free and fair elections—we now call it free and fair markets and respect for law, property rights, human rights—and that that intersection would be the best outcome for the poor and the marginalized, and I had to do something about that.

And so like most impressionable novices in the field, I went back to my alma mater and tried to get them to do something, and so I financed some things, and they hired some fabulous professors who have just done great research. But it just wasn’t the research I wanted to do here.

And then I went to the two top business schools in the country where I have some relationships, and they both loved it and started down the path with one of them and they loved it because they said this is kind of right and no one’s written about it. Like, the research isn’t out there but the idea is statistically, seemingly, valid.

But then things got in the way. A professor that I was close to got diverted. And then two years ago, kind of right now, a man showed up in my living room who I’d known for a bunch of years, for almost thirty years, who was leaving government and that was Dan.

And after we caught up and we talked about this, that, the other thing, our lives, his lovely wife and so on, my kids, he said, so what are you interested in? And so I said, well, you know, this idea is one I’ve had for so long and I really want it to go somewhere and I’m really stuck. And Dan said, hmm, that’s kind of interesting, in a very Dan kind of way. With a smile and with his energy he said, you know, maybe we can do something on this.

And so, really, Dan took this idea and started meeting with a bunch of potential partners because we were always a partnership model. And he met [Matthew Kroenig] and other people here, and then ultimately you. And Dan’s enormous energy, his vision, all of the partners that have joined him—your support, Fred, is critical. That’s it. It’s all Dan. It’s all you.

FREDERICK KEMPE: So one follow-up on that. In this vision, there are indexes. [There are] papers. [There are] partners around the world that Dan introduced. How do you measure success and how should we be measuring success with this center?

MICHAEL FISCH: You know, honestly, Dan and the team and you will know that better than me. But for my thinking, the first thing was to prove what I call the null hypothesis. Do the real research to, hopefully, prove that the best outcome for all people, but especially the poor and the marginalized, is economies, countries that are operating at the center of free and fair elections, free and fair trade, and human rights, property rights, that whole legal framework that makes it all hang together. Because rhetoric back and forth is just rhetoric and fighting facts is hard.

So, first, developing the facts. I think with the publishing of the indexes, you know, in May/June last year, I think that’s pretty much proven—you know, a better than 0.8 correlation [between prosperity and] freedom.

But then the second thing is impact. So this is the other thing that came to me over the years. The biggest problem is when a formerly free country loses an election and chooses some other form of government [that doesn’t have] free and fair elections, free and fair trade, and not losing that election especially to rhetoric, and so having an impact in individual countries so they continue to choose the best outcome economically or a different path with the honest facts, not rhetoric of a charismatic politician. And so getting that information out there, which is why [the Acton institute and Atlas Network] and other partners are so critical is, I think, the other way to determine success.

FREDERICK KEMPE: That makes a lot of sense. You know, from our standpoint—and this gets to what Dan was talking about our mission of shaping the global future together. There are three elements for that; the first is shaping, and a lot of organizations like to admire problems, they like to write papers, have events, but we want to shape. We want to move the needle. And so I think this center endeavors to do that. The “together” point, which Dan touched on as well—in our view, the Atlantic Council should never be America alone, from behind or first; it should always be America with partners and allies, just like it’s the center with partners and allies. But the middle part is the part that probably animates the Atlantic Council as much as anything, and that is the global future, which we think is up for grabs.

And so across our sixteen programs and centers, we understand—some of the function of some of them, regional and collaborative, as much collaborative as we can—we understand that this is an inflection point in history as important as the end of World War I, important as World War II, as important as the end of the Cold War. And you have three potential outcomes in the global system. One of them is we take the system that’s created after World War II and reinvigorate it; we reinvent it; we bring in new actors; we take on new issues. The second is it could be [a] much more illiberal system, a little bit more moving away from rule of law, moving away from [an] assurance of rights. And the third is [the] law of the jungle, chaos, the sort of thing we’re seeing with Putin’s war in Ukraine.

And so, you know, just thank you time and time again, Michael, because I think this fits and represents so much that we do at the Atlantic Council and it fits in our worldview and where we see a contest of ideas; we see a contest for who’s going to shape the global system going forward. But you know, when you’re not dealing with the Atlantic Council, when you’re not dealing with other sort of noble causes that you support, you’re in the real world looking at the real economy, the real challenges of the real world, and I’d just love to—you know, leading one of the top investments firm in the United States, I’d love to hear from you how you look at this period of time, particularly economically and particularly 2023. What do you see as the defining issues for the US, for the global economy?

And so in a way drawing ourselves a little bit away from the work of the Center at the moment and getting a little bit more into how you’re understanding the real world of where—I’ve just come back from Davos. Last year we had geopolitical shock, macroeconomic shock, and energy shock all at the same time, and I felt there that there was some uncertainty going into 2023, so I’d just love to hear how you’re thinking about this year and in general.

MICHAEL FISCH: Well, that’s a big topic. I could make jokes that I didn’t know Davos was the real world.

FREDERICK KEMPE: It’s not.

MICHAEL FISCH: You know, I think at the highest level, if I separate it, which is not quite your question, but I think our biggest threats are common threats: air, temperature, disease. And we’ve seen that with COVID-19, and there are people in Africa [for whom] global warming means the crops don’t grow anymore; they are starving. Air is a common good. We can’t have one country polluting massively and not think it affects everyone else. So how we as a society maintain our biosphere in the broadest sense is, I think, the biggest threat we all have. And then if you come down a level to threats that are not that global and—I think we’re seeing, and you mentioned it, Fred, problematic actors represent a real threat to the global economy and to, you know, the poor and the marginalized in different countries.

I mean, I grieve regularly for people in various towns in Ukraine who are bombed out of existence for doing nothing. It just breaks my heart. I worry about the tension between China and Taiwan that has the potential to spin out of control. By the way, going back to Ukraine, you have the threat of nuclear weapons, another bad thing. And even, you know, Iran would be the third kind of problematic actor. So I worry about, as you were saying, the jungle mentality that could creep in without more safeguards, more global alliances, more fundamental respect for the rights of others. So those are kind of the big things that I worry about.

Now, if you get to the small-minded things like how are people, you know, that are lucky enough to have a job and wear a tie going to do good things for their constituents? Interest rates, commodity prices, and global trade, you know, are the big things in 2023. But I like to say these are all macroeconomic notions. And I love—many of my friends are economists. I love them. But economists are usually wrong, and especially at inflection points when we need them to be right. So, you know, you can’t really plan on that. You just kind of worry about it and watch it and try to navigate in the environment that you’re given. But we don’t try to predict that, because we’ll be wrong, because we’re not better than economists.

FREDERICK KEMPE: Yeah, the dismal science. Since you’re not an economist, I am going to ask you to predict 2023. You’re right. Davos isn’t the real world. But there are a lot of people there who are managing risk. There are a lot of people there who are looking out at the world.

I’ve seldom seen a situation where you’ve just come out of this really shocking year—worst war since World War II, really future of the global system and Europe at stake, I think, over Ukraine’s victory. There’s so much more at stake in this than Ukraine itself.

But looking at 2023, there was this strange ambiguity between optimism and pessimism, some people feeling, well, worst-case scenarios were avoided last year. Ukraine hasn’t fallen to Putin. Inflation didn’t get totally out of hand and seems to be coming back [down]. The world economy didn’t totally tank. And so there was this worst-case scenarios were averted.

But there was also, looking at 2023, not really knowing which way this is going to bend, optimistic or pessimistic. And this is the world in which you operate. And I’m just wondering how you’re—are you looking at this year as an optimist, a pessimist, something in between?

MICHAEL FISCH: Well, we like to say proudly, Fred, we’ve predicted seven of the last three recessions. So you always think it’s going to be worse.

FREDERICK KEMPE: Yeah.

MICHAEL FISCH: You’re taking action. You’re prepared for problems. And you’re thrilled when they don’t occur.

You know, just looking back—and, you know, hindsight’s always 20/20—when we as a country dumped $4.5 trillion into the economy during COVID-19 in terms of support for state and local governments, support for companies in terms of payroll protection, and support for individuals in terms of income security, we didn’t know, but we were telling our portfolio companies, the CEOs that run them, that they should be planning for inflation, because you can’t dump $4.5 trillion into an economy and not have inflation, like it just has to follow.

And so whether—on the old definition, we would already have been in a recession. And on the new definition, they haven’t called it, and we may be coming out of it and [avoiding] it. But economically, certainly the men and women running businesses in this country—all of our portfolio companies are US-headquartered—they’re acting like we’re in a recession or going into a recession. And if I look across the budgets of roughly thirty businesses we’re invested in, on average—which is, you know, a great exaggeration—there’s a wide range—managements are expecting, you know, 5 percent revenue increase, 10 percent profit increase.

I think that would be awesome if they can achieve that this year. I think there are threats to that. There are demand issues. You know, again, lower-income consumers in this country are under tremendous pressure. If you look at Walmart’s releases, massive shift from consumer products—generally branded consumer products, which tend to be higher—you know, brand-name ketchup, brand-name mustard—to store brands.

And that’s a sign that while people are spending, it’s on energy, gasoline, and housing. And they’re being squeezed on discretionary—if you want to call [it] discretionary—but how you spend those food dollars. So that’s a sign of problems in the economy in the real world in the lower socioeconomic levels. And so I hope—I hope we avoid a recession. That’ll mean less suffering. Or, we’re coming out of a recession that people haven’t really felt in large measure in a terrible way. But I worry about that.

FREDERICK KEMPE: Let’s link that to your work, to Dan’s work in the Atlantic Council, this optimism/pessimism question. If you look at Freedom House measurements, they would say, and do say, that we reached sort of peak democratic freedoms spreading around the world in 1993, and we’ve been in sort of a recession since 2006. But yet, here our indexes and numbers show that you need democracy, freedom, and that’s linked to prosperity. It’s not—it’s a more sustainable path from what our research is showing. A more sustainable path and a readier path. And you were talking about some of the issues with the marginalized and the poor in your last answer.

Is there a reversal in store? Could there be a new wave of democratic change? You know, the indicators would show this is a better way to go forward. The indexes would show this is a better way to go forward. How do you feel in terms of—and we can show the facts—but how do you see the trajectories?

MICHAEL FISCH: I worry about them like you do. It may give him too much credit, but some would say Putin is one of the most problematic figures of the latter half of the twentieth century, because he, on a broad scale, showed how you can hijack a… democracy. And a lot of other problematic countries have followed that. I won’t name them, but they’re kind of obvious out there. And once you’ve lost that, it’s easier to hold onto power and it’s hard to reverse that domino.

I mean, the tragedy that the Russian people are going to experience, and are experiencing, because of the global sanctions, you know, the cost of the Ukraine war, might cause, you know, some change in the government there. But it doesn’t reverse [easily]. And so not losing that first election is really good, and then waiting out a change.

Because I think you’re right, it’s very—it’s hard to be optimistic that more countries have become free in the last decade, and easy to become pessimistic. And reversing the train, if you lose that first election, is hard. And that’s why the work that Dan and the center [are] doing, and you’re supporting, is, I think, going to be fundamentally critical to so many people.

And I have to say one other thing. And it’s particularly the poor and the marginalized. I read some research report that, you know, COVID-19 really affected more people of lower socioeconomic status. And I was like, everything bad always affects people more of lower socioeconomic status. And it’s just so important for those people on the edge that they not fall out of a living wage, the ability to have a better wage, and a brighter future for themselves and their families.

FREDERICK KEMPE: That’s so interesting. And I think maybe that explains—I’ll end this little part with a question for you. But that may explain why in my recent travels you see, on the one hand, a growing consensus in the, quote/unquote, “West,” and US, and allies, and friends of Ukraine that the future of the global system is at stake, with Ukraine preserving its democracy, sovereignty, freedom, and Putin losing his criminal war in Ukraine. Yet, in the global south, that’s not as widely held. The Ukraine war seems very distant there.

So you’ve had forty—roughly forty countries join the sanctions against Putin. But you had 140 not. And particularly, you know, places like India, South Africa—where Putin just visited—Brazil, and elsewhere. And, you know, in—at the World Economic Forum, you had—I never thought I’d hear Henry Kissinger reversing his long years of opposition for Ukraine joining NATO. Not now, but when this is resolved.

Human-rights lawyer—Nobel Prize-winning human rights lawyer Olexandra Matviichuk: This is somebody you would think is all about peace. And she’s saying, the only way to deliver peace and human rights to Ukraine is more modern weaponry, fast. So long-range fires, armor, et cetera. And then we had Boris Johnson here yesterday with Rob Portman—former Senator Rob Portman, are arguing that it’s now a time for a surge.

Is that much at stake over Ukraine, in your view? And where is this split between the global south and the US and its partners on this? Because it’s quite pronounced.

MICHAEL FISCH: You ask great questions. They defy easy answers, Fred. You know, my—and I don’t—there are people, you and others, who have greater thoughts about this than I do. Certainly, I think, if one wants to be optimistic, it is amazing what Russia’s attack on Ukraine has caused. I mean, [Sweden’s] neutrality. The Swedes sending offensive weapons, not just twelve helmets. I mean, it’s amazing. So the recognition that we need a mechanism to contain problematic stronger global forces from wrongfully attacking weaker forces and uniting, you know, the free world, is really a cause for optimism. So I agree, that’s really important.

But I think, to the second part about a lot of the world doesn’t necessarily see it that way, I think, you know, we have to be taking note of that. And it’s yet another wake-up call that the research that the Freedom and Prosperity Center is doing, that’s the work. It’s not our opinion of it, it’s the actual research. Because we can’t be preaching from Washington or other Western global capitols. We have to be, if we’re at our best, providing tools for people to come to their own decisions and make their own determination, and saying it that way.

Because some of those actors are themselves, I’ll call them, thugocracies. So you don’t—you expect that they’re going to stay the course, and perhaps be more inclined to support other aggressive actors, as long as they’re not in their backyard. But there’s the persuadable middle and the rest that we don’t do a great job of capturing the hearts and minds because I think we preach too much and share information, [and] encourage support too little. And we have to be very, very sensitive to that.

FREDERICK KEMPE: I love that answer. I think that’s a good place for me to ask you one short final question, and then pass back to Dan. Because what you’re talking about is sometimes we do too much to preach. Sometimes it’s too much about rhetoric. And I think what we’re trying to do with this Freedom and Prosperity Center, and the Freedom and Prosperity Research Conference, is fact-based argument in controvertible facts, indexes that are based on facts. And if the facts, you know, are in contradiction, then have it out. Let’s talk about it. Let’s have a real open conversation about it. So what do you hope will come from this research conference today? And what do you—what are you going to be listening for most closely?

MICHAEL FISCH: Well, I love that [there are] so many smart people here and on the phone who have access to their own data, and their own hypotheses, and, you know, making their research academic quality, peer-reviewed, and correcting errors. You know, nothing’s perfect. And making it better and better so that it’s an appropriate tool. And we think it’s the best tool. And it has third-party verification. So that’s the first thing, back to the core mission: Have these indexes proved something which is a gift to the world, that is usable?

And the second is, have it be useable. So influence, not by rhetoric but by facts, the debate that countries want to have within themselves. Governments, nongovernmental organizations, civil society, educators, and ultimately the voting population in countries so that this is—they’re thinking about this when they go to the ballot box, which hopefully they get a chance to do in free societies.

FREDERICK KEMPE: Michael, thank you for your vision. I hope we’re going to make this an annual affair, and if so we’ll have this conversation again and see where we are twelve months from now. But thank you for your vision.

Watch the event

The post The top threats to the global economy and prosperity in 2023 appeared first on Atlantic Council.

Online Event Thu, February 2, 2023 • 9:30 am ET

Freedom and Prosperity Research Conference

Scholars and policymakers from around the world present their research and analysis on the relationship between freedom and prosperity.

Africa Corruption Democratic Transitions Eastern Europe

Event transcript

Uncorrected transcript: Check against delivery

Speakers

Damon Wilson
President and CEO, National Endowment for Democracy

DAMON WILSON: I have to tell you, it is a real honor not to just be at the first annual Freedom and Prosperity Research Conference; to be back here at the Atlantic Council. It feels like home. And I just want to acknowledge I’m so proud that the Atlantic Council picked up on the ideas that Michael had and had the initiative to take this out and build this initiative. So kudos to you, Dan, Matt Kroenig, [and] others who made this a reality; to Fred for helping to really make this work; and [to] Michael for bringing this vision here.

I’m also—I was a champion of this at the very beginning when I—when I heard these ideas, and I’m really proud that at the National Endowment for Democracy, that many of the ideas that you’re working on here underpin much of our philosophy. And that’s why I’m delighted that Andrew Wilson and his team [are] here with the Center for International Private Enterprise, one of the core institutes within the NED family, that is premised on the idea that healthy democracies require healthy economies, entrepreneurs, a vibrant market that can work with rule of law. And delighted to have my own board members who are here as well, Kelly and others, who are joining as part of this conversation. I just saw you, Ambassador Currie.

And while I was present at some of the early creation, Dan, I’m almost embarrassed to be offering remarks at the opening because I’m here more to be your cheerleader for the concept and, frankly, more eager to learn from the research that you’re undertaking, particularly those of you who are participating here in the room and online, because I’m an enthusiastic believer in the premise of unlocking the potential of people. It’s a pretty simple concept, and yet it’s powerful. Whether it’s being effective in how to manage a young team of intellectual entrepreneurs in an organization like the Atlantic Council; the next generation of political leaders that are going to drive reform; or entrepreneurs that are going to be at the heart of jobs, growth, and innovation; and together to think about how democracy, rule of law, and prosperity, markets, are key to an effective war on poverty, I think that’s really compelling.

Now, to many of us, that case seemed obvious. You look at some of the infographics the Center’s already produced and they sort of intuitively knew this. We could look at North and South Korea and now we understand the data—fifty-one times larger per capita [gross domestic product] North to South. We sort of understood that looking at West and East Germany in the 1990s, three-and-a-half times the size; looking at what was a free Hong Kong and Taiwan compared to China. And it felt in the 1990s and decades after is that maybe this was—this obvious thing would accelerate and become sort of a norm.

But it’s not so obvious. Since then, we’ve seen a real challenge: a 2008 financial crisis that maybe originated on Wall Street but led to global shocks and a recession; periods of slow growth; really a backlash even from Iraq, a misconception of thinking of Iraq as democracy promotion and then undermining that concept; the legacy of a North-South divide coming to a head. And you lay on top of this the rise of the PRC, the rise of China, and which started to scratch as a model of autocratic capitalism. Hmm, millions out of poverty; what does that have to say?

And we’re here at a time when President Biden has framed a big global debate between democracy versus autocracy, but in some respects, it’s a little bit more nuanced. It’s a little bit broader. It is a test in models, with average people coming to conclusions—democratic capitalism or autocratic capitalism—and they see the PRC at the head of this autocratic-capitalist camp.

And the truth is, it’s the allure of a more effective, perhaps easier path to prosperity, without a lot of noise of debate that comes in a democratic society, like India, the partnership that comes, as you see in the United States, or compromise that’s required in democracies around the world. At first, it was reinforced even by this pandemic; the perception that maybe autocrats are managing this pandemic better.

But I think the truth really is that it’s a more attractive option not for people. It’s a more attractive path for autocratic rulers to hold onto power and get rich. It’s not about their people. It’s about autocratic elites who want to get rich and hold on to that power.

And so the result isn’t really autocratic capitalism. Autocratic capitalism’s result is really kleptocracy in which it’s taking money from their people. And this has bred a whole international phenomenon that our board member, Anne Applebaum, has written about with “Autocracy Inc.,” in which deals, not ideals, are driving sort of vested interests in autocratic societies to do business together, back each other up, use free societies to their own advantage, and strengthen their own hand on a global terrain. It’s a profound new challenge that we find ourselves in. And I won’t unpack the case here, but we’ve seen it from Russia, Iran, and China at the center of it.

And it’s led some, like Anne, to argue that are the bad guys winning now. Authoritarian resurgence around the world, coupled with democratic erosions, fueled by this profoundly changed landscape, emerging complex challenges, these interconnected trends. It feels like there’s a systemic challenge from autocracies to displace democracies as the leading form of governance. And we see this sharper repression, turbocharged by technology, twisted by a new information environment, the sharing of techniques across borders among autocrats, and helping cement kleptocratic rulers in countries around the world that are not serving the poor, that are not serving their people’s interests. And so you overlay this now on inflation, a food crisis, slow growth.

So what does this mean? Despite all that, you look around the world and you see how the demand for democracy is resilient. Madeleine Albright, before she passed away, is someone who’s really important to the Atlantic Council, [National Democratic Institute], the NED family. She argued that democracy was not a dying cause, but it was poised for a comeback, in her last big article she published, “The Coming Democratic Revival.” But it’s pretty apparent that things don’t just happen. They just aren’t on this automatic cycle. Especially in our world, democracy, it’s not a self-executing proposition.

And I’m really taken by something that Fred wrote in December in his “Inflection Points” newsletter. And he pointed out that at the start of [2022], autocrats from Xi Jinping hosting the Olympics, managing the pandemic, Vladimir Putin, troops around Ukraine, showing up in Beijing for no-limits partnership, the Ayatollah Khamenei in Iran feeling no pressure, that they started off [2022] feeling confident.

And now we see, through their own mistakes, underlying weaknesses in systems, systems that are hard to self-correct, mistakes that have led people to push back, whether it’s Ukrainians, whether it’s the… Russians that are arrested each day protesting war activity, whether it’s incredible courage that it took from Chinese in the white-paper movement to stand up to COVID restrictions, or the inspiration we see from courageous people across Iran arguing for women, life, freedom.

And so the key of your work here is actually—we don’t take that case for granted—how do you build the case [that] democracy is the best pathway for people, for prosperity, for the poor? And Dan, you’re right. I think having understanding this case has to be argued and built from voices, from countries around the world, voices from those in the developing world.

And the goal of the work is to underscore that this isn’t implanting ideas from the ivory tower, but how to support the aspirations of people around the world themselves and their voices, for what’s best for their people. After all, it’s the model of how the Endowment thinks about democracy support. We don’t promote a model, an American model. It’s about how do you support those that are courageous enough to struggle for freedom, understanding it’s their cause, and it’s our honor to support them with humility. So hats off to building in a grants program to what you’re doing.

And to ground it in this research and data, I think it’s so important. We’ve seen already, in the work coming out of the center, free versus unfree countries show that thirteen times wealthier if you live in a free country. But I like how you’ve mapped it out to show that societies are also healthier, happier, more inclusive based on these indexes that you’re tagging. And to be able to demonstrate with data that political, economic, and legal freedoms are crucial to prosperity, I think, is key to demonstrating how democracy can deliver for all of its citizens.

In fact, democracy is the best way to deliver for its citizens and this is ultimately built into the concept of democratic capitalism. To be effective there’s got to be accountability, transparency, a feedback loop from citizens, from consumers, self-correcting mechanisms, a possibility of making mistakes but incentives to fix them and this relentless pressure to be responsive to citizens, the consumers, relentless pressure to reform.

And so I’m really pleased to be here. I’m more excited to hear about the work that’s coming out of this. I really welcome this initiative. Dan had written about how to strip the emotions and politics so that data can do the talking and I think that’s powerful.

But I just want to close with saying the real world involves emotions and it’s a good thing. So how does this work show that results can actually harness or, better yet, unlock, unleash the yearning of the human spirit—that emotion—how people want to control their own destiny, empower principled leaders, innovative entrepreneurs, to prove that democracy can deliver for its citizens. How we invest in our people is this pathway.

So I want to close with—I just came back from Nigeria, thanks to some advice from Peter Pham, who’s with us, and it shows that without sources of prosperity control of government means control of resources and that can undermine democracy delivering, and we see where potential is unleashed where there’s no control and a Nigerian artistic scene, a tech scene in Lagos, things can flourish. That’s why an End SARS movement is now riling the election.

I spent time last fall with North Korean defectors in South Korea seeing incredible young people who weathered incredible hardships in North Korea after just a few short years in freedom in the south becoming extraordinarily productive, creative entrepreneurs and social entrepreneurs.

This is how to show how this applies in the real world. I’m really pleased you’ve got a minister here from Tunisia—I’m headed to Tunisia at the end of the month—because freedom without prosperity leads to trouble. We’ll hear from you about that, populism backsliding.

But we need to recognize that that’s a long journey. That’s why I’m proud of the work you’re doing. I’m excited about the work that the Center for International Private Enterprise is investing in. Without a healthy set of private-sector entrepreneurs, you don’t have a healthy democratic sector and that’s why I think this work is so important to show that freedom delivers prosperity. It helps democracy deliver.

Watch the event

The post Damon Wilson on selling democracy worldwide: It’ll take ‘voices from those in the developing world’ appeared first on Atlantic Council.

The United States has historically been the Caribbean’s preferred ally, mainly due to proximity. The movement of goods, people, and services to, from, and within the Caribbean often involves the United States. But despite the historical strength of the relationship, there remains a simmering frustration among Caribbean leaders about the United States’ empty and unfulfilled promises and an absence of consistent attention from US officials, which have kept the US-Caribbean relationship from truly deepening. The Caribbean has always seen the potential benefits of its relationship with the United States, but the same cannot be said the other way around.

Last year did see the United States making critical investments in its partnership with the Caribbean. In June, on the sidelines of the Summit of the Americas, US Vice President Kamala Harris announced the US-Caribbean Partnership to Address the Climate Crisis 2030 (PACC 2030)—a new framework created to support climate and energy resilience in the Caribbean. The next day, US President Joe Biden met with Caribbean leaders, and the convening was praised by many across the region. And in a show of the region’s appetite to work with the United States, five Caribbean leaders met with Harris in September to discuss improving future cooperation; at the meeting, the United States announced new commitments to support the region’s energy, food, and financial security.

Last year the United States was in listening mode, and US statements and policies reflected as much. But 2023 promises to be the year in which the United States can finally satisfy some of the Caribbean’s needs and calm its frustrations. Today, there is confidence in the Caribbean that the United States understands the region’s challenges and priorities. Caribbean governments are looking for action, and it will be important that the United States delivers in what is expected to be a pivotal year for the relationship.

With the challenges the region faces, the Caribbean no longer has time to wait on the United States for action—and the United States can’t keep putting it off. Davis, speaking at the Atlantic Council on Tuesday, explained that if the United States fails to pay attention, “someone else will pay the attention.” For example, while China’s influence in the Caribbean has diminished, large projects and new concessional loans are beginning to pop up again, such as a $192 million concessional loan to Guyana to finance a road project and a new agreement with Suriname to expand city surveillance. At the same time, many Caribbean governments have broken from the zero-sum US-China competition narrative that pervades Washington and are building bridges with others including India, the African Union, and the United Arab Emirates.

Furthermore, any further delays mean that potential policy shifts may have a vanishingly short shelf life, as the 2024 presidential election approaches. US policy toward the Caribbean has seen more change than continuity, as each administration brings its own different approach.

What should the United States focus on in 2023?

The United States must understand that showing up is only half the battle. Calls from Caribbean leaders demanding that the United States pay more attention to the region after decades of neglect have translated into more US officials showing up at Caribbean-wide meetings and has resulted in more government and private-sector visits. This should continue but it should not be considered sufficient for the US-Caribbean relationship, which requires policy implementation. Continuing to show up with little to show for it will only create more frustration among Caribbean leaders in the medium to long term.

In 2023, the United States should focus on three key areas:

The United States should fulfill its PACC 2030 promises. PACC 2030 requires a full interagency effort, so the United States should ensure the Treasury, State Department, and vice president’s office are aligned on how to move forward with this massive undertaking. US officials should work with Congress on legislation that enshrines PACC 2030 for the long term. Lawmakers should also allocate funding to each of PACC 2030’s four pillars—development finance, clean-energy projects, local capacity-building, and deepening collaboration.

Second, the United States should let the Caribbean lead in areas for which it has in-house expertise and support the Caribbean’s positions in multilateral organizations. Most Caribbean countries are dependent on imports for energy and food, making the supply squeezes caused by Russia’s war in Ukraine particularly devastating for the region. While US help is needed, regional leaders are pushing forward on their own solutions. CARICOM’s plan to reduce the region’s food-import bill by 25 percent by 2025 is one such example. Here, the United States does not need a food-security policy for the region but instead should provide technical expertise and financing for Caribbean-led solutions.

US advocacy for Caribbean and small-state priorities in multilateral meetings that include other wealthy and powerful actors, such as the Group of Twenty (G20) and international financial institutions, can move the needle on solutions to these countries’ economic challenges. International support is needed in tackling the Caribbean’s struggles with debt relief, financial de-risking (the loss of correspondent banking relations with overseas banks), and poor access to concessional financing. For the United States, there are inherent benefits because slow Caribbean economic growth drives migration; plus, stronger economies can help preserve the strength of the region’s democracies.

Finally, the United States should address the region’s growing security concerns. Rightfully, climate, energy, and financial resilience have all featured prominently in the Biden administration’s Caribbean policies, but this has also meant that security challenges have lost prominence. Crime, violence, and gang activity have skyrocketed across the region over the past year. Trinidad and Tobago’s homicide rate in 2022 reached its highest level in more than a decade, and a rise in gang activity pushed Jamaica to institute a state of emergency. And per capita, Saint Lucia now ranks in the top 5 of highest homicide rates in the hemisphere.

This increase has been fueled in part by small-arms trafficking, with illicit small arms being imported into the Caribbean from the United States. Caribbean islands have limited security forces with numerous unmanned ports of entry, making the region a hotbed for small arms trafficking. Increased US-Caribbean security cooperation is needed. But first, US policies and projects—such as the Caribbean Basin Security Initiative (CBSI)—should be updated to reflect the region’s current security concerns. The CBSI barely touches on illicit small arms, for example; the United States should work this year with Congress and the Department of Defense to refocus its current security efforts.

After the progress of 2022, Caribbean leaders expect action instead of just more promises. The region knows that to survive climate change, rising food inflation, and its vulnerability to global economic shocks, it’ll need to leverage a US partnership that is backed by technical and financial resources. It adds up to a make-or-break year for US-Caribbean relations. As the United States begins to show attention to the Caribbean and regional leaders continue to welcome more US support, the timing has never been better to see real action. Without it, Caribbean nations could seek out more willing partners.

Wazim Mowla is the associate director of the Caribbean Initiative at the Adrienne Arsht Latin America Center.

The post <strong>This is a make-or-break year for US-Caribbean relations</strong> appeared first on Atlantic Council.

Public Event Tue, December 20, 2022 • 4:00 pm ET

A conversation with Foreign Minister of Pakistan Bilawal Bhutto Zardari

AN #ACFRONTPAGE EVENT – The South Asia Center hosted a conversation on the Pakistani government’s foreign policy goals, opportunities for deepening the Pakistan-US relationship, and Pakistan’s plan to address the climate crisis and resulting economic challenges.

Climate Change & Climate Action Economy & Business Pakistan Politics & Diplomacy

The role Pakistan plays in the international scene may depend on how the global community responds to its growing litany of challenges, as the South Asian nation grapples with heightened political and economic insecurity, as well as the aftermath of a historically devastating monsoon season.

“The way in which we engage with each of these issues, the solutions we find for them, and our ability to implement those solutions will decide the direction of Pakistan’s policy in the coming decade, two decades… and it will decide the direction of Pakistan’s foreign policy in the times to come,” said Foreign Minister Bilawal Bhutto Zardari on Tuesday at an Atlantic Council Front Page event in Washington.

Pakistan’s youngest ever foreign minister— the thirty-four-year-old whose mother was prime minister and father was president assumed the post in April under the new government of Prime Minister Shehbaz Sharif—spoke at length about the mounting challenges his nation is facing and his vision for rallying the international community to address them. Read on for more highlights from his remarks and conversation with Uzair Younus, director of the Pakistan Initiative at the Council’s South Asia Center.

Coping with climate disaster

• “We experienced this year what can only be described as a climate catastrophe of biblical proportions,” Bhutto Zardari said of the monsoons that raged over Pakistan from June until the end of September, affecting thirty-three million people, roughly one in seven Pakistanis. By the time the rains had stopped, one third of Pakistan’s land mass—an area roughly the size of Colorado—was underwater, with damages topping thirty billion dollars.
• Nations could see serious geopolitical consequences if Pakistan’s already teetering institutions worsen. “If we get this wrong, this is a crisis situation waiting to explode in our faces,” Bhutto Zardari said, even as he acknowledged that asking for humanitarian relief funds was a challenge given the fiscal constraints on economic powers because of COVID-19, inflation, and Russia’s war against Ukraine.
• However, Bhutto Zardari hoped nations would rally to help Pakistani citizens now and use it as a test case for building resilience against future climate disasters, wherever they should next arise. “Granted it will take time, but once we address their needs and we rebuild, we can do so in a manner that they are better off than they were before,” Bhutto Zardari said.

More than security

• In the past decade, Bhutto Zardari said that 90 percent of US-Pakistan conversations were focused around counterterrorism. Now the agenda has broadened to include everything from climate to agriculture to health care. “We have a far more comprehensive itinerary around which we are engaging,” he said.
• Still, particularly after the Taliban takeover of Afghanistan last year, security remains a critical discussion. Bhutto Zardari said he would try to work with the Taliban, particularly when it comes to striking back against the Tehreek-i-Taliban Pakistan terrorist organization. “We can’t change what happened in the past” in Afghanistan, Bhutto Zardari said. “What we can do is be serious about what we’re going to do going forward. Are we going to learn from our mistakes?” The answer, he added, will define “the safety and stability of our region.”
• Bhutto Zardari recently visited Singapore and Indonesia, the latter of which is the world’s largest Muslim nation yet doesn’t even have a direct flight to Pakistan. He imagines Pakistan could become a hub between Southeast Asian and Central Asian nations. “In order to get there, I need to get my house in order,” he said.
• “Of course, it’s far more appetizing, the less chaos we have,” Bhutto Zardari said, adding that there are “definitely” still questions about Pakistan’s political and economic stability. “But that doesn’t mean we’re not trying to address it. Questions? Yes. But does it mean shutting the door? No.” 

His investment pitch

• Pakistan hopes to expand and deepen its financial arrangements with a broader group of partners, particularly after it was removed in October from the “gray list” for terrorism financing operated by the global watchdog Financial Action Task Force—although this week’s hostage crisis hasn’t helped assuage Pakistan’s reputation for insecurity. “The main selling point we have is that we can become a logistical and trade hub… it’s the geographical location,” Bhutto Zardari said.
• The challenges facing Pakistan represent a major risk for businesses, but that risk also is a key part of Bhutto Zardari’s message to investors as he believes the country will be a story of opportunity within a decade or two. “My pitch to everyone is get in now, while you can—when everyone doesn’t see that opportunity—so you can maximize your benefit later.”
• Google has opened an office in Pakistan, and Meta has invested in fiber optic cable infrastructure. Bhutto Zardari noted that Facebook accepts rupees and could pursue a monetization model that rewards content creators in Pakistan. However, existing “data protection” policies—including Pakistan’s Prevention of Electronic Crimes Act of 2016—have kept tech companies from fully investing in the country, with Bhutto Zardari revealing that Pakistan leads the world in requests to remove content on Facebook. 

Nick Fouriezos is a writer with more than a decade of journalism experience around the globe.

Watch the full event

The post <strong>Pakistan’s foreign minister pitches more global aid and investment—and ‘less chaos’</strong> appeared first on Atlantic Council.

The United States needs to further engage with Ecuador on trade to show its support for the current Ecuadorian government, which has focused on promoting core US interests of democracy and prosperity locally and regionally. Latin America and the Caribbean have undergone a major political shift in the last couple of years, and the United States needs to find ways to remain relevant in the region—starting with Ecuador.

Although US-Ecuador ties have advanced on multiple fronts this year, a concrete positive outcome from the partnership remains to be seen. In the past couple months, Ecuador has hosted five US senators, two undersecretaries, Biden’s special presidential advisor for the Americas, and US Trade Representative Katherine Tai. All of the visits have sought to strengthen bilateral ties on shared challenges such as counter-narcotic regulations, the Venezuelan refugee crisis, transnational crime, and commercial ties.

The growing partnership also resulted in passage of the US-Ecuador Partnership Act, requiring the State Department to increase cooperation with Ecuador’s government on areas of shared interest; an open line of credit between the US Federal Reserve and Ecuador’s central bank; the first visit from a South American president to the White House in 2022; and the creation of the Fair Trade Working Group. These are all steps in the right direction, yet they won’t result in lasting impact unless Washington helps Lasso’s government deliver tangible economic results locally to treat the discontent that culminated in an eighteen-day protest and an attempt to strip Lasso of his presidency earlier this year.

Online Event Tue, December 20, 2022 • 11:00 am ET

A conversation with Ecuadorian President Guillermo Lasso

A conversation around the priorities of the Lasso administration, the growing US-Ecuador partnership, and the main challenges affecting Ecuador and the region.

Americas Economy & Business Latin America Rule of Law

One of Lasso’s main priorities when he took office was to sign a free trade agreement with the United States. However, protectionist sentiments in Washington continue to frustrate Lasso’s efforts to explore the full potential of bilateral economic ties, since ongoing commercial talks are limited in scope. For instance, the Fair Trade Working Group focuses mostly on expanding the Trade and Investment Council Agreement, signed in 1990 and renewed in 2020 during Lenin Moreno’s administration. The working group will host negotiations on labor, environment, and digital trade. But Ecuador’s main exports are commodities—petroleum, bananas, seafood, coffee—which are subject to globally determined market prices. Therefore, the working group’s economic impact will likely be marginal at best for either country.

The United States’ lack of impact opens the door for China. Last week, Lasso announced that Ecuador’s free trade agreement with China is “practically signed.” Earlier this year, China surpassed the United States as Ecuador’s main commercial partner on non-petroleum goods. According to Lasso, the immediate potential of the free trade agreement will mean an additional one billion dollars in exports to China. Ecuadorian consumers will have access to high-tech products, supplies, tools, vehicles, and machinery at better prices. Ecuador also renegotiated its debt with China, securing savings of almost $1.4 billion, which Lasso said will be invested in social programs.

The absence of more comprehensive negotiations between Quito and Washington prevents the United States from counterbalancing China’s growing influence over trade and investment frameworks across the region, as Ecuador is set to become the fourth country in Latin America to have a free trade agreement with China. The Fair Trade Working Group must kick off those comprehensive negotiations, not only bringing Ecuador cutting-edge US technology and environmental expertise, but also enhancing the US economic presence and influence in the region, which is on decline in comparison to that of China.

Not a lost cause

There are still important ways in which Ecuador can use the momentum of both its growing partnership with the United States and the Fair Trade Working Group to expand the scope of commercial relations. In particular, Lasso should use this foundation to expand the Protocol on Trade Rules and Transparency, an agreement signed in 2020. Ecuador hopes to use the protocol to secure more US investment and market access for its main exports including many of its star agricultural products. At the White House meeting, Lasso and Biden should focus on advancing the negotiations of the Fair Trade Working group in its core areas, starting with digital trade.

The pandemic helped boost digital trade in the form of e-commerce, which grew by approximately 20 percent in Ecuador, from $2.76 million in 2020 to $3.22 million in 2021. That’s led 53 percent of Ecuadorian companies to focus on the development of mobile applications and other digital platforms and tools, in many cases setting them up without substantial infrastructure and/or regulations, increasing the risk for cyberattacks and unethical consumer data usage. This is a potential area of collaboration between the United States and Ecuador, as the Fair Trade Working Group can support Ecuador’s expansion of digital infrastructure, e-commerce platforms, and cybersecurity through both knowledge sharing and the provision of US cutting-edge technology to reduce cyber risks. This also provides an advantage for the United States: Ecuador ranks sixth in Latin America in retail purchases made online, opening an important market for absent US e-commerce giants such as Amazon. Similarly, public services that rely on secure digital systems, such as health care, transportation, and social security, would also benefit greatly from these efforts. For instance, the commercial debut of Quito’s Metro in March of next year would be the ideal pilot project for a cybersecurity collaboration.

Additionally, Ecuador can benefit from both the Biden administration’s and the working group’s focus on sustainable development and environmental conservation. However, it may be a double-edged sword for Ecuador, as petroleum and precious metals make up approximately 32 percent of its exports. As Ecuador’s main consumer of petroleum, the United States should help Ecuador build environmentally responsible industries. Modernizing Ecuador’s traditional energy and mining industries in a cost-effective way is necessary for the wider success of the global energy transition, and it will help prepare these sectors for green investments. A good starting point would be the mining sector, which, despite being underdeveloped, has emerged as the country’s third-largest export engine. There’s a bonus: Ecuador can provide US electric vehicle producers—newly energized by the Inflation Reduction Act’s tax breaks—with raw materials such as copper sourced closer to home.

Finally, labor is perhaps the most important—and complicated—area of focus. About 61 percent of Ecuador’s workers are informal. And one of the main ways to bring informal businesses into the formal economy is through financial inclusion. This working group can leverage its focus on digital trade to support the expansion of Ecuador’s digital payment systems to increase access to credit. Currently, Ecuador’s banking sector has relatively strict credit-access regulations, so much so that credit portfolios at cooperatives have been increasing rapidly, despite the fact that those cooperatives have little to no regulatory oversight and are much riskier than banks. Expanding digital payment systems to informal businesses would allow banks to monitor credit payments, set spending controls, help businesses build a credit history and provide financial literacy programs. This could ease banks’ concerns around lending to “riskier” businesses. If the United States can help bring about this kind of broader financial inclusion, it would go a long way toward improving its standing across the region.

Time for results

The United States certainly realizes the regional influence it gains from a strong partnership with Ecuador, but it is time to translate that value into action. Although the immediate economic impact of the Fair Trade Working Group will likely be minimal, it shouldn’t be disregarded. Both the United States and Ecuador should leverage the platform to advance action-oriented plans in digital trade, the environment, and labor. Both governments need to move fast to start delivering results, or else risk rendering the Fair Trade Working Group insignificant in the shadow of Ecuador’s billion-dollar trade deal with China.

Isabel Chiriboga is a project assistant at the Atlantic Council’s Adrienne Arsht Latin America Center and is originally from Quito, Ecuador.

The post As China’s influence grows, Biden needs to supercharge trade with Ecuador appeared first on Atlantic Council.

The summit comes at a challenging time, characterized by deteriorating security conditions on the continent—reminiscent of the Cold War era—exacerbated by rising geopolitical tensions and the urgency to ramp up the energy transition and combat climate change. There is a risk that the subordination of growth and development objectives to security priorities, which has dominated US engagement with Africa, will persist in today’s highly geopolitically driven world.

The United States’ continuous prioritization of security over development (otherwise known as the securitization of development) in its engagement with Africa could be counterproductive: It could easily undermine the net-zero transition as well as opportunities for maximizing the benefits of the African Continental Free Trade Area (AfCFTA), which policymakers hope will alleviate the concentration of global supply chains for greater resilience.

Moving up the value chain

The securitization of development has been costly for both Africa and the United States and has led to the weakening of US-Africa relations. This is especially evident in the trade arena, where the United States has been losing ground at lightning speed. For decades, it was Africa’s largest trading partner, accounting for as much as 26.5 percent of total African trade in 1980 according to data from the African Export-Import Bank (Afreximbank). That figure has fallen into the single digits, to around 6 percent of total African trade, with US investment on the continent having declined sharply as well.

Perhaps the most consequential factor behind the collapse of US-Africa trade has been the stickiness of the colonial development model based on resource extraction, under which Africa is relegated to participating in global value chains (GVCs) along forward rather than backward activities, predominantly as a provider of primary commodities and raw materials. Initially this model grossly inflated US-African trade—both on the export and import side of the trade balance sheet—with the United States importing crude oil from Africa and exporting refined petroleum products back to the continent.

In the modern era of global value chains, in which intermediate goods have become the leading drivers of world trade, falling US investment in Africa has blunted the expansion of US-African trade. Moreover, the predominance of natural resources in that trade has always presented a major risk. For example, as the twenty-first-century US shale boom put the country on a path toward energy independence—with advances in fracking technology lowering production costs and raising oil output—US petroleum imports declined dramatically; between 2014 and 2020, the United States cut its oil imports from Africa by around 40 percent, according to Afreximbank.

While many African countries are oil producers, they rely on imports for refined petroleum products. Under that highly carbon-intensive “round-tripping” model, Nigeria, Africa’s largest oil-producing country, for decades exported crude oil to the United States and imported refined petroleum products back to power its economy, at a huge cost in terms of macroeconomic stability, jobs, and environmental degradation.

Besides increasing the carbon footprint of the heavily polluting shipping industry, the costs of the round-tripping model are significant and go beyond dwindling trade numbers. There is a human element: People are being sickened by intense greenhouse gas emissions and wounded—or, in the worst cases, killed—in conflicts fueled by climate change and competition for scarce resources. Africa is on the frontlines of the global climate crisis, despite being the continent contributing the lowest total greenhouse gas emissions. Round-tripping has also exported jobs off of the continent, which is already contending with Great Depression-level unemployment rates, exacerbating poverty and adding to conflict-fueled migration flows.

At the macro level, the conditions created by round-tripping have long undermined the continent’s pursuit of economic stability, with sustained foreign-exchange leakages increasing the frequency of balance-of-payment crises. Africa’s position as an importer of refined petroleum products plays an outsized role in these crises, a vulnerability that leaders across the continent are looking to address. In Nigeria, for example, a new Dangote Group refinery and petrochemical plant that will come on stream early next year could, according to estimates from the Central Bank of Nigeria, save the country up to 40 percent of its foreign exchange earnings.

Ultimately, the securitization of development in US-Africa engagement has delivered neither security nor development. And the predominance of natural resources has underscored the economic and political risk to both parties, with the sharp decline of US-African trade weakening its relevance for Africa’s development in an increasingly competitive geopolitical world.

Next steps for the US and Africa

There are key questions to consider during what could be a history-making summit in Washington: Can the trend be reversed to boost US-African trade and correct the balance between security and development? And why should such a course of action be undertaken?

On the first question, increased manufacturing in Africa can help the continent diversify its exports beyond primary commodities and natural resources and integrate effectively into the global economy. In addition to its strong theoretical foundation for economic development, manufacturing has other positive spillovers including opportunities for economies of scale and productivity growth, technology transfers, integration into GVCs, and capital accumulation. Recent estimates show that this drives 20 percent of US capital investment and 60 percent of US exports.

Across the developing world, manufacturing has offered a path for low-income countries to increase their shares of global trade. One example is Vietnam, which over the course of the past decade has become one of the United States’ ten largest trading partners, leaping ahead of powerful nations such as France and Italy, according to the Africa Export and Import Bank. Vietnam has achieved this by successfully improving its connections to GVCs, including those around technology. More than 40 percent of Samsung cellphones are manufactured in Vietnam, enabling the country to reap the benefits of the frontier technology industries that are propelling global growth.

Most African countries, which possess the raw materials necessary to manufacture these and similar technology products, could achieve the same performance—if it weren’t for the colonial development model of resource extraction. For instance, the Democratic Republic of Congo, which some call “the Saudi Arabia of cobalt,” could potentially enter electric vehicle GVCs not solely as a resource provider but as provider of lithium batteries and other crucial, manufactured components.

In addition to boosting US-African trade, such involvement across GVCs would mitigate the continent’s vulnerability to adverse commodity terms of trade and improve living standards, as has been the case in Vietnam, where poverty rates have fallen sharply. Simply put, since greater backward participation in GVCs leads to higher gross exports, domestic value added, and employment, manufacturing reduces poverty—and its poverty-reducing effects are even more pronounced in low-income countries.

Turning to the second question, the benefits of increasing manufacturing output and diversifying exports in terms of growth and welfare are textbook trade theory. But there are also two additional benefits with significant geopolitical implications: The diversification of global supply chains for greater resilience and the reduction of the global carbon footprint.

The AfCFTA, which entered into force last year and is expected to catalyze competitive value chains across the continent, provides a new framework for US-Africa engagement. Beyond diversifying Africa’s sources of growth and turning the page on the costly round-tripping model, the agreement has the potential to cut carbon emissions significantly by facilitating the net-zero transition and promoting the diversification of global supply chains. The latter is especially important for building greater resilience in today’s geopolitically tilted world, where trade is increasingly treated as another weapon in superpowers’ arsenals.

There are other reasons for the United States and the world to prioritize Africa in the decentralization of global supply chains. The continent’s young population positions it as a growing consumer market, and shrinking the distance between production and consumption would further alleviate the global carbon footprint during the net-zero transitional period. Simultaneously, economies of scale associated with the AfCFTA will further boost productivity and returns on investments, especially as corporations take advantage of regional integration to spread the risk of investing in smaller markets and, in the process, strengthen investment and trade and lift African exports.

Transcending the colonial development model of resource extraction could position a reforming Africa as the next great frontier market for global investors chasing high yields and resilient supply chains amid today’s rising geopolitical tensions. Earlier this year, US Treasury Secretary Janet Yellen promoted “friend-shoring” to shift supply chains away from countries that present geopolitical and security risks to supply chains. It is up to the United States to change its ways and make new friends during its second US-Africa Leaders Summit.

Hippolyte Fofack is the chief economist at Afreximbank.

The post US-Africa Leaders Summit could make history—if leaders recalibrate trade relations appeared first on Atlantic Council.

The post Lipsky interviewed by the Bruegel Sound of Economics podcast on the impact CBDCs will have on the global financial system appeared first on Atlantic Council.

Latin America and the Caribbean is in the midst of a delicate economic transition, with five of the LAC6 countries attempting a tax reform before their GDPs recovered to pre-pandemic levels.¹ As the region confronts rising inflation, the economic spillovers of the war in Ukraine, and budgetary pressures left behind by the pandemic, governments should improve their taxation systems to rebuild fiscal stability, stimulate growth, and enhance equity – a delicate balancing act among overlapping policy priorities.

Regional taxes are a heavy administrative burden, requiring nearly twice the time to complete in LAC as in the OECD.² At the same time, the region struggles with average tax evasion of 5.6 percent of GDP³ and a continued overreliance on corporate income taxes.⁴ With still-high public debts and fiscal deficits, governments must respond by implementing policies to streamline and modernize revenue collection and management.

What are the pros and cons and trade-offs involved in increasing or decreasing the region’s three main taxes (VAT, PIT, and CIT)? How can governments optimize enforcement and collection without resorting to rate changes? What policies outside the tax authority are needed to support tax reforms? How can policymakers better navigate the thorny politics of tax reforms?

The following pages provide new analysis and concrete recommendations to address these questions. Drawing on the powerful expertise of its authors in addition to valuable commentary and insight from private, nonpartisan strategy sessions, legal experts, and regional governments, this report is a strong addition to the Adrienne Arsht Latin America Center’s #ProactiveLAC Series, which aims to provide insight and foresight to LAC countries on how to advance economic reactivation and long-term prosperity.

Read the full report below

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

Related content

Issue Brief Sep 9, 2022

Unlocking SME potential in Latin America and the Caribbean

By Eva Lardizábal, Pepe Zhang

This publication outlines practical, forward-looking policy recommendations needed for SMEs to fully become engines of socioeconomic prosperity.

Americas Fiscal and Structural Reform

Report Sep 27, 2022

The economic impact of a more efficient US-Mexico border: How reducing wait times at land ports of entry would promote commerce, resilience, and job creation

By Alejandro Brugués Rodríguez, John Byrd, Noé Arón Fuentes Flores, David Gaytan, John Gibson, Camila Hernández, Mayra Maldonado, Jason Marczak, Jorge Eduardo Mendoza Cota, Roberto Ransom, and Ignacia Ulloa

Improvements in border management and the adoption of new technologies at the US-Mexico border have the potential to enhance border security and generate economic benefits for the United States and Mexico through expedited flows of goods and people.

Economy & Business Latin America

The post Improving tax policy in Latin America and the Caribbean: A balancing act appeared first on Atlantic Council.

In the same way, institutional capital has remained concentrated in developed markets. Investors have sought to optimize for near-term returns rather than sustainable returns through diversification. The situation has resulted in unprecedented levels of liquidity: Global assets under management (AUM) have grown by more than 40 percent since 2015 and are expected to grow from over $110 trillion today to $145 trillion by 2025.

Investors looking for returns need to look to new markets. Africa—the most demographically dynamic region of the world—has been making headlines for the massive investment potential it offers, and yet has been stubbornly ignored. The continent’s average growth over the past two decades has oscillated between 4.5 percent and 5 percent, with five countries averaging over 6 percent. While the recession induced by COVID-19 hit wealthy countries of the Organisation for Economic Co-operation and Development hard with a 5.5 percent contraction in 2020, African countries were more resilient, only shrinking by 2 percent.

Despite the compelling economic data, the African growth story has not resulted in the concomitant boost in investment from global players. Investment into the region is made by the same long-time investors, including development finance institutions. Meanwhile, mainstream institutional investors remain on the sidelines.

Surveys have long documented the difference in risk perception between investors with established operations on the continent and those that are considering opportunities from afar. Those already invested in the region see Africa as the most attractive investment destination, while those that don’t have operations in African markets view it as the second-least attractive region. For funds and firms that have yet to enter African markets, a stubborn dichotomous view of African risk—one that oscillates between seeing the continent through a lens of foreign aid and another that embraces the high risk/high return view—creates confusion and causes hesitation. Furthermore, the mainstream investment strategy used by investors in developed markets—one that is data dependent and push-oriented—is ill-suited to the opportunities in African markets.

From data dependence to trend analysis

Developed markets are data rich. In North American or European economies, investing is governed by subsector experts who focus on niche industries and specialized asset classes. The accelerating financial complexity and sophistication of highly public markets in developed countries progressively made specialists critical to finding opportunities and delivering returns. The internet economy of the 2000s and the growing importance of real-time data has accelerated the specialization. Now, large data sets and artificial intelligence-powered analysis have become quantitative assets to specialist investors.

This was not always the case. Prior to the 1980s, top-level generalists who deeply understood political economy dynamics were successful investors. In the post-war era, international investors navigated domestic social change, reconstruction, decolonization, and oil shocks to build the continent’s first private equity firms and iconic multinational companies. Over the same period, the emerging computer revolution transformed economics from the study of human behavior in an environment of scarcity to a series of equations and advanced mathematical modelling. Economics as a science grew up alongside Masters of Business Administration (MBA) programs, resulting in a disconnect between economic and geopolitical analysis and an elevation of data in business decision-making.

In contrast to developed economies, African markets are defined by a lack of real-time, reliable data and strong interaction between political and economic realities, thus developed market analytical approaches will fall short. Cutting and pasting the data-dependent, specialist model in African markets leaves managers unable to understand and mitigate the operational, on-the-ground market risks. Country risk assessments, developed by economists at international financial institutions, tend to position geopolitical risk as a matter of insurance instead of being central to investment decision-making in projects and deals with medium-to-long-term returns horizons.

Taking a more intersectional perspective bringing together economic and geopolitical analysis requires an understanding of the trends currently reshaping the continent.

Most investors still operate on dated perceptions of African markets driven by oft-repeated factoids and the news cycle, failing to recognize the mutually reinforcing trends that have over the past twenty years restructured many African economies and enhanced their resilience. Coups grab headlines but day-to-day political stability makes for boring news. Despite the recent coups in Mali and Burkina Faso, the map of Africa is no longer a swath of autocratic regimes as it was in the 1980s but rather a mosaic with standout democracies such as Ghana and Senegal, which have—for the most part—been fortifying their institutions.

Regional powers such as Kenya and Nigeria, despite setbacks, have been on a trajectory of democratic progress. After the 2007 post-election violence in Kenya, the country reformed its electoral process and promulgated a new constitution in 2010 which devolved power. In Nigeria, the 2015 elections marked a turning point: the first time since the return of civilian rule in 1999 that an opposition party, the All Progressives Congress, won against the People’s Democratic Party that had ruled until then. In the 1990s, the Economist Intelligence Unit (EIU) only identified three democratic countries in Africa. In 2020, the EIU ranked twenty African countries as hybrid or higher on a democratic scale, despite democratic backsliding globally (including in the United States).

Accompanying the increasing political stabilization, economic diversification has also shored up African economic resilience. The continent’s sustained growth cannot only be attributed to high commodity prices but also is the result of a progressive shift away from raw material export models toward services and middle-class-based consumption.

The “oil curse” that colors the conversation of African economic growth is proving to be less powerful even in major oil exporters such as Nigeria. The oil price collapses of 2008 and 2014-16 revealed a previously unrecognized level of resilience on the continent. When oil hit a low of twenty-six dollars a barrel in 2016, regional gross domestic product fell to 2.2 percent from 3.4 percent the previous year, but the continent did not become mired in stagnation as it did in the “lost decades” of the 1980s and 1990s. Instead, growth recovered in 2017, revealing structural improvements (particularly in Nigeria).

Diversification has been supported by increased investments made in infrastructure, deepening regional integration culminating in the creation of the African Continental Free Trade Area in 2019, and greater amounts of disposable income that have supported domestic markets for consumption. African countries have had greater choice in international partners. Over the past two decades, China has become Africa’s most significant trading partner and the largest financier of infrastructure in the region to the tune of twenty-three billion dollars between 2007 and 2020. Over seven billion dollars of that financing went to telecom infrastructure. Increasing mobile penetration and digitization accelerated by COVID-19 are undergirding an exponential growth in venture capital into African markets. In 2016, total venture capital flowing into the region was just above $350 million. Five years later, it crested four billion dollars, with the lion’s share going to Nigeria, Egypt, South Africa, and Kenya, and with over 60 percent of the capital coming from US-tied entities.

The interaction of political stabilization, better macroeconomic management, technological change, and young demographics will support the continent in returning to growth after the COVID-19 crisis. Just like in the case of the 2016 oil shock, African growth bounced back to 3.7 percent in 2021, showing unanticipated resilience after the continent’s economy contracted by 1.7 in 2020. By analyzing the trends and accepting that rapid growth is neither linear nor smooth, investors can find success in African markets.

Pull over push strategies

Understanding transformative macro trends is sine qua non, but not enough to guarantee successful ventures. It is also critical to employ a pull strategy rather than a push approach. The latter focuses on creating new consumer needs and desires and then pushing relevant products into the market. The former instead rests on identifying unserved market needs and then creating products to meet that latent demand. Push strategies work well in consumption-based economies supported by efficient capital markets such as the United States or Europe in which affluent consumers can be convinced that their want of the newest mobile phone is actually a need. African markets are best-suited for pull strategies.

Most large European and US investors have a self-referential bias whereby they consider African opportunities through the lens of their own market operating environments. Many of them are looking to simply add a high-risk premium to compensate for investing in African markets on top of their familiar underlying asset structures. Some seek short-term, liquid, and safe assets such as treasury bonds while others pursue high internal rates of return (IRRs) in a seven-year fund lifecycle. Some are looking for real assets with developed secondary markets to ensure liquidity, while others want to deploy billions of dollars through thematic strategies such as infrastructure or climate.

Each “push” strategy will be exposed to difficulties that can create Goldilocks-type scenarios: not enough market depth, too few “bankable” projects, too much volatility, not enough liquidity, too much risk, inadequate profitability, and other such conditions. The list of reasons not to invest therefore becomes overwhelming and results in the accumulation of dry powder.

Fundamentally, African market realities are different—liquidity more often than not comes with volatility due to systemic local currency risk on the continent. The days of making 20 percent IRR in relatively safe private equity (PE) environments are also long gone: The first and second vintage in the early 2000s of African PE funds invested in banks, telecoms, and other low-hanging fruit, leaving only difficult operational, consumer-facing firms for today’s investors to build. Reports from both the International Finance Corporation and the African Private Equity and Venture Capital Association—better known as AVCA—show returns of less than 10 percent in African PE due to currency fluctuations. High returns can be found in the African early-stage venture space, but those opportunities are often too small for institutional investors.

To gain access to the tremendous opportunities that African markets offer at scale, emerging market investing must be built on pull strategies based on intersectional approaches, incorporating an understanding of existing demand and working to find overlaps between the realities of African markets and the requirements of investors. For example, the billions flowing into climate and environmental, social, and corporate governance (ESG) funds can deliver good returns, strong developmental impact, and advancement of United Nations sustainable development goals if investors think beyond immediate climate resilience within today’s economic context and recognize that African countries have a dual imperative–stimulating rapid green growth and alleviating poverty.

On a continent where six hundred million people lack reliable access to electricity, additional generation capacity is a critical priority on which the green or digital revolutions depend. While climate investors rightfully eschew investments in coal, natural gas generation opportunities may prove a good opportunity as they can create the base power necessary for broad-based solar. Likewise, attractive carbon reduction opportunities can be found in agribusiness, so having the flexibility to invest outside the energy sector increases the potential for success.

A flexible and intersectional approach can also help asset managers wanting to deploy billions of dollars in the short term. By recognizing that market absorption capacities will limit their deployment, they can invest smaller amounts in the nascent private debt industry, which will grow rapidly in the next three to five years given the continuously growing financing gap in African markets.

If large asset managers want the diversification and returns that these markets can offer, they must accept the intrinsic trade-offs found in emerging markets. If liquidity is the priority, an investor can buy bonds in Cairo, Lagos, or Johannesburg but must accept the concomitant volatility and depreciation risk resulting from the underlying assets being valued in local currencies.

If predictability and stability are desired, then an investor must prepare for illiquidity. While investing in illiquid assets in the real economy offers opportunities ranging from infrastructure to agribusiness to renewable energy, exits are difficult to time. The classic high risk, high return investment profile does exist but is now concentrated in the emerging tech and creative industries.

With recession looming on the horizon in the United States and Europe, investors who want to participate in the next wave of growth and create wealth from—and in—fast-growing emerging and frontier markets in Africa and beyond need to adjust their approaches to invest along transformational trends, navigate political economy concerns, and tap latent demand.

Twenty years ago, the Economist dubbed Africa “the Hopeless Continent.” Today, the associated risks with investing in Africa are very different. Risk perception must be updated to reflect the increasing resilience, digitization, and integration that now are taking hold in African markets. Investors will succeed if they work to understand market realities instead of coming with pre-defined investment strategies, if they find the overlap between their internal requirements and market needs, and if they embrace flexibility and intersectional approaches. The geopolitical and economic dynamics of this post-COVID-19 world make looking at African markets not a niche option but rather a mainstream necessity.

Guillaume Arditti is founder of Belvedere Africa Partners and a lecturer in international relations at the Political Sciences Institute of Paris (Sciences Po).

Aubrey Hruby is a co-founder of Tofino Capital, a senior fellow at the Atlantic Council’s Africa Center, and an adjunct professor at Georgetown University.

An abbreviated version of this article also appears on LSE Business Review.

The post The Africa investment imperative: Diversification and resilience amid economic downturns appeared first on Atlantic Council.

The post Lipsky quoted in Politico on the protests against China’s Zero Covid policy appeared first on Atlantic Council.

The post Graham cited in Inventiva on stagnating Chinese economic growth appeared first on Atlantic Council.

The post Econographics piece by Graham reprinted in the Estonian Free Press appeared first on Atlantic Council.

The post Graham quoted in the Economic Times of India on the future of Chinese economic growth appeared first on Atlantic Council.

The post Lipsky quoted in the Washington Post on ASEAN leaders’ reaction to US interest rate hikes appeared first on Atlantic Council.

The post Mark and CBDC tracker cited in Wired on China’s leadership with digital currencies appeared first on Atlantic Council.

But where do we go from here?

The White House has announced a series of early PGII wins to emphasize that the initiative is already more than a press release, including a wide and eclectic group of projects addressing infrastructure, energy, health care, digital infrastructure, food security, climate change, urban development, and more. They range from solar power in Angola to vaccine manufacturing in Senegal to a modular nuclear reactor in Romania to submarine cables extending from Singapore to France. But skeptics will question whether this is simply the latest in a long list of infrastructure-related efforts announced—but not followed through with—in recent years.

With billions of dollars already nominally tied to previous announcements about Build Back Better World, the Indo-Pacific Economic Framework, Global Gateway, the Blue Dot Network, and more, it’s only fair to ask what makes PGII different or more impactful. It presents an opportunity to address the procedural and structural obstacles that have hampered multilateral cooperation in the past.

The first key aspect of the partnership is its emphasis on mobilizing the private sector—so the true test of its success will not be the amount of public funds put into it, but how successful they are in attracting private investment. The second key aspect is that it is explicitly a “partnership:” PGII is not meant just to be a set of complementary but separate national efforts; it aspires at its core to be an integrated effort.

So how can participating countries execute a coordinated and synchronized series of actions that are greater than the sum of their individual parts? Here are five key recommendations:

Appoint a lead agency to represent each country. For the partnership to bear fruit, it requires sustained and challenging coordination across each G7 country’s suite of agencies that are engaged in infrastructure investments. In the United States alone, for example this suite includes the International Development Finance Corporation (DFC); the US Agency for International Development (USAID); and the departments of State, Commerce, and Transportation, among others. Appointing a clear lead agency to coordinate national efforts would better ensure institutional expertise and commitment over time, as well as improve coordination across the G7.   

Establish clear partnership goals and offer guidance to achieve them. Is the goal to pool funds and invest jointly in projects, or to share information and coordinate discreet investments in a given project, sector, or across sectors? Or is it to develop a common communication platform to convey aggregated G7 infrastructure investments in a given nation or sector? Or a combination of the above? Whatever the ambitions for the partnership, they need to be clearly stated and the partnership goals commensurately assessed and communicated. The optimal level of coordination may require G7 nations able to fund each other’s projects even if their national companies are not involved. For example, the DFC favors but does not require a US nexus in infrastructure investment (e.g., the Ethiopian telecom project with Vodafone and Sumitomo). If all G7 nations could arrive at a similar approach, it will allow for optimal partnership impact. They could also develop additional partnership modalities to invest in both debt and equity, and in local currencies. 

The execution of PGII calls for nuanced balance across three major drivers of demand. Meeting PGII’s purported goals of addressing global infrastructure demand calls for clear articulation and quantification of relevant demand signals. Three major, but not exclusive, demand drivers include: host nation demand for high-quality infrastructure to fuel economic growth; private sector demand, particularly from institutional investors, for quality infrastructure investments with stable returns; and geopolitical considerations for infrastructure investments for influence in highly contested strategic regions such as the South Pacific islands. PGII may be well served by developing a triangulated demand framework to deploy scarce resources to optimal impact.  

Position PGII at the center of the constellation of bilateral and multilateral international development efforts. Emerging nations are inundated by a steady stream of infrastructure facilitating initiatives championed by G7 nations individually and collectively, either directly or through multilateral development banks in which they are the largest shareholders. It may be of strategic value to explicitly position PGII at the center of the full suite of multifaceted G7 resources affecting global infrastructure demand—to enshrine PGII as a catalyst for global impact on high-quality infrastructure. The PGII must be wholly incorporated and championed by G7 development agencies and G7-supported multinational development banks and financial institutions in their loans and investments, ensuring that the cumulative impact of the PGII reaches beyond its initial six hundred billion dollar allocation. This would also create an opportunity to engage the Organization for Economic Co-operation and Development, build on lessons from the Blue Dot Network and similar past high-quality infrastructure certification efforts, and integrate the PGII into a global network that extends beyond the G7.

Implement a robust global communication strategy. For the PGII to be credible in its global impact and recognition, it needs a sustained professional communication and marketing strategy that conveys the sum total (and more) of the aforementioned recommendations. It will have limited recognition and shelf life if it remains a G7 talking point. The cumulative impact of G7 nations’ full suite of infrastructure investments and supporting initiatives if properly collated and communicated would rival and exceed BRI outlays. This was true before the announcement of PGII, and the inability to tell that story has been a lamentable shortcoming. The G7 cannot afford to persist with this shortcoming. It is a strategic imperative to execute a well-resourced PGII communication strategy that offers an accurate cumulative impact on global infrastructure of the collective efforts of G7 nations individually, collectively, and along with their supported multinational development banks and like-minded allies.

Kaush Arha is a nonresident senior fellow in the Atlantic Council’s Global China Hub.

The post The G7’s $600 billion response to China’s Belt and Road Initiative is here. This is how to make sure it succeeds. appeared first on Atlantic Council.

The post China Pathfinder Project cited by the Middle East Institute on China’s economic outlook appeared first on Atlantic Council.

Most of this spending must happen in low-income economies. Nearly eight hundred million people in the world do not have access to electricity and basic drinking water services. Around 1.8 billion people in the world are not using basic sanitation services. The vast majority of these people reside in low-income economies, including the Sub-Saharan African and South Asian regions. Moreover, around 3.2 billion people around the world do not use the internet and only sixteen out of one hundred people have broadband subscriptions. As shown in figure 1, in low-income countries, only 21 percent of people have access to the internet, and only one in two hundred have broadband. Figure 1 can be explored for more detailed statistics on various forms of basic infrastructure gaps, such as in access to electricity, drinking water, sanitation, internet, and broadband.

From 2015 to 2020 assets under management (AUM) for sovereign wealth funds (SWFs) and private pension funds grew from $11 trillion to $15 trillion. As of the end of 2020, total global pension assets (public and private) exceeded $56 trillion, almost double the amount in 2010. Having more than $65 trillion in assets (see figure 2 and figure 3), institutional investors (such as SWFs and pension funds) are uniquely positioned to bridge low-income economies’ infrastructure financing gap in the coming decades. This is mainly because the investment horizons of institutional investors are often long-term with low but secure return expectations, which are characteristic of large-scale infrastructure projects. As shown in figure 2, Asia and the Middle East are home to some of the largest SWFs in the world, accounting for 40 percent and 34 percent of world’s total SWF assets, respectively. Available data suggests that cross-border investments of SWFs from these regions mainly target the financial and real estate sectors of advanced economies, accounting for around 40 percent of all their cross-border transactions.

As seen in figure 3, advanced economies are home to the world’s largest pension funds and retirement saving accounts. The United States accounts for around two-thirds of AUM in this industry. While highly liquid and low-risk assets such as bonds and equities have traditionally been the two main asset classes invested by pension funds and retirement saving accounts, they are slowly starting to invest in less liquid asset classes with longer return time-horizons, such as infrastructure and real estate. This could be a game-changer in filling the global infrastructure financing gap. However, despite their growing importance in the global economy and financial markets, institutional investors such as SWFs and pension funds account for less than 1 percent of private participation in infrastructure in developing economies, largely due to risks of long-terms investments in these countries.

It has long been clear that traditional mechanisms of public financing of infrastructure projects are not sufficient to meet the growing demand for infrastructure. This calls for new and innovative mechanisms to bring in investments from institutional investors and the private sector. To make this possible, infrastructure needs to be defined as an asset class that can readily be invested in by private and public entities alike. The establishment of Global Infrastructure Facility (GIF) by the World Bank is an effort in this regard. Such efforts have also been complemented by increasing activity in public-private partnerships. For example, in 2012, the World Pension Council and Organization for Economic Co-operation and Development first convened a meeting focusing on promoting pension funds’ exposure to long-term assets such as infrastructure investment.

The Bretton Woods Institutions (BWI) are uniquely positioned to encourage investment in developing countries’ infrastructure through providing various guarantee and insurance mechanisms, thereby reducing risk for private investors. In other words, BWI’s involvement in developing economies’ infrastructure projects can crowd-in institutional and private investors by reducing risks and increasing trust and transparency in such projects. While the establishment of the GIF by the World Bank is an important step forward, the following two reports identify other areas where the World Bank and International Monetary Fund could engage with private capital, non-state, and quasi-state actors (such as SWFs and pension funds) to bridge the infrastructure financing gap over the next few decades: Modernizing the Bretton Woods Institutions for the twenty-first century and Changing Bretton Woods Institutions: How non-state and quasi-state actors can help drive the global development agenda.

Amin Mohseni-Cheraghlou  is a macroeconomist with the GeoEconomics Center and leads the Atlantic Council’s Bretton Woods 2.0 Project. He is also an assistant professor of economics at American University in Washington DC. @AMohseniC

Naomi Aladekoba is a consultant with the GeoEconomics Center focusing on Sub-Saharan Africa, Chinese foreign policy, and international development. @NAladekoba

Related reading

Econographics Apr 21, 2022

The North-South divide is growing. Can a new Bretton Woods help?

By Amin Mohseni-Cheraghlou

The growing divide is under the scanner as US Treasury Secretary Yellen and Colombian Finance Minister Restrepo both voiced a need to modernize the institutions.

Americas China

Econographics Apr 11, 2022

Democratic challenges at Bretton Woods Institutions

By Amin Mohseni-Cheraghlou

Voting quotas at Bretton Woods Institutions continue reflecting the 1944 power structure, despite significant changes to the global economy.

Africa Americas

Econographics Apr 11, 2022

“Inequality starts at the top”: Voting reforms in Bretton Woods Institutions

By Amin Mohseni-Cheraghlou

Full democratization of BWIs is not realistic. A more pragmatic approach would work towards a “double majority” system.

Africa Americas

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The global infrastructure financing gap: Where sovereign wealth funds and pension funds can play a role appeared first on Atlantic Council.

In 1983 one in five US workers were members of a union; today roughly one in ten are. Private sector union membership in 2021 was just over 6 percent. The union membership rate temporarily increased in 2020 to 10.8 percent, but it has since fallen to pre-pandemic levels as the increase was largely due to labor force composition effects. During this time the share of national income going to labor has decreased, inequality has increased, productivity has been inconsistent, and many industries have had significant consolidation. Evidence suggests that the decline of unions during this period has been a major factor in these macroeconomic trends.

Unionization in the United States has declined in part due to long-running structural changes to the economy. Technological advancement and globalization altered supply chains and business processes, negatively impacting some workers who lost their jobs to automation or outsourcing. However, the United States has among the lowest unionization rates of advanced economies due to specific policy choices as well. “Right to Work” laws in many states, worker classification rules, and changes to the National Labor Relations Board’s (NLRB) regulatory authority have weakened workers’ bargaining power. In addition, the present enforcement apparatus for labor law compliance does not incentivize strict adherence from firms. Violations are infrequently caught, and financial penalties are often too low to affect behavior.

Encouraging and incentivizing more unionization in the United States would have micro and macro benefits. For example, unionized workers receive higher wages. A worker represented by a union earns 10.2 percent more in wages than a peer in the same sector with comparable experience, education, and occupation. Unionized workers are also far more likely than equivalent nonunion workers to have essential benefits such as health insurance, retirement benefits, and paid sick leave. Lastly, unionized workers are likely to work in safer working environments and unions help ensure more extensive job training.

Evidence shows that unions not only benefit workers, but employers as well. Firms with unionized workers benefit from higher labor productivity and retention. Research also notes that unions do not have a negative impact on employer solvency rates.

Aside from individual unions and firms, the economic benefits of unionization have positive macro spillovers. Higher wages for union workers create competition in local labor markets, which leads nonunionized firms in the same geographic area to raise wages. Benefits such as health insurance and job training also frequently spill over to nonunion workers in local labor markets. In addition, workplace standards that unions negotiate and advocate for have often become industry norms. Unionization also helps address racial economic disparities. Finally, unionization has intergenerational effects. Union density is a strong predictor of economic mobility compared to similar non-union households. Collectively, these spillovers create a more productive labor force and equitable economy.

Although unionization rates have declined in recent decades despite clear economic benefits, the pandemic may have instigated a shift in dynamics. Some workers have changed their attitudes about which working conditions and level of pay are acceptable after enduring the pandemic and working in challenging circumstances. Union organizing has increased this year, public support for unions is the highest it’s been since 1965, and the tight US labor market has created leverage for workers. In the years to come workers may have additional leverage because there will be even fewer prime-age US workers due to aging demographics.

US policymakers have recently taken important steps to advance union efforts. For example, the Biden administration has pushed forward a variety of regulatory steps to make union organizing easier for federal workers and private-sector employees. The Department of Labor released a proposal to reclassify gig workers, and the NLRB proposed a rule that would make parent companies more legally liable for labor law violations committed by associated contractors or franchisees. The administration also included prevailing wage and apprenticeship requirements in major legislation such as the CHIPS Act and Inflation Reduction Act. While these are positive steps, Congress should pass the Protecting the Right to Organize Act as soon as possible. Innovative organizing efforts at the state level also need to be fostered. For example, California recently passed a law that would establish “sectoral bargaining,” which is more common in other advanced economies.

As stakeholders navigate the opportunity to grow union membership they should recognize the benefits of new technology and globalization, even though they also present risks. Increased unionization can help harness these benefits and manage the risks. Stakeholders must also be cognizant of the macroeconomic environment—inflation is a substantial problem and US GDP growth is slowing—and act accordingly to gain labor rights in a sustainable manner that won’t reverse should a recession occur.

Jeff Goldstein is a contributor to the Atlantic Council’s GeoEconomics Center. During the Obama administration he served as the Deputy Chief of Staff and Special Assistant to the Chairman of the White House Council of Economic Advisers. He also worked at the Peterson Institute for International Economics. Views and opinions expressed are strictly his own.

The post How the US compares to the world on unionization appeared first on Atlantic Council.

This paper outlines reforms for Bretton Woods Institutions – such as the World Bank Group (WGB), the International Monetary Fund (IMF), and the World Trade Organization (WTO). The world needs a Bretton Woods 2.0 for the twenty-first century. The challenges that led to World War II — inequality, protectionism, and rising nationalism — have resurfaced and created the dire need for reform of these institutions.

New, even bigger challenges — such as climate change, pandemics, global inflation, and supply chain disruptions — now threaten the global economy and trade. The current institutions are too small and ill-equipped to adequately address the threats of widening wars and surging food and fuel prices. This paper argues that a new international financial and economic architecture is needed. Bretton Woods Institutions must be modernized and revamped to help address these problems for the remainder of the twenty-first century.

The new system requires three core “Rs” – a revised global remit, an enhanced resource base to help individual countries confront collective global problems, and the mandate to monitor agreed-upon global rules. The IMF must refocus itself on addressing global financial instability and macroeconomic policy. The World Bank must become a financial institution focused on planetary sustainability and shared prosperity. A strengthened WTO must become the forum for freer and fairer trade in goods, services, and cross-border transactions.

These institutions must work with regional and other United Nations (UN) specialized bodies. They should coordinate with bilateral aid agencies, sovereign wealth funds, pension funds, and private philanthropic organizations. The IMF, WTO, and WBG need to leverage their power and resources to draw in private capital at much higher levels. This would provide the Bretton Woods institutions with the needed resources and expertise to address rising global challenges and development needs. These reforms would create a stronger international economic and financial architecture suitable for the twenty-first century.

Related content

Report Oct 17, 2022

The evolution of the IMF: A case for IMF 1.5 before Bretton Woods 2.0

By Hung Tran

Bretton Woods Institutions will face enormous challenges going forward. While ambitious reforms are needed, its unlikely they will be seriously considered due to high geopolitical tension and mistrust among major countries. Nevertheless, the need for reform is pressing. Therefore, it is important to look at more feasible reform, narrower in scope and technocratic in nature, to improve the these institutions.

China Economy & Business

Report Oct 17, 2022

Changing Bretton Woods Institutions: How non-state and quasi-state actors can help drive the global development agenda

By Nisha Narayanan

This new report examines the increasingly influential role of non-state and quasi-public actors in global development and sustainable finance, specifically through the rising level of sustainable investments in emerging and development markets.

Economy & Business Fiscal and Structural Reform

Report Oct 17, 2022

How China would like to reshape international economic institutions

By Victor Shih

Despite its size, China has an inadequate voice in traditional Bretton Woods Institutions. This paper examines aspects of the dissatisfaction China has with existing global governance institutions such as the World Trade Organization (WTO) and the International Monetary Fund (IMF). It also discusses the proposed changes to these institutions according to discussions with Chinese experts.

China Economy & Business

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Modernizing the Bretton Woods Institutions for the twenty-first century appeared first on Atlantic Council.

The Bretton Woods institutions continue to serve as the champions of international development and financial stability, but several factors create a challenge for their continued effectiveness and relevance. The growing finance gap from rising poverty, income and gender inequality and poor infrastructure are threatening global sustainable development. Emerging and developing countries, still recovering from pandemic, are also dealing with challenges related to climate change, food and energy security issues and access to technological innovation. Both the International Monetary Fund (IMF) and the World Bank, on their own, will not be able to effectively tackle these issues in the long-run. An increasingly connected world had led to the emergence of new and increasingly relevant, actors in the global development field.

The emergence of these actors, both non-state and quasi-state actors, which include Multi-National Corporations, Sovereign Wealth Funds, Pension Funds, and Non-Governmental Organizations (NGOs) has demonstrated how critical their inclusion in development-finance is for the BWIs. MNCs are continuing to expand their footprints globally, shifting supply chains and additional economic benefits to both emerging and developing markets, while SWFs and Pension Funds are accessing their growing pool of assets to boost disadvantaged markets and promote sustainability. Despite the recognition of their valuable contribution, the IMF and the World Bank, have been limited in the scope of the inclusion of these actors. The opportunity to create more effective and impactful Bretton Woods institutions will depend on both the willingness and capacity of the institutions to effectively integrate these non-state and quasi-state actors into a constructive operational framework.

This new report examines the increasingly influential role of non-state and quasi-public actors in global development and sustainable finance, specifically through the rising level of sustainable investments in emerging and development markets. Implementing near-term solutions that include these actors in future capital mobilization and development financing will be critical to ensuring the gap between the North and South does not continue to expand. Moreover, integrating the data and expertise these actors into streamlined thematic initiatives and consultations and country-level analysis between the Bretton Woods institutions can strengthen efforts in meeting the Sustainable Development Goals in an increasingly high risk environment.

Related content

Report Oct 17, 2022

The evolution of the IMF: A case for IMF 1.5 before Bretton Woods 2.0

By Hung Tran

Bretton Woods Institutions will face enormous challenges going forward. While ambitious reforms are needed, its unlikely they will be seriously considered due to high geopolitical tension and mistrust among major countries. Nevertheless, the need for reform is pressing. Therefore, it is important to look at more feasible reform, narrower in scope and technocratic in nature, to improve the these institutions.

China Economy & Business

Report Oct 17, 2022

Changing Bretton Woods Institutions: How non-state and quasi-state actors can help drive the global development agenda

By Nisha Narayanan

This new report examines the increasingly influential role of non-state and quasi-public actors in global development and sustainable finance, specifically through the rising level of sustainable investments in emerging and development markets.

Economy & Business Fiscal and Structural Reform

Report Oct 17, 2022

How China would like to reshape international economic institutions

By Victor Shih

Despite its size, China has an inadequate voice in traditional Bretton Woods Institutions. This paper examines aspects of the dissatisfaction China has with existing global governance institutions such as the World Trade Organization (WTO) and the International Monetary Fund (IMF). It also discusses the proposed changes to these institutions according to discussions with Chinese experts.

China Economy & Business

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Changing Bretton Woods Institutions: How non-state and quasi-state actors can help drive the global development agenda appeared first on Atlantic Council.

Recessions can often be traced back to declining consumer confidence. When consumers hear gross domestic product (GDP) growth is shrinking, they lose confidence and spend less—which hurts businesses that then cut wages and lay off employees, most often low-income workers. News media announcing recessions based on their own arbitrary definitions can make consumer confidence fall even faster, an illustration of the growth imperative in action. Low confidence traps consumers in a loop: They need to spend money in order for GDP to grow, but they also need to be confident in the country’s GDP growth before spending money.

Since the end of World War II, boosting growth has been the main national policy of almost every country. But this singular focus on GDP, and its role in shaping economic and political decisions, is outdated. GDP only measures market transactions; it does not factor in a country’s wellbeing or social progress.

It is time to stop talking about GDP growth as the only metric that matters. Developed countries, in particular, should prioritize previously subordinated goals—such as climate resilience, health care access, education, happiness, life satisfaction, or the reduction of inequality—over GDP growth. This requires a deep narrative change in most Western societies from talking about economic progress to focusing on human progress. In making that shift, economists and political scientists will need to define concepts like wellbeing, happiness, and human development—and the encompassing concept of prosperity.

Everything and nothing

While he was a US presidential candidate, former Senator Robert F. Kennedy once said that gross national product (GNP), a metric similar to the GDP, ”measures everything in short, except that which makes life worthwhile.” He explained how GNP fails to account for a country’s noneconomic indicators such as children’s health, education quality, happiness, and public-official integrity. Yet more than fifty years later, prioritizing economic growth remains the main orthodoxy among national leaders.

Countries facing challenges like high inflation, growing income inequality, a shortage of teachers, or even collapsing health care systems should question whether GDP growth is really what to strive for. Instead, they should set their sights on prosperity (which, tracing the word back to its Latin roots, means “according to one’s hope”).

Countries should start by strengthening their democracies, a key precursor to prosperity. In 2021, the percentage of people living in a democracy dropped well below 50 percent. “We must demonstrate that democracies can still deliver for our people,” US President Joe Biden told the 2021 Munich Security Conference.

At the same time, countries should center their policies around the needs of their citizens. For example, in 2005, the Latvian parliament switched focus to prosperity when it adopted a human-centered growth approach, setting long-term goals on education, research and development, innovation, health, foreign diplomacy, and the increase of their citizens’ self-worth, among others. Latvia’s model puts people first: Citizens’ interests, desires, and activities are the priorities and serve as the guidepost to any government action, and in its thirty years of post-Soviet existence, the country has established itself as a stable consolidated democracy. Today, on the Organization for Economic Co-operation and Development’s Better Life Index, Latvia is ranked close to South Korea and Japan, two countries with much higher GDP per capita.

Not one-size fits all—yet

However, it would be a misstep to impose this switch in focus from GDP growth to prosperity on developing countries. GDP growth may no longer be as relevant to the United States and the West, but economic growth is still the most powerful instrument for reducing poverty in developing countries. There is overwhelming evidence that rapid and sustained growth is essential to making fast improvements to the quality of life in developing countries.

But for developing countries, solely focusing on growth is counterproductive. Income inequality holds back long-term growth, and lessening inequality should be a priority in any development plan. Thus, developing countries should prioritize making their growth equitable and sustainable. Decisionmakers should craft policies that help people, especially the poor and marginalized, take full advantage of the opportunities created by economic growth. This includes policies that improve financial inclusion, improve labor-market inclusion, and remove gender inequalities.

In addition to GDP growth, a multitude of metrics have been created to help decisionmakers map the best paths to development for their countries, with benchmarks to track their progress. For example, since 1990, the United Nations Development Program (UNDP) Human Development Index has promoted an assessment model that considers people and their capabilities as the ultimate criteria for assessing a country’s development—while economic growth is a factor, it is not the lone criteria.

Top twenty countries as ranked according to development and prosperity indexes

Above are the top twenty countries ranked against various development and prosperity measurements. This largely correlates with GDP-based rankings because indexes like the UNDP Human Development Index or the Legatum Prosperity Index use GDP per capita as a factor in their rankings. No advocate of refocusing countries away from GDP growth denies that growth propelled countries to this level of prosperity. But it doesn’t matter which country ranks first or even twentieth; rather these indexes exist for countries in the seventies, eighties, nineties, and beyond to climb upward. Decisionmakers should use these indexes to identify the most important goals that should be part of their sustainable long-term growth plans and to keep track of progress on what matters: human development and the prosperity that comes with it. 

On the other hand, developed countries need to entirely pivot their focus: They must graduate from the growth imperative and consider how best to create prosperity in the forms of peace and security, business opportunities, climate action, improved equality, social safety nets, stronger democracy, and freedom.

Joseph Lemoine is the deputy director of the Atlantic Council’s Freedom and Prosperity Center.

The post The key to national progress is no longer GDP growth. It’s prosperity. appeared first on Atlantic Council.

Neutralizing even one of these crises can be confounding and perilous. Some countries, unfortunately, face them all at once, fighting on multiple fronts. That usually keeps them from attending to the longer-term task of giving people the knowledge, skills, access to health care, and opportunities they need to live out their full productive potential. Investing in resilient, shock-responsive systems is critical to protect human-capital gains and improve resilience to future shocks.

Niger is an example of a country that faces many complex and interconnected challenges. Shocks and crises are increasingly frequent and overlapping in Niger, disrupting efforts to sustain broad-based growth, build human capital, and reduce poverty. Regional instability has led to the displacement of families and the closure of schools, threatening social stability and increasing insecurity; that, in turn, complicated Niger’s efforts to respond to the COVID-19 pandemic and worsened the food insecurity that is now affecting more than 4.4 million of the country’s people. Climate shocks have triggered localized flooding, while steady rises in temperatures threaten the more than 80 percent of Niger’s citizens who depend on agriculture for their nourishment and livelihoods.

The government of Niger is determined not to lose any ground in its steady climb to protect and invest in all its citizens by pressing ahead with programs and reforms that are having transformational impact on people’s lives. A great example of this is the Wadata Talaka safety-net program, a partnership between Niger and the World Bank that focuses on poverty reduction, resilience building, and women’s empowerment. The program provides monthly cash transfers to extremely poor households to smooth their consumption expenditures and improve their ability to cope with shocks. It also provides “economic inclusion” support—life and micro-entrepreneurship skills training, coaching, and support to village savings groups—and helps poor children get essential mental stimulation in their early years. Such programs can respond quickly to help poor and vulnerable families prepare for, cope with, and adapt to shocks such as the COVID-19 pandemic: As the virus spread, the program expanded to four hundred thousand households to protect them from the pandemic’s adverse economic consequences. The program is well-placed to assist poor households with rising food insecurity and climate shocks.

A successful response will need to include supporting women and innovation. Because women are the primary beneficiaries of Wadata Talaka, the program is an important vehicle for their empowerment. Evaluations of the economic inclusion program show that in the eighteen months since it began, it improved household consumption and food security. The total income of women beneficiaries has increased (by 60 to 100 percent, much of it from non-farm businesses), and there is strong evidence of gains in their mental health and social wellbeing.

To develop such systems reaching the poorest and most vulnerable, countries will need strong social registries and good enrollment, delivery, and payment systems, often leveraging technology. The government of Niger is fully committed to these efforts. For example, responding to climate change, Wadata Talaka was the first program of its kind in West Africa to use satellite data to quickly anticipate drought hotspots and provide emergency funds more quickly than usual (three months ahead of the traditional response) to help people before they entered the lean season. Research is currently underway to measure the impact of that speed.

At a time when countries are forced to contend with the ebb and flow of shocks like climate change, pandemics, conflict, or food price increases, investments in social protection systems are more critical than ever. Niger’s programs serve as an example of just how impactful such adaptive systems can be.

Ouhoumoudou Mahamadou is the prime minister of Niger.

Mamta Murthi is vice president for human development at the World Bank.

The post How Niger’s safety net helps its most vulnerable citizens thrive amid crises appeared first on Atlantic Council.

The COVID-19 pandemic and Russia’s war against Ukraine have caused significant economic disruptions, including shortages and rising prices for energy, fertilizer, and grains. But poorly timed policies and a lack of coordination among major countries have exacerbated these problems, pushing the global economy to the precipice. 

The current economic crisis is something the IMF was designed to deal with—namely, to promote policy coordination among major countries to ensure the stability of the international monetary system. That’s why its ruling body, the International Monetary and Financial Committee (IMFC), which consists of finance ministers and central bank governors of member countries, must produce a coherent plan to help the world navigate the current dangerous situation.

This is especially urgent since the Group of Twenty (G20)—once the premier forum for policy cooperation and coordination—has descended into dysfunction thanks to geopolitical spats between China and Russia against the United States and Europe. If the IMFC fails to rise to the occasion, the IMF risks making news only by announcing downward revisions of growth estimates.

The following should be the IMFC’s three key priorities during next week’s meetings:

Promote coordination and stabilize exchange-rate movements

Among the policy failures that has aggravated stagflation, the US Federal Reserve was slow to tighten monetary policy when inflation started to accelerate, focusing on current instead of prospective inflation performance. It then tightened more aggressively than expected, sending shock waves throughout the rest of the world. 

Meanwhile, the newly formed British government has adopted a major unfunded and uncosted tax-cut package despite the fact that public debt hovers around 100 percent of gross domestic product. That has led to market turmoil, the pound sterling dropping to record lows against the dollar, and historic selloffs in the British government bond market—requiring the Bank of England to intervene and restore order. Faced with adverse market reactions and political opposition, the government abandoned the part of the package that cuts the top 45 percent income tax rate. 

For its part, the European Central Bank was among the last major central banks to raise rates as inflation in the eurozone reached 10 percent last month. Its task has been complicated by the war- and sanctions-related increases in energy prices and its desire to contain the government yield spread between Italy and Germany so as not to threaten the integrity of the euro. But that could conflict with the anti-inflation thrust of its monetary policy. The Italy-Germany spread—reflecting the credit risk of highly indebted Italy—has widened steadily recently to 240 basis points, a nearly three-year high. By contrast, the People’s Bank of China has continued to gradually ease monetary conditions to support a visibly slowing economy amid China’s strict zero-COVID policy.

Those uncoordinated, even contradictory, policies have significantly undermined consumer, business, and investor confidence, triggered sharp declines and heightened volatility in financial markets, and depressed economic activity. The Fed’s aggressive tightening has supercharged the dollar to multi-decade highs, creating serious problems for the rest of the world. In particular, the pound sterling has depreciated by more than 20 percent since the beginning of the year, falling to record lows against the dollar. The yen has also weakened by 20 percent, prompting the Bank of Japan to intervene significantly in foreign exchange markets, the first time in decades, while the euro has fallen by more than 15 percent (to below parity against the dollar). And the renminbi has also weakened by more than 11 percent against the dollar. 

Overall, the depreciation of major currencies against the dollar has exacerbated inflation problems in those countries, forcing many of them to tighten—leading to a synchronized weakening of large economies to the verge of a global recession.

The IMFC needs to fulfill its mandate to promote the stability of the international monetary system—in this case, by coordinating coherent policies and avoiding excessive exchange-rate movements. At the very least, major member countries should acknowledge the international impacts of their domestic policies aiming to curb inflation. They should find ways together with other countries to manage the spillover effects of such policies—including measures such as foreign-exchange market intervention and temporary capital control. The Fed can also clarify that the strengthening dollar could play a role in determining the necessary magnitude of rate hikes. It should also more clearly communicate its policy goals, measures, and performance benchmarks, and—possibly in a coordinated way with other central banks—reduce the huge uncertainty prevalent in financial markets at the moment.

Individually, IMF members should be encouraged to align their fiscal and monetary policies to fight inflation and to avoid having those policies working at cross purposes. Policymakers need to find ways to encourage more supply instead of just focusing on reducing demand to tame inflation. They should also reverse recently imposed restrictions on food exports to avoid exacerbating the food crisis.

Help developing and low-income countries 

Emerging-market and developing countries, especially low-income ones, have been battered the most, with the specter of famine even haunting some. Higher US interest rates and a stronger dollar have triggered net-portfolio capital outflows from emerging markets as investors have withdrawn a record seventy billion dollars from bond funds this year. Emerging-market stock and bond markets have declined more substantially—by 28 percent and 20 percent, respectively—than their mature-market counterparts. This has further tightened their financing conditions, reducing growth. Meanwhile, the slowing Chinese economy and weakness of the renminbi have made the products of those countries less competitive in Chinese markets, curtailing the growth of their exports to China.

The IMF should provide assistance to those countries in serious distress. It has about $140 billion in outstanding loans to forty-four member countries and has launched a new Food Shock Window under its emergency-lending instruments, the Rapid Credit Facility (RCF) and the Rapid Financing Instrument—both of which feature low conditionality. But while these measures are welcome, the IMF should do more to help its poor members cope with the extraordinary challenges. For example, it should increase the resources earmarked for the RCF and raise access levels to that facility beyond the normal 50 percent of quota (the share of each IMF member’s capital base reflecting its relative standing in the world economy) per year and 100 percent of quota cumulatively. In particular, the seven poor countries identified by the World Bank as suffering a combined food and debt crisis (Afghanistan, Eritrea, Mauritania, Somalia, Sudan, Tajikistan, and Yemen) should get expedited access to the Food Shock Window/RCF.

Promote a sovereign-debt restructuring framework 

The IMF has been negotiating (or has already approved) assistance programs for several countries, including Zambia ($1.3 billion), Sri Lanka ($2.9 billion), Pakistan ($1 billion), and Argentina (a $3.9 billion second-tranche disbursement under the current thirty-month, $44 billion program), among others. The IMF should use these opportunities to press the recipient countries to request their creditors to form a country-specific Official Bilateral Creditor Committee and a Private Sector Bondholder Committee as well as communications channels between the two. These committees should discuss the parameters of a sovereign-debt restructuring deal being informed by the IMF/World Bank debt sustainability analysis of the country—more or less following the Zambia debt restructuring template. The suggestion would go beyond the provisions of the G20 Common Framework for Debt Treatment, which is only available to low-income countries; it will also help provide a needed structure for sovereign-debt restructuring, encouraging full participation of all creditors in the process. This is increasingly required as 60 percent of low-income countries and 30 percent of emerging-market countries are already in debt distress or crisis.

Hung Tran is a nonresident senior fellow at the Atlantic Council, former executive managing director at the Institute of International Finance, and former deputy director at the International Monetary Fund.

The post Three priorities for the IMF to fix the global economic crunch appeared first on Atlantic Council.

Instead, over decades, an abysmal series of obstacles have repeatedly hindered the country’s development. A poorly managed decolonization process by Belgium, multiple rebellions, and the failure to promote good governance—combined with living in a state of war since 1996, particularly in the east—have resulted in profound setbacks in health, education, the economy, society, and governance.

Those obstacles led to deep and pervasive effects on Congolese society, and they make a good case for massive assistance. There is a model already in place for the United States and other friends of the DRC around the world to follow: the 1948­–1951 European Recovery Program, otherwise known as the Marshall Plan. Advanced by then US Secretary of State George C. Marshall, the plan gave countries that were devastated by World War II mostly donations to restore industry, support agriculture, and increase international trade. The United States appropriated $13.3 billion over four years. In the end, the plan helped Western and Southern European countries boost industrial production by 55 percent and average gross national product by 33 percent, laying the foundations for a prosperous Europe. Since then, the expression “Marshall Plan” has been used to refer to massive assistance or economic stimulus programs worldwide, the latest case being the European Recovery Plan.

Comparable assistance focused on improving governance could help the DRC develop while laying a similar foundation for a prosperous African Great Lakes region—and even African continent. Yet, achieving this goal will require focusing the plan more on building strong institutions and less on building infrastructure, the beloved child of many development partners. Then US President Barack Obama emphasized a need for updated partnership programs with Africa in a July 2009 speech in Accra, Ghana, declaring: “The true sign of success is not whether we are a source of perpetual aid that helps people scrape by… It’s whether we are partners in building the capacity for transformational change.”

Decades of development lost

A bit like in the 1960s and 1970s, military conflicts and violence are entrenched in  the DRC. The death toll of near-weekly attacks by the allied Democratic Forces (ADF), an insurgent group with ties to the Islamic State of Iraq and al-Sham (ISIS), practically tripled between 2020 and 2022. Furthermore, the militant March 23 Movement, after a deceptive slumber, has occupied the strategic town of Bunagana since June.

After former President Mobutu Sese Seko’s three-decade single-party rule and former President Joseph Kabila’s tumultuous terms from 2001 to 2019, Congolese people hoped that their political class would mobilize in favor of development. This has not yet fully happened; and far from rallying the much-needed unity required to end the conflict in the east, political parties seem preoccupied with the 2023 presidential election.

Despite recent social and economic progress—notably a solid annual gross domestic product (GDP) growth rate that has averaged above 5 percent over the last ten years—many long-term per capita indicators have worsened since the 1970s, according to the World Bank: Electricity consumption per capita (159 kilowatt hours in 1972 and 109 kilowatt hours in 2015) and the number of hospital beds per thousand people (3.2 in 1975 against 0.8 in 2006) have dropped. Gross domestic product (GDP) per capita remains less than half of values in the 1970s ​​($1,372 in 1974 versus $518 in 2021, in constant 2015 US dollars).

There are several other indicators that raise concerns about the country’s economic and social progress: As of the beginning of this year, twenty-one diseases under surveillance in the DRC had the potential to become epidemics—and in the year before, six had done so, including measles, cholera, and COVID-19. According to the United Nations (UN) Office for the Coordination of Humanitarian Affairs, 4.2 million people, including 2.4 million children under five years old, suffer from acute severe malnutrition. Roughly six million people are internally displaced, and 74,000 cases of sexual and gender-based violence were reported over the period, with the majority occurring in the eastern conflict-torn part of the country.

These economic and social indicators are a sign of an unhealthy ecosystem that cannot support development. Contributing factors include political instability, wars, a lack of economic diversification, an overreliance on natural resources, and the consequences of a conflict economy—in which investment is dampened by the uncertainty caused by wartime disruptions to local and national activities, and Congolese don’t benefit from the revenues created by their natural resources. These factors make it difficult to uproot corruption, mismanagement, and state capture, even more than half a century after the DRC’s independence, despite recent efforts, such as reforms within the central bank and the publication of mining contracts.

Thus, the country’s lack of development, caused by its political, social, and economic conditions, is likely to be long-lasting.

The “big push” to prosperity

In his farewell letter, Lumumba was optimistic about the destiny of his country because he believed that the DRC could overcome its afflictions, just as other countries that have experienced war and political instability have done.

Germany experienced such a period of economic and social adversity after World War II: In 1947, industrial output was only one-third and food production was one-half of the country’s 1938 levels. Nearly one-fifth of the country’s housing had been destroyed over the course of the war. Inflation had resulted in a wave of poverty, while the country’s price controls fueled the expansion of the black market.

But today, Germany has become a formidable economic force. The reasons for the German economic miracle, or “Wirtschaftswunder,” are subject to debate among economists, but some credit the Marshall Plan.

The initial Marshall Plan and its variants worldwide are in line with economist Paul Rosenstein-Rodan’s “big push” theory that massive reforms and investments are more helpful than gradual actions in overcoming obstacles that preclude development in underdeveloped economies. In other words, a “big push” is required to undo the inertia of a stagnant economy. Such a “big push” would help the DRC get out of its rut, given the country’s numerous and multifaceted economic, social, and security challenges. But the push must address the real issues that Congolese face.

Institutions over infrastructure

Investment plans for African countries often focus on spending in areas like infrastructure and equipment—and ultimately, some costly and not terribly useful “white elephants.” A Marshall Plan for the DRC should avoid falling into those two pitfalls by taking a completely different approach: focusing on institutions rather than infrastructure.

After all, infrastructure projects in the DRC easily mobilize resources from a variety of public and private stakeholders. The Emirati company DP World, for example, is investing hundreds of millions of dollars over decades in the construction and management of the DRC’s first deep-sea port in Banana due to the economic potential there. Beyond that case, the country’s infrastructure potential and needs are so immense that all that the government would have to do is to design bankable projects and abide to the conditions set by international private or public partners.

Conversely, commitment to lasting and in-depth institutional reform is far below what the DRC and other poor nations need because a reformed institution is less immediately visible than a bridge or a school. In addition, reforming or even creating an institution is more time-consuming, more complex, and dependent on combining success factors such as overcoming vested interests and tailoring institutions to sociological realities. It involves mapping and optimizing processes, investing in training, and paying civil servants better—but also limiting abuses vis-à-vis users of public services, who are often not considered as customers but rather as sheep that can be sheared mercilessly.

Overcoming the DRC’s development obstacles will require a substantial investment in the country’s institutions. Strong institutions are the key to turning the DRC’s immense potential into tangible results, enabling the country to fish for itself instead of being offered fish by other countries.

A DRC with strong institutions would see civil servants better paid, unbiased decisions from the courts, vulnerable groups protected by the police, natural resources and projects managed without corruption, better-equipped schools, and a social safety net that protects the most vulnerable.

Preparing for the push

Initial work in designing the Marshall Plan should start with an in-depth inclusive discussion among Congolese and between Congo and its partners about the governance mechanisms of such an initiative.

This initial discussion is essential because of the colossal sums at stake and also the controversies that have plagued Congolese infrastructure projects: In order to avoid problems associated with the DRC’s poor public finance management and to increase the likelihood that the plan succeeds, this discussion should be structured around strengthening its absorptive capacity—the amount of foreign aid that the DRC can use productively. The DRC has faced difficulties in quickly implementing quality investment projects and ensuring that every dollar invested reaches its intended beneficiary. Shaping a new normal will require improvements in three areas.

1. Preparations for the Marshall Plan should include the recruitment and training of motivated and skilled people who can effectively design and manage reform projects in the long term.
2. The DRC must establish a stronger and more efficient control mechanism to ensure good fiduciary management of the plan’s projects in order to avoid misappropriation, collusion, and corruption. Such practices have long bedeviled public contract tenders and public funds management.
3. It will be necessary to meticulously prepare the various projects and investment plans in order to avoid mistakes of the past, including some famous white elephants, and to guarantee adequate social impact. To do this, leaders taking part in the plan should adopt an experimental approach in which they run small-scale test projects to better understand and correct their shortcomings before deploying them throughout the country.

Institution building is a serious matter. It requires time and stability. Besides, institutional quality is sensitive to policy changes that follow shifts in political leadership. Hence the need, as a foundation to the Marshall Plan, to build a clear, accountable, and trans-partisan consensus around institutional reform. If a platform for reform has buy-in from political parties and stakeholders across Congolese society, it would be immune to the negative side effects of changes in government. With new elections slated for 2023, now is an opportune political moment to start that dialogue. Presidential candidates, in particular, should explain how their pledges will contribute to the much-needed institutional transformation. The country’s burgeoning civil society could seize the opportunity to mobilize Congolese across party lines and identify priority sectors for institution building in preparation for the plan.

Such a process would empower the Congolese people, who have often been marginalized in designing development policies even though they’re meant to be the beneficiaries. It would foster crucial local commitment to institutional transformation. Plus, the preparation effort could help establish an equal relationship between the DRC and its financial partners in their mission to propel the country into the twenty-first century.

Doing the Marshall Plan math

How much should an institutional Marshall Plan for the DRC cost? Let’s start with a linear method to evaluate the original.  

From 1948 to 1952, sixteen countries received a total of $13.3 billion, representing roughly $159 billion in 2022. Distributing that among the total 1948 population (approximately 270 million) of the countries that received this aid yields a per capita endowment of $588 in today’s dollars to match the original Marshall Plan.

That would add up to approximately $55 billion for the DRC and its estimated 95.2 million people. The amount is practically the size of the DRC’s GDP and more than ten times what it receives in annual Official Development Assistance. It may seem enormous—but that is not the case considering the scale of the DRC’s weak social indicators and immense needs. The sum is about one-third more than the $40 billion the US Congress committed this year to aid Ukraine in its fight against Russia, and represents roughly three to four years of expenditures for Washington, DC, or Chicago.

The spillovers from the Marshall Plan would also be transformative; those resources would help provide the “big push” that the country needs to fight against the rise of the ADF in eastern DRC, meet its development challenge, rebuild, and, above all, consolidate its governance and move from a cyclical, natural-resource-led growth to a more balanced and sustainable momentum supported by strong institutions.

A Marshall Plan-style investment could quickly transform the DRC, which is projected to become the world’s eighth most populous country by 2050, into one of the globe’s most dynamic markets. The DRC, with its connections to world cobalt battery supply chains, could also become a home for green industries, with jobs available for youth in all sectors of a radically transformed economy.

Ultimately, an institution-centered Marshall Plan would dramatically transform the DRC over the next decades, helping new generations of Congolese achieve Lumumba’s vision of a bright future for the country, the region, and for Africa.

Jean-Paul Mvogo is a nonresident senior fellow at the Atlantic Council Africa Center.

The post Here’s what a Marshall Plan for the DRC could look like appeared first on Atlantic Council.

Executive summary
The ABC Agreement from Egypt’s perspective
The ABC Agreement from Iraq’s perspective
The ABC Agreement from Jordan’s perspective

Executive summary

Overview

Since 2019, Egypt, Iraq, and Jordan have held multiple summit meetings to discuss trilateral agreements to formalize and deepen economic integration. Throughout this report, this effort will be referred to as the Amman-Baghdad-Cairo (ABC) Agreement. By cooperating among themselves, the three countries can represent a united political and economic front and a collective 150 million citizens, with more than $500 billion in gross domestic product (GDP) and access to major trade routes, markets, and economic and political relationships.

However, the Middle East has a history of optimistic proclamations and agreements that are announced with great fanfare and eventually amount to little¹. The key factor that will determine the success of the ABC Agreement is whether it can bring tangible, practical benefits to the three participating countries. 

All three countries face significant economic, political, social, and environmental challenges. By cooperating on projects and linking their markets and policies, they are laying the foundation for potential gains from a stronger combined voice, economies of scale, and scope for specialization. However, this potential will only be realized if the final agreement is not just another optimistic proclamation but instead enacts detailed and specific measures to remove barriers and encourage cross-border cooperation and integration.

This report explores the potential benefits and pitfalls to avoid from the perspective of each country: Egypt, Jordan, and Iraq. 

To do so, the Atlantic Council’s empowerME Initiative, in collaboration with the Iraq Initiative, invited three independent co-authors with expertise on Egypt, Iraq, and Jordan, respectively, to each write a country-focused chapter. Each chapter evaluates the potential and challenges of the ABC agreement from the point of view of each of the three countries. The evaluation focuses on economic and social gains and losses, excluding the debate on the political merits of, and motivation behind, the agreement.

By considering each country’s position independently, we have been able to highlight the potential benefits of the agreement for each country more pragmatically. It is worth noting that no agreement has been signed to date; instead, there have been multiple meetings between the three leaders to discuss the potential for initiating an economic cooperation framework.

This report will hopefully enlighten the discussion further, initiating a pathway for extensive research on the subject both within and outside the Atlantic Council.

Leveraging comparative economic strengths and weaknesses

For the ABC Agreement to succeed, each country must leverage its comparative strengths to address deficits in the other country/countries. The table below summarizes each country’s main challenges and opportunities pertaining to the ABC Agreement. In the report chapters, each element is explored in greater detail. 

Egypt

Iraq

Jordan

High priority projects to pursue

Egypt, Jordan, and Iraq should consider the following projects as ways to quickly deepen cooperation and provide benefits to all sides:

1. Oil sector: Establish joint downstream oil and petrochemical refinery projects, with Iraq supplying crude oil and Egypt and Jordan using their refinery capacity and facilitating export access to Europe. 
2. Tourism sector: Develop Iraq’s tourism sector, with Egyptian and Jordanian hospitality companies providing expertise and investment. Once the sector is developed, Egypt, Jordan, and Iraq can collaborate to market Iraq’s tourism sector and Jordan’s health tourism resources among the ABC countries as well as regionally. 
3. Construction sector: Help restore Iraq’s physical infrastructure, building on the expertise of Egyptian companies in the construction industry.  
4. Renewable energy: Explore and collaborate on new opportunities for renewable energy generation and storage, in addition to water desalination, water recycling, and growing crops in harsh environments. There are growing needs for food and energy security within the three countries that can be met through use of green technology. 
5. Entrepreneurship: Develop a joint digital strategy to open markets for business start-ups, particularly within the fintech industry.

Recommendations

The ABC Agreement is an opportunity for long-term sustainable development in countries that have suffered from external shocks in the last thirty years, and importantly, the leaders from all three countries have shown there is political will to implement economic integration. The following are recommended steps for successful implementation:

• Robust communication strategy for the three parties involved should be designed to highlight the expected benefits from the agreement.
• Institutional development should take place at the early stages of the partnership. The three countries agreed in 2020 to establish a rotating secretariat that guides and monitors the implementation process, and the secretariat should be adequately staffed and overseen by key leaders from each country, to ensure progress is made. 
• A multistakeholder engagement strategy should be developed to ensure that stakeholders from the public sector, the private sector, and the local communities are all invited to provide input and reach consensus on mutually beneficial strategies.
• A practical, actionable implementation plan should be put in place. The table above detailing challenges and opportunities highlights the numerous possible high-priority projects to pursue. A detailed road map, along with a clear timetable, should also be developed. 
• Narrowing down sectors of focus for each country is essential. Country expertise should be highlighted within the agreement, and an amelioration strategy should be put in place so that specializations can add value in respective local markets.
• In terms of essential sectors, each country should analyze its ratified national strategies, international agreements, and targets,  and then map them against the benefits that can be attained from this partnership.
• Unanimous agreement must be reached on key performance indicators as well as follow-up mechanisms to ensure accountability and to track the progress of the agreement’s timeline. 
• Looking at what went wrong and what went right in past similar agreements in the region will be instructive.
• The partnership must be treated as an iterative process, with continuous dialogue among the three countries to capitalize on beneficial opportunities as well as address challenges along the way.

The ABC Agreement from Egypt’s perspective

By Racha Helwa

Background

Egypt is a member or signatory of seventy-three different bilateral trade and economic integration agreements. At least eighteen of these agreements are currently active, including the European Union Association agreement, the Qualifying Industrial Zone (QIZ) with the United States and Israel, and the European Free Trade Association Agreement (EFTA).

The recent ABC Agreement builds upon Egypt’s considerable economic and political relations with Jordan and Iraq. In fact, the ABC Agreement echoes a political and economic alliance between these countries from thirty years ago. They—along with North Yemen—came together in a very short-lived partnership called the Arab Cooperation Council (ACC) from 1989 to 1990. The ACC was disrupted by Iraq’s invasion of Kuwait in 1990, but its economic relations with Egypt and Jordan continued.

The ABC Agreement can also be seen as the latest iteration of the New Sham (or New Levant) project² and other cooperation projects between the three countries. Some of these projects envision participation by other countries in the region. The economic and political attractiveness of cooperation for these countries is easily understood. Egypt is seeking ways to expand markets for its industries and allies for its regional political leadership ambitions. Jordan is a small country in an unstable region, surrounded by larger and more powerful neighbors. Iraq is an oil-rich nation emerging from decades of war and internal strife. It also has long borders and a history of conflict involving Iran and Turkey, both of which are larger, more powerful, and more than willing to interfere in Iraq’s internal affairs to protect their own interests. By cooperating among themselves, the three countries can represent a united political and economic front and a collective 150 million citizens, more than $500 billion in gross domestic product, and access to major trade routes, markets, and economic and political relationships. 

When Egyptian President Abdel Fatah al-Sisi and Jordanian King Abdullah II visited Iraq‘s President Barham Salih on June 27, 2021, the three leaders discussed cooperation across a variety of economic and political areas. These included security matters, regional issues, and specific areas of trade, such as industrial projects, medicine, agricultural products, and the energy sector.

However, the Middle East has a history of optimistic proclamations and agreements that are announced with great fanfare and eventually amount to little. The key factor that will determine the success of the ABC Agreement is whether it can bring tangible, practical benefits to the three participating countries. All three countries face significant economic, political, social, and environmental challenges. By cooperating on projects and linking their markets and policies, they are laying the foundation for potential gains from a stronger combined voice, economies of scale, and scope for specialization. However, this potential will only be realized if the final agreement is not just another optimistic proclamation but instead enacts detailed and specific measures to remove barriers and encourage cross-border cooperation and integration.

For Egypt to maximize the economic gains from this proposed agreement, its government should focus on several key elements of cooperation. The first element is the potential for increased exports of Egyptian goods and services to Iraq and Jordan. The second element is the potential for importing goods and services to Egypt at advantageous prices. The third element is the potential for cross-border cooperation/integration to achieve benefits that the three countries would have difficulty achieving alone.

Bilateral trade relations between Egypt, Iraq, and Jordan

Trade relations between Egypt and Iraq 

Currently, Egypt’s trade relations with Iraq are modest. Egypt’s exports to Iraq are limited in size and scope and are mainly centered around electronic equipment, plastics, and iron and steel. At the same time, Egypt’s imports from Iraq are minimal and consist mainly of food products and consumables.

The potential for increased trade between the two countries is significant. Egyptian exports to Iraq can grow substantially in the industries where Egypt is a regional leader, such as construction and financial services. At the same time, given that Egypt is a net oil importer, the ABC Agreement can create a negotiating opportunity to secure a stable supply of oil at a concessional price, minimizing the risk of fluctuations in foreign exchange and sale price per barrel.

Trade relations between Egypt and Jordan 

Egypt’s exports to Jordan are primarily focused on oil and minerals, food, and ceramics. At the same time, Egypt’s imports from Jordan remain limited and are primarily centered around fertilizers and chemicals. Therefore, there is significant scope for expanding export/import relations between the two countries.

Maximizing mutual economic gains 

The potential economic gains from the tripartite agreement can be maximized with focus on specific import/export sectors. Egypt has a comparative advantage and significant export potential in construction services, infrastructure services (including transportation and telecom), renewable energy, financial services, and educational services. These are all potentially attractive to Jordan and especially Iraq as it rebuilds its infrastructure following the devastation of the last several decades of conflict.

Jordan could also be a market for increased Egyptian exports as well as serve as a link between Egypt and Iraq for the transportation of goods, oil and gas, and electricity. In fact, Egypt recently announced a deal with Jordan and Iraq “for the establishment of a land route connecting the three countries, in a bid to boost economic and trade relations between them.” 

Sectors of opportunity for Egyptian exports

Construction

Egypt has a large, highly efficient, and competitive construction industry. Over the last decade Egyptian construction companies have engaged in major projects such as the widening of the Suez Canal, the construction of the new administrative capital, and numerous other projects.  Egypt has the most construction projects in all of Africa, “with forty-six projects (9.5 percent of projects on the continent) as well as the most projects by value at $79.2 billion (17 percent of the continent’s value).” 

Egyptian companies also have been instrumental in numerous significant construction and development projects internationally. For example, Egyptian companies are building “the Julius Nyerere dam [also called Stiegler’s Gorge dam] and hydropower station, which will be the largest in Tanzania.”

Egypt’s experience with exporting construction services would be particularly attractive to Iraq as it rebuilds its infrastructure. The vast scope of future construction requirements in Iraq—ranging from housing to energy plants to hospitals—likewise create very significant opportunities for Egypt’s construction and infrastructure industry and labor force. Indeed, one estimate notes that “the reconstruction projects in Iraq could provide job opportunities for over two million Egyptian workers.”

Financial services

The financial services and banking sector in Egypt has experienced steady growth due to regulatory reforms in the past six years, including capital requirements, the privatization of public-sector banks, and the consolidation of small private institutions into larger, more robust entities. Fintech services, in particular, are experiencing rapid growth due to recent supportive legislation and significant investments to meet the needs of a sizable population that is still largely unbanked. Egypt’s population exceeds 100 million and 98.8 percent of families own a mobile phone, which gives Egyptian fintech companies the experience and scale to be very competitive exporters to other developing countries.

This experience is potentially very attractive to Jordan and Iraq since these countries’ populations are also largely unbanked and have high mobile-phone penetration rates. Furthermore, in Iraq’s case, the various recent conflicts have hampered the ability of local financial service companies to function, let alone grow and advance.

Telecommunications

Egypt has a relatively advanced and experienced telecom industry that efficiently provides services at low cost. Its geographic location “has enabled it to capitalize on the numerous cables which cross through it, interconnecting various parts of Europe with the Middle East and Asia . . .  Egypt offers some of the lowest prices for DSL services on the continent.”³

Growth rates and exports in telecom and information technology have been impressive, despite the COVID-19 pandemic. Indeed, Egypt’s information and communication technology (ICT) sector grew by 15.2 percent in 2020, and exports, from this sector increased to $4.1 billion in 2020 from $3.6 billion in 2019. Similarly, in terms of wireless telecom, there is considerable investment to improve wireless services in Egypt, where up to six thousand new cell phone towers are to be built and utilized over the next three years.

These capabilities would likely be very attractive to Iraq as it recovers from decades of conflict and destruction of infrastructure. Jordan would also benefit from working with Egyptian telecom companies that have achieved economies of scale due to Egypt’s much larger population and service export successes.

Renewable energy

Egypt is a regional leader in terms of renewable energy, especially hydroelectric, wind, and solar energy. The nation boasts considerable experience with projects of all sizes from small scale to some of the largest in the world. Egypt built and has been operating the Aswan High Dam for decades. Currently, it is building the Benban solar plant, “one of the world’s largest solar parks,” at a cost of over $2 billion.

Egypt already exports electricity (and natural gas), and the services of its companies are used in the construction of renewable energy projects in other countries. Indeed, due to its megaprojects, Egypt is one of the main renewable energy producing countries in the Middle East and North Africa (MENA) region. Egypt is looking to export electricity to Iraq through Jordan, to which it already exports electricity. This would potentially be very helpful to Iraq (and Jordan), as Iraq is currently “highly reliant on Iranian gas and electricity imports to meet domestic demand,” and diversifying its sources of energy would be advantageous. 

Egypt has put significant emphasis on not just exporting natural gas and electricity, but also exporting the services of its infrastructure companies to develop renewable energy projects in other countries. This has included building dams and solar energy parks in Eastern Africa, as part of Egypt’s diplomatic and economic initiatives related to its dispute with Ethiopia over the Grand Ethiopian Renaissance Dam (GERD). 

Egypt’s growing expertise in the construction of significant renewable energy projects and “exporting” that knowledge would be very attractive to Jordan and especially Iraq, as those countries seek to build or rebuild their energy infrastructures.

Sectors of opportunity for Egyptian imports

Due to Egypt’s large population, especially compared to its oil reserves and arable land, the nation needs large amounts of imported oil, fertilizer, and other agricultural chemicals to meet its energy and food-security needs—two key requirements for political and social stability. With a mutually beneficial agreement and a plan for a usable land route linking the three ABC Agreement countries, Egypt could be assured a steady supply of these key products at attractive prices. This would be an expansion of Egypt’s existing imports of oil from Iraq and fertilizers from Jordan. 

Opportunities for joint cooperation

Oil and oil derivatives 

One of the most important potential impacts of the ABC Agreement would be the cooperation between the three countries to achieve gains that each alone would be unable to accomplish. 

One obvious example would be in the oil and oil derivates sector. Iraq currently produces significantly more crude oil than it can refine. With proper infrastructure in place between the three ABC countries, Iraqi crude oil could be shipped in large quantities through Jordan and on to Egypt. This crude oil could then be refined in Egyptian refineries, which currently have spare capacity, to be used locally or exported to Europe and Africa. Or, if the flow of Iraqi crude oil exceeds Egypt’s refinery capacity, the surplus could be shipped to Europe for refining and use. 

This scenario would be highly beneficial for all three countries. Iraq faces geographical and political challenges in exporting its crude oil, particularly to Europe. It can ship it through the Persian Gulf, but that is a long, roundabout route that faces potential disruption in any crisis involving Iran and the United States or Arab Gulf countries. It could send its crude oil westward through pipelines; however, political challenges would need to be overcome for it to reach Europe. For example, the Kirkuk-Ceyhan pipeline through Turkey has been shut down since 2014 due to attacks by the Islamic State of Iraq and al-Sham (ISIS); in September 2021, the Iraqi oil ministry announced that it would be reopened.

Furthermore, Iraq has several significant disputes with Turkey, which has launched frequent bombing raids and incursions against Kurdish parts of Iraq. Other options include sending oil via Syria, which is in a complex civil war, or through Jordan to Israel. Iraq is technically at war with Israel, and any attempt to build such a pipeline would be met with a furious response from Iran and Iranian-aligned groups in Iraq. Therefore, a low-cost, politically and physically secure route for its oil through Jordan to Egypt makes perfect sense for Iraq. It also makes sense for Jordan, which would receive transit revenue and could utilize some of the oil as part of the agreement. It makes sense for Egypt, too, which could use some of the oil and gain refining and exporting revenues from the rest.

The flow of oil could encourage the flow of other trade goods among the three countries. For example, it would be possible to further link these nations’ electricity grids and markets to provide their populaces and industries with resilient electricity supplies.

Education services 

Another potential field of collaboration is in the provision of education services. Arab countries historically sent many of their students to Egypt to study, and numerous Egyptian teachers have lived and taught in Arab countries. These flows have decreased in recent years because some Arab countries’ education systems have improved and Egypt went through a period of instability. However, Egyptian universities and institutes are still attractive to many Arab students due to a variety of factors: the relative openness of Egyptian educational institutions to foreign (especially Arab) students; the comparatively low cost of tuition and living in Egypt for them; the lack of cultural or language barriers to living and learning in Egypt for these students; and the comparative quality, breadth, and history of Egyptian educational institutions. In fact, in 2015, the country’s Supreme Council of Universities announced an ambitious plan to quadruple foreign student enrollment from approximately fifty thousand per year to two hundred thousand through outreach to Arab and African students, and improvements to Egyptian universities in the areas of education, research, and student housing.

The provision of educational services was specifically cited by senior government representatives in discussions around the ABC Agreement. Egypt’s rail system is considered comparatively highly advanced for the region, and the Jordanian government expressed a desire to send “Jordanian students, technicians, and engineers to learn in Egypt’s Institute of Ouerdane for rail technology.”

These types of cultural and educational exchanges could be a powerful factor in the success of the ABC Agreement. With proper institutional support, cross-border education can naturally encourage and lead to cross-border cooperation, cross-border companies, trade, services, and more.

The political dimension of the ABC Agreement 

As mentioned earlier, the leaders of Egypt and Jordan met with the Iraqi president in June 2021 in Baghdad, the fourth meeting of the three leaders since March 2019. This visit was also the first to Iraq by an Egyptian head of state in about thirty years, which clearly reflects a strong political commitment and a determination for deepening the level of economic and political cooperation between the three countries.

For Egypt, the political motivations behind this agreement are as important as the potential economic gains. First, Egypt believes that it needs strong regional and international support in its water dispute with Ethiopia regarding the GERD, which Cairo views as an existential threat. Second, there have been significant changes in the political map of the Middle East, resulting in a weakening of Egypt’s position in the region following the Arab Spring (although this has recovered somewhat as Egypt’s economy rebounded after the political events of 2011-2013 and the currency devaluation in late 2016). At the same time, Turkey, Iran, and Israel have increased their economic and political influence and relationships in the Arab world (such as Turkey’s intervention in the Libyan civil war), in some cases encroaching on what Egypt traditionally viewed as its sphere of influence.

By more closely integrating their economies and political policies, Egypt, Jordan, and Iraq can create an alliance that improves their economic prospects and increases their regional clout, helping them meet a variety of internal and external challenges. This cooperation and integration could also provide a platform to bring other countries into the alliance, such as Syria, as it attempts to end and recover from its own devastating civil war. Syria has historically had deep and occasionally complex relationships with all three of these countries, including a unification with Egypt from 1958 to 1961 and a military alliance with all three against Israel.

Conclusion 

The potential for significant political and economic benefits from the ABC Agreement is clear. However, attempts at economic cooperation between Egypt, Jordan, and Iraq are not new. For this latest agreement to be successful, all three parties will need to focus on pragmatic deliverables. In particular, the three countries’ governments should ensure that there are tangible economic benefits for their populations and industries, which would help provide the impetus and support for closer cooperation.

About the author

Racha Helwa is director of the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East. Racha is a senior economist with twenty-two years of professional experience in economic and financial policy analysis and implementation. She has held roles in the private sector, government, and academia in the United States, United Kingdom, France, and Egypt. She specializes in public policy design and implementation, sustainable development, impact investing, and private-sector development. Racha holds a PhD in economic policy from the University of Cambridge, an MSc in international political economics from the London School of Economics, and an MSc in banking, finance, and risk management from the University of Paris. She was formerly an assistant professor of public policy at the American University in Cairo, senior researcher at the University of Cambridge, and senior economist in the Office of the Minister of Investment of Egypt. Racha also has collaborated with various international institutions including the Organisation for Economic Co-operation and Development, the International Monetary Fund, the United Nations (UN) Conference on Trade and Development, the UN Development Programme, and the US Agency for Development.

The ABC Agreement from Iraq’s perspective

By Barik Schuber 

Introduction

Economic cooperation aimed at gradual integration between Iraq and other Arab countries is highly desirable from Iraq’s perspective. In 2021, the leaders of Iraq, Egypt, and Jordan held their fourth summit in Bagdad to further the new endeavor for economic cooperation and integration, the ABC Agreement.

This section of the report evaluates the new initiative from the perspective of Iraq, examining: 1) the socioeconomic and political conditions in the three countries for initiating a successful and sustainable economic-integration process, 2) the distinctive features of the new initiative between the three countries compared to experiments that have failed during the past six decades, and 3) whether this effort will create a win-win situation for the three countries or win-lose situations for any of the parties.

Historical background and lessons learned

Attempts at Arab economic integration since 1958 have not delivered on government promises to boost economic prosperity. 

The first attempt was the Hashemite Federation between Iraq and Jordan, which was initiated in 1958, as a reaction to the pan-Arab state project that was started by Egypt and Syria at same time. A military coup in Iraq five months later aborted this initial attempt, and a second experiment was ended by a similar military coup in Syria in 1961. 

There were many fruitless attempts by pan-Arab Iraqi governments during the 1963-1979 period to revive the failed attempt at uniting Arab countries. Then in 1979 the ruling Baath Parties in both Iraq and Syria tried to establish an economic and political union between those two countries, which ended in a massacre inside the Iraqi Baath Party and propelled Saddam Hussein to power as an absolute autocrat.  

Another ill-fated union was launched in 1989 between Iraq, Jordan, Egypt, and Yemen; it ended with Saddam Hussain’s invasion of Kuwait in 1990.

Even Arab League initiatives for partial economic integration in certain sectors via the creation of joint Arab companies and institutions have mostly failed to achieve any progress amid the political tensions and instability in the region. 

The only exception is the Gulf Cooperation Council (GCC), which was created in 1981. In terms of economic integration, however, the GCC has achieved little. It took the GCC twenty-two years to implement a customs union agreement, where a common external tariff of 5 percent was levied on all foreign imports starting in 2003. Recently, Saudi Arabia has diverged from this agreement by amending its import rules from the Gulf. Moreover, political differences between Saudi Arabia, the United Arab Emirates (UAE), and Qatar as well as competing economic interests between Saudi Arabia and the UAE are hindering effective economic integration.

In conclusion, past initiatives and projects for economic integration in the Arab World have failed due to competing economic interests of the ruling classes and political instability such as regime changes. In addition, the private sector in most Arab countries—particularly entrepreneurs who should be the leading force for economic integration—are relatively nascent and weak. In Iraq, the private sector is largely dependent on public expenditure, as is the case in most other rentier economies.

However, the new ABC Agreement cannot be rejected as doomed to fail a priori since present socioeconomic and political conditions in the three countries and in the region are clearly different from the past. 

On the national level, all three governments are facing increasing economic and social pressures to improve the living standards of the population. On the regional and international level, globalization and changing geopolitical interests of the former colonial powers—the United States, United Kingdom, and France—and the formation of new political blocs and alliances in the region are changing paradigms.

Iraq’s existing regional trade and economic agreements 

Since the 1970s, Iraq has concluded at least twenty-one bilateral trade and economic agreements with Arab states, in addition to some multilateral arrangements within the framework of the Arab League’s Council of Arab Economic Unity.⁴ Iraq also has trade and economic agreements with Iran and Turkey. 

The existing bilateral agreements between Iraq and both countries raise the question of whether the new ABC Agreement is a bundling of past bilateral agreements or something completely new to achieve economic integration of the three economies. 

The ABC Agreement should upgrade and further develop existing bilateral agreements by adapting innovative approaches for economic cooperation via joint investment projects, harmonizing technical standards, facilitating knowledge transfer as well as research and development, and promoting solutions to tackle environmental and climate change challenges such as water and food security.  

Structure and reform needs of the Iraqi economy

Iraq’s gross domestic product (GDP) per capita in 2021 amounted to $4,973, compared with $3,876 in Egypt and $4,394 in Jordan. Iraq’s economic structure differs considerably from both countries due to heavy dependence on crude oil exports. 

Economic indicators for Jordan, Egypt, and Iraq

Relatively high oil revenues, albeit subject to frequent fluctuation, have converted the Iraqi economy into an attractive export market for its trade partners despite its inflated public-sector budget and widespread corruption in most state institutions. However, the economy has become less buoyant and subject to frequent external shocks.

In 2019 and 2020, the oil sector accounted for 59.1 percent and 61.4 percent of Iraq’s GDP, respectively, and the rest of the economy is dominated by sectors producing nontradable goods (services, real estate, etc.). In 2020, the share of agriculture in Iraq’s GDP amounted to 6 percent, and manufacturing amounted to only 3 percent. In other words, Iraq’s non-oil exports are practically negligible.

Aside from suffering macroeconomic mismanagement and corruption for nearly two decades, the Iraqi economy faces significant problems related to unemployment as well as weak infrastructure and public services, which have all contributed to causing political instability and civil unrest. At present, the unemployment rate is estimated at about 27 percent and the poverty rate around 25 percent.

Hence, Iraq urgently needs restructuring and diversification of its economy away from oil rent. One major step should be expanding the domestic oil and gas industries to meet local demand for energy sources. Iraq has been importing petroleum products since 2004, costing around $5 billion per year in some previous years between 2006 and 2014. At present, the cost for Iraq’s energy imports totals $2 billion, according to Minister of Oil Ihsan Abdul Jabbar.  

Further parallel steps should focus on generating new jobs for the millions of unemployed Iraqis, mainly youth. Heavy investment in infrastructure and productive sectors is urgently needed along with effective measures to eliminate the prevailing corruption.  

In 2020, the Iraqi government developed a reform agenda.⁵ This echoes initiatives from previous governments as well as many initiatives from independent Iraqi economists like a symposium organized by the Iraqi Economists Network in 2013 in Beirut.  

To implement a reform agenda, Iraq needs international support as well as tangible contributions from the ABC Agreement partners in all sectors of the economy. True reform would entail eliminating the existing structures of corruption and preventing the emergence of new forms of corruption in connection with implementing joint projects such as industrial cities. 

Assessment of the main areas of cooperation in the ABC Agreement

Trade gains

Iraq’s import market is relatively large in the region due to high oil revenues in most years since 2004 and limited local production capacity.  Iraqi merchandise and service imports were around $72 billion in 2019. The main exporters to Iraq in 2019 were China, Iran, South Korea, and Turkey.

At present, Egypt and Jordan are net exporters to Iraq in terms of goods and services. Egypt’s exports to Iraq amounted to $202 million, while its imports from Iraq were only $5.8 million in 2019. The Egyptian government aims to expand Egypt’s exports to Iraq to around $6 billion. Iraq’s imports from Jordan in 2020 amounted to $478 million, while its exports to Jordan were only $4.4 million. 

An expansion of trade through the ABC Agreement may increase exports from Egypt and Jordan to Iraq rather than from Iraq to Jordan and Egypt, since Iraq has very little products to export to both countries, except crude oil which Iraq can offer to both countries at an advantageous cost. However, a trade deficit may be beneficial in the short term to avoid shortages of goods and services, and it may be corrected over time as Egyptian and Jordanian companies expand operations and production in Iraq. Moreover, a larger free trading zone could also attract more international capital to invest in production in these markets. 

Investment movement and prospects of project financing

Between the three countries there is no barrier for movement of investment. Indeed, Iraq’s private-sector investments have been flocking into Jordan since the beginning of the 1990s. The total accumulated value of these investments is estimated at $18 billion in four main sectors: manufacturing, real estate, hospitals, and banking.

Apart from pan-Arab companies, there seems to be no Egyptian or Jordanian direct investment in Iraq due to political instability, including Iraq’s war with Iran between 1980 and 1988, followed by its 1990 invasion of Kuwait, and then the international embargo on Iraq from 1990 to 2003. 

There has been some skepticism regarding whether the business environment and political situation in Iraq could be conducive to foreign investments, including from Egypt and Jordan, according to Iraqi businessmen interviewed by the author.⁶ However, a more palatable alternative could be for the three countries to establish a venture capital investment fund for joint projects in Iraq.

Innovative approaches are needed for financing infrastructure projects in Iraq, as the likelihood of public financing by the Egyptian and or the Jordanian government is not promising, due to the high public debt in both countries. 

Some have suggested financing infrastructure projects in Iraq through funding from Saudi Arabia and other Arab Gulf countries, pointing to the announcement from Saudi Arabia and the UAE that they would allocate billions for investment in Iraq. However, this route would entail Gulf countries giving priority to their own national companies to execute projects in Iraq rather than Egyptian or Jordanian companies. 

Egypt and Iraq could create a win-win situation through an oil-for-reconstruction deal similar to Iraq’s arrangement with China. Arab financial institutions like the Islamic Bank, Arab Gulf country development funds, the World Bank, and European development banks can also be asked to fund strategic projects that benefit all three countries.

Oil pipeline from Basra to Aqaba and oil processing industry

An oil pipeline running from Basra in Iraq to Aqaba in Jordan was agreed to in bilateral accords in 2013 and 2019, but it is still in the planning and negotiation stage. There also is talk about a possible extension of the pipeline to Egypt’s Mediterranean coast. However, the project has been criticized for its high costs, and for its inability to get Iraq’s crude exports efficiently to its main export destination: Asian markets. Similarly, the new outlet in Aqaba would not effectively minimize the risk of a possible blockade of the Strait of Hormuz. A less costly alternative outlet could be the activation of the old pipeline to Banias on the Syrian Mediterranean coast, and/or the construction of a second pipeline from Haditha to Cihan in Turkey, bypassing the Kurdistan region.

Despite all this criticism, the project may be a win-win situation benefiting the Iraqi economy through the integration of the oil downstream and oil processing facilities in all three countries. In addition, the three countries could consider creating joint investment funds for the rehabilitation and expansion of existing refineries and petrochemical projects as well as launching new initiatives for water desalination in all three countries to meet their increasing local demand for energy and clean water.

Connection of national power grids

The ABC Agreement countries are giving high priority to the connection of national power grids, which makes sense due to the electricity crisis in Iraq. Iraqis frequently suffer power cuts, especially during the hot summers.

However, connecting the grids will not lead automatically to the integration of the power sectors of the participating countries.  Harmonizing the sector’s structure and the countries’ energy policy is a prerequisite for any economic integration. To achieve this, Iraq needs power-sector reforms. 

Iraq is presently in dire need for tangible measures to mitigate the long-lasting electricity crisis in the country. The shortage is estimated to be between 10,000 and 15,000 gigawatts in the summer. Iraq therefore imports from Iran some 1,200 megawatts (MW) of electricity, as well as some 75 million cubic feet of natural gas, according to the Iraqi minister of oil. However, the actual supply is far less than what is needed or has been sought due to a financial dispute between the two parties.

In the medium- and long-term, Iraq cannot remain dependent on electricity imports from neighboring countries. Economic integration should not mean linking producers with consumers; instead, Iraq should end bottlenecks in the power sector and produce seasonal surplus to be exported to partner countries. Likewise, Egypt and Jordan could export excess capacity to Iraq during peak load in the summer. Cooperation in this field may be a win-win situation for Iraq, Egypt, and Jordan.

Population and labor force movement

The large combined population of the three countries, at about 150 million people, is viewed as a major strength of the new initiative because this sizable consumer market could provide good export opportunities for all the partners. This is true in the case of the effective demand in all three countries, particularly in Egypt, with its population of one hundred million. 

Egypt and Jordan currently have a surplus labor force working abroad, mainly in Arab Gulf countries. Iraqis are concerned about plans for two million Egyptian workers to come to Iraq, as happened during the Iraq-Iran war in the 1980s. Egypt and Jordan have agreed upon a cheap bus line from Cairo to Amman and on to Baghdad for the transport of Egyptian and Jordanian workers, who are supposed to work in the envisaged infrastructure projects in Iraq. 

As mentioned earlier, the latest available data from the Ministry of Planning for the year 2021 indicate an overall unemployment rate of 27%. However, some Iraqi economists estimate that the current rate is much higher due to the coronavirus pandemic. Given this situation and the potential free movement of labor among the three countries, an inflow of Egyptian workers accepting lower wages than Iraqis could put pressure on the wage levels of Iraqi workers, as was the case during the Iran-Iraq War (1981-1988), when some millions of Egyptians worked in Iraq. 

Joint industrial city on the Iraqi-Jordanian border

Establishing a joint industrial city as a free trade zone on the Iraqi-Jordanian border was agreed upon in 2019, as a key element of the ABC Agreement. 

In 2021, the Egyptian and Iraqi ministers of industry signed an agreement to build joint economic and industrial cities for manufacturing textiles, leather, pharmaceuticals, and agricultural pesticides. The locations of the Iraqi-Egyptian cities have not been defined yet. This is important for assessing the employment effects of each city, particularly in case it is located on the border far away from urban centers, in which case the effect would be fairly limited in terms of employing jobless Iraqi workers. Still, under certain conditions, this mode of cooperation can bring about a win-win situation.

Indeed, there is no information about the preliminary list of locations, which could lead to better understanding of whether the entities to be involved would include existing state-owned enterprises, private-sector companies from the three countries, and/or foreign direct investors from other countries. However, the project is intended to attract private investors from Egypt, Jordan, and Iraq to the zone by removing complicated bureaucratic procedures and including some incentives like tax exemptions. This makes sense for establishing complementary industries with backward and forward linkages.

Questions that need to be clarified include whether investors will be encouraged to create joint ventures or establish their own businesses, and whether producers will be allowed to export their products to the markets of all three countries, without levying customs duties. 

Agriculture

Iraq’s agriculture sector has suffered from structural problems for decades, but it has huge potential for sustainable and relatively quick growth rates. Therefore, Iraq’s development strategy should give high priority to upgrading this sector to enhance food security.  

Cooperation with Egypt and Jordan on agriculture is highly desirable as both countries have vast experience with modern agricultural technologies and modern irrigation schemes that take into account water scarcity. One possible area of cooperation is establishing large-scale joint ventures in Iraq’s agriculture sector with venture capital and financing from Iraq’s public banking sector. A win-win situation is very likely in this field of cooperation.

Tourism sector

Strangely, Iraq’s many bilateral cooperation agreements with Egypt and Jordan, respectively, have not focused on the tourism sector, and neither does the new ABC Agreement. Iraq would benefit from cooperation with Egypt and Jordan, since both countries has extensive experience in the tourism industry, including business and operational management of large-scale tourism projects. In 2019, Egypt’s tourism sector contributed 5 percent to its GNP while Jordan’s contributed 15 percent. Tourism in Iraq, however, only contributes $955 million compared to the country’s GDP of $207.89 billion.

In the aftermath of Pope Francis’s 2021 visit to the birthplace of Abraham near the ancient city of Ur in what is now southern Iraq, the potential to attract a new type of religious tourism, combined with visiting historical and archaeological sites as well as the exotic marshlands in southern Iraq, has improved considerably. Some thirteen thousand pilgrims were expected to visit the site in 2021, according to an Iraqi official. Therefore, the Iraqi government is planning to build a new airport near that ancient city. Investments in modern infrastructure for tourism and management know-how are needed to develop this sector, which can contribute to the diversification of the economy. Therefore, the Iraqi government should make tourism a key area of cooperation via the ABC Agreement and attract Egyptian and Jordanian private investors to initiate joint projects with the Iraqi private sector in promising areas such as the Marshlands and the archaeological sites near the ancient city of Babylon and Uruk. A win-win situation is very likely in this field of cooperation. 

Conclusion and recommendations

Iraq is divided on the future vision of its economic structure. The ruling class and its clients prefer the status quo of the rentier economy based on increasing crude oil exports and revenues, which also leads to corruption and a clientele economy.  

Iraq’s oil minister declared recently that oil production will be increased from the current production level of approximately 4.5 million barrels per day to 8 million barrels per day by 2027.

In contrast, Iraqi economists and some reform groups inside and outside government institutions have been advocating for the diversification of the economy as an important remedy for the recurrent economic shocks that Iraq has been subject to in reaction to oil price volatility. More than seventy documents on macroeconomic and sectoral development strategies have been published over the last sixteen years, but very few have been implemented. The recently announced white paper by the Iraqi government provides a possible road map for initial economic reform measures needed in the near future. 

Given Iraq’s poor track record with economic reforms, as well as the numerous past agreements among Iraq, Egypt, and Jordan that have not reached significant results, the ABC Agreement is unlikely to mark a turning point unless there is serious and concerted implementation effort. One possible spoiler is Iraq’s political instability. Iraq held elections in 2021, but political disputes within the ruling class continue as the losing parties refuse to accept the result and escalate their protests against the winners. Even if the competing factions reach a compromise, it is not clear how the new government in Iraq will view or act upon the ABC Agreement. 

Despite these challenges, economic cooperation and integration between Iraq, Egypt, and Jordan should not be abandoned. The ABC Agreement should be developed carefully to ensure a win-win formula for all involved partners. It should also offer the opportunity for new members to join, such as Syria and Lebanon, to help address the economic crises in both countries. International experience has shown that economic integration can follow a challenge pathway and may require a detailed and well-structured implementation road map. 

As a first step, the three countries could consider initiating one or two joint-pilot projects in target industries, to explore the potential for economic integration in these sectors. The most important candidate from the Iraqi point of view is the oil and gas industries in all three countries, and then the agriculture and the tourism sectors. 

Exploring joint activities in the oil and gas sector in all three countries, such as gas processing, oil refining, and petrochemical production, could benefit Iraq particularly given Iraq’s limited refinery and processing capacity and resources. Iraq’s main role would be the provision of crude oil at discounted prices. Establishing a customs union would allow free trade flows of oil and petrochemical products between the three countries and enhance exports to the world market. Furthermore, creating a joint investment fund for private-sector investments and establishing a high commission to manage the new partnership would both be prudent moves. 

After several years of successfully implementing and assessing these initial steps, further unions in other fields of the economy could be initiated. 

About the author

Barik Schuber holds a master’s degree and PhD in economics, sociology, and political science from the Universities of Frankfurt/Main and Marburg/Lahn in Germany. He specializes in macroeconomic management and development planning as well as sector analysis and project management. He worked for seven years as a research fellow at the Department of Social Sciences at Philipps University of Marburg. From 1980 to 1985 he was engaged in private-sector trading and consulting activities. In 1985 he joined the German Agency for International Co-operation (GIZ, formerly GTZ) and was seconded to the Ministry of Planning in Saudi Arabia as economic adviser to the deputy minister. He was responsible for advising him in the preparation and follow-up of the Five Years National Development Plans. In 1996 he started a new position as project planning and management officer at the Department of Energy and Transport in the headquarters of GIZ in Eschborn, Germany, where he was responsible for planning and management of energy efficiency and renewable projects in various developing countries. In 2004 he was appointed acting head of the Department of Economic and Social Studies at the Emirates Center for Strategic Studies and Research in Abu Dhabi. In 2005 he was engaged in supporting private-sector organizations and served as secretary-general of the Iraqi Business Council in Abu Dhabi. During 2006 and 2007 he worked as an international expert for a European Union-funded project in Egypt, with responsibility for planning, implementing, and coordinating a study on the macroeconomic framework for reforming the national technical and vocational education and training system. Since 2007 he has been working as a consultant on international development cooperation in the Middle East and North Africa region, particularly with Iraq. He is founder and coordinator of the Iraqi Economists Network, a nongovernmental organization. 

The ABC Agreement from Jordan’s perspective

By Ibrahim Saif 

Background

While the ABC Agreement brings to mind the short-lived ACC of the late 1980s, the new initiative is a fundamentally different endeavor.

Jordan sees the 2019 agreement as a route for regional cooperation that could encompass large-scale industrial projects, promote trade, and help develop other industries including agriculture. The agreement could also maximize Jordan’s potential as a strategic trade intermediary given its location right between Egypt and Iraq, and can also help promote Jordan’s position as a key logistical hub for the entire MENA region. Examples of other regionally based economic blocs include the North American Free Trade Agreement (NAFTA), a trade zone, and the economic union of Benelux, which began as the customs convention of Belgium, Netherlands, and Luxembourg. Commitments under the ABC Agreement will be institutionalized and monitored by a steering committees which will be nominated by the three countries. The three countries have also discussed forming an Executive Secretariat, with a rotating chair every year/multiple years. 

A summit for the countries’ leaders was held in Cairo in 2019, followed by two more summits:  in New York in 2019, and Amman in 2020. In June 2021, King Abdullah II and President el-Sisi joined Iraqi President Saleh for a summit in Baghdad, the first visit by an Egyptian president to Iraq since the early 1990s. A general statement highlighting potential areas for economic collaboration between the three countries has also been issued.

Maximizing political gains from the ABC Agreement 

The MENA region as a whole is facing unprecedented economic uncertainty, with dwindling resources amid falling oil prices as well as protracted social turmoil. The increased instability in Iraq since the start of the Iraqi-Kuwaiti war in the 1990s, followed by the US-led invasion of Iraq in 2003, has triggered political uncertainties in other neighboring countries and in the region as a whole. Moreover, the absence of a political settlement in Syria and increasing sanctions on the Assad regime continue to suffocate a key trade route for Jordan. Free trade agreements and investment “trilaterals”—not only with Iraq and Egypt, but also with Cyprus and Greece, and the United Arab Emirates (UAE) and Bahrain—have been of interest to Jordan as a way to stimulate business and trade opportunities. 

Political, economic, and security conditions are a major impetus for these new avenues of cooperation:

• On one hand, Gulf Cooperation Council (GCC) members, and Saudi Arabia in particular, are adopting modernization measures via Vision 2030 and similar national development plans. In order to diversify their sources of economic growth, GCC countries are attempting to shift from conventional resource-based economies to more sustainable economic activities, with a focus on entrepreneurship, tourism, investment, and digital transformation.
• On the other hand, other Arab countries have been burdened by a plethora of different challenges. Syria was a major trade partner for Jordan for many years; however, due to internal conflict, Jordan lost a substantial market that enhanced its national exports as well as access to a hub for exports to different regions. In Lebanon, the local currency has lost 90 percent of its 2019 value, poverty rates exceed 70 percent of the population, and the political will to address these issues and enact reforms is nonexistent. In addition, countries like Egypt, Jordan, Tunisia, and Morocco have all suffered from regional conflicts and fallout from COVID-19, leading to diminished intra-industry trade volume and increased unemployment rates.

The variation between the needs and approach of GCC states versus other countries in the region has led to a disparity in economic priorities that may not align in the foreseeable future. They also reflect the inability to access GCC membership, the weakness of Arab League economic integration, and the growing assertiveness of new international and regional economic actors such as China, Turkey, Iran, and Russia. Regional integration has also historically been one of the major deterrents for interregional conflict due to the high interdependence of the involved countries. Combined, these factors explain Jordan’s desire to expand trade with two of the largest neighboring markets and key energy partners: Egypt and Iraq. 

Potential economic gains from the ABC Agreement

Trade in commodities

Each country in the ABC Agreement must capitalize on its specializations. In terms of exports, Jordan seems to be in a good position to specialize in the sectors of travel and tourism, potassic fertilizers, transport, ICT, and packaged medicaments.

Given Jordan’s experience producing these products, Jordan can take advantage of the regional integration to start producing a group of commodities. This is an opportunity to diversify its export portfolio given that there is high demand from the Egyptian and Iraqi markets, based on their import portfolios.

Moreover, Iraq and Egypt are among the five countries that are geographically closest to Jordan. Therefore, Jordan could benefit from Egypt as an enabler to expand Jordanian exports into other African countries.

Export market diversification

In 2019, Jordan exported domestically produced commodities to a total of 146 markets globally. However, 57 percent of the value exported was concentrated in four countries only.

The fact that Iraq is one of Jordan’s four main export partners proves that there is a promising opportunity for Jordan and Iraq to collaborate in accessing other markets (particularly those in Southeast Asia) given their existing strong trade relations. On the other hand, the low exporting volume to Egypt, coupled with the relatively low market concentration in sub-Saharan Africa, points to the possibility of Egypt’s role as an entry point to the sub-Saharan market for Jordan.

Jordan and Egypt have similar trade profiles. Removing trade barriers between the two countries under the ABC Agreement may lead to trade diversion rather than trade creation. Therefore, economic diversification could help both countries improve their product mix and create better trade opportunities, regionally and bilaterally. collaboration to diversify the product mix is essential to promote healthy competition and specialization.

Trade in services

Jordan’s information and communications technology services sector is one of the most developed sectors in the region. According to the Ministry of Digital Economy and Entrepreneurship, “Jordan contributes 75 percent of the Arabic content on the Internet.” In addition, data science, cybersecurity, and programming services are now of high importance for Jordan as they are aligned with Jordan’s Digital Transformation Strategy. Within the partnership, such services can be utilized to support the Egyptian and Iraqi governments in automating and digitizing some of the government services that have already been established in Jordan.

Jordan’s engineering and construction services are also competitive regionally, particularly due to the large Jordanian engineering firms that have a strong presence in GCC countries and other areas around the world. Jordanian engineering consulting firms were involved in the redevelopment and reconstruction of areas that were affected and/or destroyed by the conflict in Iraq, and the majority of these projects were funded by international financial institutions and the international community.

The tourism sector was a key target of Jordanian government investment in the pre-COVID-19 era. This sector, combined with Jordan’s highly developed healthcare system, has made the country regionally competitive for health tourism services. Indeed, there has been a steady increase in the number of health tourists visiting Jordan over the last decade. This has led the government, in collaboration with the private sector, to develop plans and incentive packages for tourists to maximize local consumption during their stays. The ABC Agreement can be useful to Jordan in terms of promoting and expanding its healthcare tourism industry.

Given Jordan and Egypt’s extensive expertise in the tourism industry, they can collaborate with the Iraqi government to help restore this important sector in Iraq. The latter’s rich history can be capitalized on by creating/redeveloping historically and archaeologically significant tourism sites.

Investment opportunities

Investment climate

Promoting a competitive business climate in Jordan has been a challenge. Investors in Jordan have numerous concerns relating to energy costs, policy unpredictability, and the significant lack of skillful workers. This has translated into a decline in foreign direct investment (FDI) inflows, as well as local investment.

On the other hand, Egypt’s FDI inflows as a percent of GDP have been increasing since 2012, despite the political instability that followed the Arab Spring. Egypt has also been one of Jordan’s major competitors, especially in the textiles sector. A collaborative effort using the ABC Agreement may lead to mutually beneficial growth, which might not be fully achieved within the current competitive landscape.

Helping more start-ups and new products survive

The longevity of new investments in any country is predicated on the enabling conditions that allow investors to scale up their business. Unfortunately, introducing new products to the three countries’ respective export baskets has not been successful in recent history. In 2013, Jordan introduced approximately 474 new products to its export basket. By 2018, only 44.5 percent of these products had survived. 

This has also been a challenge for Jordanian start-ups whose average lifespan is around three years. Aside from a few anomalies that have scaled up in recent history, most start-ups have either maintained (i.e., observed no improvement or scale-ups) or terminated their operations. 

An economic integration of Egypt, Jordan, and Iraq that operates with clear parameters, policies, taxes, and requirements could incentivize the production of larger product quantities as well as the introduction of new products in the long run. The integration would give all three countries the ability to collectively negotiate with major trade partners around the world, which could in turn increase the survivability of commodities.

Employment opportunities

Jordan’s increasing rate of unemployment, particularly among women, is a major challenge. What is especially concerning is that a higher level of educational attainment is associated with higher difficulty in finding jobs. To address this issue, Jordan can take advantage of the trilateral integration to introduce innovative and sophisticated goods and services through new online platforms for interregional trade.

The services sector can benefit from highly skilled people with tertiary educational attainment who are struggling to find job opportunities suited to their skill sets. Many recent graduates resort to jobs that are unrelated to their university degrees due to the supply-demand gap that has ailed Jordan for years, particularly in the engineering and medical fields.

The main enabling sectors for the ABC Agreement

Transportation

The transportation sector is one of the main enablers for the trilateral trade agreement. The costs of transportation are pivotal in determining to which international markets to export. Jordan’s land transport costs for commodities are highly competitive compared to Iraq at a price of approximately $3 per unit per 10,000 kilometers (km), compared to Saudi Arabia, the UAE, Iran, and Turkey, whose costs range between $5.8 and $84.5 per unit per 10,000 km. 

On the other hand, transportation costs in Egypt are highly competitive relative to Jordan. The Egyptian transportation system is globally competitive in terms of quality of infrastructure and the connectivity of different modes of transportation. Should there be a partnership between the three countries, Jordan has a significant opportunity to export its products to European and North African countries through Egypt, thereby decreasing the overall costs of its domestically produced commodities.

It is also important to focus on the mobility of individuals. Under the agreement, improvements can be made by enhancing the role of the Arab Transport Co. and instituting cross-border collaboration for unified ticketing and modes of transportation, particularly those involved in the proposed Unified Economic Zone between Jordan and Iraq.

In terms of improving the maritime transport system, the three countries agreed on a twinning mechanism for the respective academies for maritime studies during the trilateral summit of June 2021, which is an essential step to empower the respective ports, increase their competitiveness, and improve their operating efficiency.

Energy and water

All three countries in the ABC Agreement are considering working on an electric grid interconnection project to enhance the stability and reliability of electricity networks and establish a joint power market in the Arab world.

As of September 2020, Jordan and Iraq have agreed to fully connect their electric networks by the end of 2022. Both countries are expected to look into increasing the capacity of the Amman-Qaem interconnection as well as strengthen the existing Jordan-Egypt interconnection.

Jordan has a surplus in power generation and is able to export some of these resources to neighboring countries. Iraq has signed an agreement with General Electric to scale up power infrastructure inside Iraq, and the Jordanian infrastructure is ready all the way up to the shared border. The project in Iraq could be completed by the end of 2022, and negotiations regarding the tariffs and related issues are underway between the governments of both Iraq and Jordan. Egypt has little to do directly with this project before completion of the connection between Jordan and Iraq. 

In 2013, Iraq and Jordan planned to build gas and crude oil pipelines to begin at Basra and end in Aqaba. However, the mounting regional instability has slowed down the process. In 2017, the gas pipeline plan was canceled to reduce costs and to expedite the construction of the crude oil pipeline project. Due to the COVID-19 pandemic, the May 2020 bidding deadline for the project was postponed as well. Iraq and Egypt have discussed expanding the pipeline to Egypt, and recently officials from the three countries have resumed talks about this project. However, there is still no clear road map.

These plans directly impact energy security for all three countries. Due to conflict, Iraq’s energy security is low, as shown in the Energy Trilemma Index.  According to the index, energy security is comprised of three main categories: import independence (in which Egypt and Iraq have performed exceptionally well), diversity of electricity generation (in which all three countries have performed relatively poorly, despite the fact that Jordan is the third most improved country in this category), and energy storage, which is defined based on the country’s ability to meet its demand for oil and gas given the existing level of infrastructure including storage and refining facilities. In energy storage, all three countries have scored below the world average. Therefore, if Egypt, Jordan, and Iraq are able to deepen their economic collaboration efforts, all three countries could improve their energy security profile.

In the water sector, this has been an area of concern for Jordan for many years. The situation remains dire given the significant population increase rate in Jordan, and provided that Jordan’s economic activities are water intensive. In fact, the industrial sector, which constitutes around 17 percent of GDP in Jordan, is the most threatened in terms of water security.

Iraq’s water situation is very similar to Jordan’s. However, the outlook on the Egyptian water sector is better, suggesting an opportunity in terms of water supply on the Egyptian side and desalination opportunity on the Iraqi and Jordanian sides.

Jordan has been working with donor agencies to establish the Aqaba-Amman water desalination project (also known as the National Water Carrier Project). The first phase of this build-operate-transfer project is expected to reach a maximum capacity of 350 million cubic meters. To contextualize in numbers, the overall water storage in all of Jordan’s dams (excluding aquifers and the Disi water-supply project) reached 95 million cubic meters, constituting 28.2 percent of Jordan’s overall capacity of 336.4 million cubic meters. 

Potential joint projects

Unified economic zone on the Jordanian-Iraqi borders

The Jordanian and Iraqi governments are set to establish a Unified Economic Zone (UEZ) on the Jordanian-Iraqi border. Land allocation, financing instruments, and institutional arrangements are ongoing, and the Jordanian government is planning to create a task force for the project, with the participation of public and private sector leads.

So far, the UAE, Turkey, and China have been the largest exporters to Iraq (around 62 percent of total Iraqi imports come from these three countries), whereas Jordanian exports only constitute 1.58 percent of Iraq’s total imports. Policies (adopted in Iraq) were put in place to limit imports from Turkey. Establishing the UEZ between Iraq and Jordan may help position Jordan as a key exporter to the Iraqi market.

The establishment of the UEZ is an opportunity for a new trade narrative in the MENA region. The concept of interdependence is essential for local and regional security in the long run. In fact, developing the UEZ could offer a unique opportunity for the two countries to improve their food security position, and improve their total factor productivity.

Regional center for food security

Jordan submitted a proposal to Egypt and Iraq in December 2020 to increase trade in a variety of products, including agricultural products.

This element of the partnership is especially relevant for Iraq since approximately 6 percent of Iraq’s population is in “acute need for food and livelihood assistance,” according to the UN World Food Programs. 

The COVID-19 pandemic underscored the importance of food security for all three countries. In Jordan, full lockdowns presented unprecedented challenges for food supplies as well as local food and agricultural production. Should a new crisis emerge that truncates local production and food imports, the three countries can have a joint strategy that allows for readily available supplies. 

Jordan and Egypt rank 49 and 62 out of 113, respectively, in the 2021 Global Food Security Index, and if customs and import tariffs are unified within the ABC Agreement, Jordan’s agricultural exports to Egypt are expected to increase.  Jordan could also provide dietary diversity to Egypt. 

Furthermore, both countries have ample room for improvement in agricultural financial services, including:⁷

1. Improving market access and agricultural financial services
2. Streamlining access to finance and financial products for farmers
3. Consolidating access to diversified financial aid and services 
4. Enhancing access to market data and initiating new flexible banking services 

Conclusion

The ABC Agreement is an opportunity for long-term sustainable growth in countries that have suffered from exogenous shocks in the last thirty years and, more importantly, leadership from all three countries have shown there is political will to implement economic integration. Implementation requires meticulous legwork based on collaborative effort. To sum up, the ABC agreement could provide a unique basis for economic integration in the region. The three countries must capitalize on this first step towards the initiation of the agreement.

About the author

Ibrahim Saif is Vice President of the Manaseer Group and former CEO of the Jordan Strategy Forum, a leading economic development think tank in Jordan. Previously, he served as Jordan’s minister of energy and mineral resources from March 2015 to June 2017, and as minister of planning and international cooperation from March 2013 until March 2015. Prior to his appointment as a minister, Saif was a senior scholar at the Carnegie Middle East Center, and served as a consultant to the World Bank, the International Monetary Fund, and other international organizations. Saif earlier served as director of the Centre for Strategic Studies at the University of Jordan and as the secretary-general of the Economic and Social Council in Jordan. He has taught at both the University of London and Yale University on the economies of the Middle East.

In-Depth Research & Reports Jun 17, 2020

Assessing Saudi Vision 2030: A 2020 review

By Stephen Grand, Katherine Wolff

Executive summary When global oil prices collapsed in summer 2014, Saudi Arabia confronted one of the most daunting economic challenges of its modern history. Upon ascending to the throne the following year, King Salman bin Abdulaziz Al Saud and his son Mohammed bin Salman Al Saud (now the crown prince) responded by developing an ambitious […]

Economy & Business Energy Transitions

Report Apr 27, 2022

Iraq: Implementing a way forward

By C. Anthony Pfaff, Ben Connable, Masoud Mostajabi

A new report lays out findings and recommendations to assist the Iraqi government and its international partners in improving political, social, economic, and security conditions.

Economy & Business Iraq

MENASource May 11, 2022

Emerging market investments are shrinking. How will MENA countries hit FDI targets? 

By Amjad Ahmad

A US economic slowdown or a recession couldn’t come at a worse time for emerging markets, particularly those in MENA, where most are fighting chronic unemployment, slowing growth, and higher debt levels.

Economy & Business Middle East

The post Amman-Baghdad-Cairo (ABC) Agreement: A new path for economic integration appeared first on Atlantic Council.

“WHEN BANKS LEAVE: THE IMPACTS OF DE-RISKING ON THE CARIBBEAN AND STRATEGIES FOR ENSURING FINANCIAL ACCESS”

September 14, 2022

Chairwoman Waters, Ranking Member McHenry, and distinguished members of the Committee, it is my privilege to address you this morning on the impacts of de-risking in the Caribbean and strategies for ensuring financial access. Today, my testimony will focus on (1) why correspondent banking relations matters and how de-risking is an impediment to Caribbean economic development; (2) how de-risking affects U.S. national security and why it matters for U.S.-Caribbean relations; and (3) recommendations that can help address de-risking in the short- and long-term. Today’s testimony draws on the recommendations of the Financial Inclusion Task Force, which was convened by the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center.

First, I congratulate the Committee for prioritizing the withdrawal of correspondent banking relations in the Caribbean. It was an honor to accompany Chairwoman Maxine Waters to Barbados in April 2022 to participate in the Financial Access Roundtable that was co-chaired by the Honourable Mia Mottley, Prime Minister of Barbados in which the issue of de-risking was raised. Given the impacts and challenges facing Caribbean economies, governments, and citizens, urgent action is needed to safeguard the future survival and prosperity of the region. In this vein, addressing de-risking is critical. At the same time, ensuring that the Caribbean remains connected to the global financial system via correspondent banking relations has direct and indirect benefits for U.S. interests and its national security.

Financial development and access are cornerstones of economic growth and development. Critically, correspondent banking and cross-border financial flows are essential for countries, financial institutions, individuals, and businesses to transact and effect payments. These payments are necessary for all countries, particularly for international and domestic trade, foreign investment, portfolio management, and other key cross-border transactions, such as remittances. Simply, correspondent banking is the medium used to access international currencies, including the U.S. dollar. Without access to the global financial system, U.S. interests are adversely affected, as it provides an opening for increased financial crimes, illicit flows, the usage of Chinese currencies, and limits U.S. economic influence abroad.

The need to address de-risking in the Caribbean has never been more urgent. The region’s small and open economies are under threat. Over the past decade, natural disasters and extreme weather events have limited the economic potential in the Caribbean. Over the past two years, the COVID-19 pandemic has taken on this role. Russia’s invasion of Ukraine and the resulting consequences, in the form of rising food and energy prices, has the potential to cripple Caribbean economies and disrupt the livelihoods of the region’s citizens. Correspondent banking is at the core of helping Caribbean countries rebuild after each economic shock. It allows for countries to access development finance from multilateral banks to invest in new, resilient infrastructure and is a medium that allows organizations deliver needed aid to citizens in need.

De-risking and its effect on Caribbean economies

While de-risking occurs globally, the Caribbean is disproportionately affected. A 2015 survey by the World Bank found that the Caribbean, due to its small size and limited financial markets appears to be the world’s most severely affected region. In 2017, a survey from the Caribbean Association of Banks noted that up to twenty-one Caribbean countries lost at least one correspondent banking relationship. And in 2019, a Caribbean Financial Action Task Force survey showed that at least sixteen banks from The Bahamas, Belize, Jamaica, and members of the Organization of Eastern Caribbean States lost access as well.

De-risking in the Caribbean varies from country to country. Of the Caribbean Community (CARICOM) countries, Belize (-51%), Saint Vincent and the Grenadines (-45%), Dominica (-42%), and The Bahamas (-41%) fared the worst by sheer numbers of lost correspondent banking relation counterparties. Specifically, in Belize, over the course of one year, three domestic banks lost 90 percent of their correspondent banking relations. For these countries, the cost of doing business increased across the broader economy, especially for sectors – such as the tourism industry – that are reliant on executing U.S. dollar transactions. Further, since U.S. and European banks were primarily responsible for de-risking banks in Belize, domestic banks had to look elsewhere for correspondent banking relations, specifically turning to services in Turkey and Puerto Rico. One consequence is that this incurred longer processing times for transactions with some operators in key economic sectors unable to receive payments for almost four months.

Importantly, de-risking affects three main drivers of economic growth and recovery in the Caribbean – remittances, travel and tourism, and access to the global financial system. Remittance flows to the Caribbean are critical for supplementing incomes of working-class populations and accessing the U.S. dollar. For Jamaica, remittances contribute a fifth of the country’s overall GDP and for other countries, they account for upwards of at least 5 percent. Correspondent banking relations allow remittance companies, such as money transfer operators, to move currency from one financial institution to another. In the case of the Caribbean, it helps convert the U.S. dollar to localized currencies. De-risking affects this sector by increasing the operational costs of sending and receiving remittances. This becomes a deterrent to send remittances to the region and can provide incentives for relatives to use other, informal means of transferring money abroad.

The tourism industry in the Caribbean is also affected by de-risking. According to the Inter-American Development Bank, ten of the top twenty tourism-dependent economies in the world are CARICOM members. The value of the tourism industry cannot be understated, nor can correspondent banking be for the functioning of the sector. Correspondent banking is essential for credit card settlements. The inability to process transactions via credit or debit cards due to lost banking relations or high costs in accessing to the U.S. dollar can deter tourists. It also means that local hoteliers and restaurants that service tourists are less likely to afford to import products purchased abroad, such as food, pillowcases, bedsheets, among others.

Most importantly, de-risking limits the ability of Caribbean governments, financial institutions, and businesses to access the global financial systems in terms of trade, investment, credit, and financial flows. Most of these economies also run large physical-trade deficits because of their dependence on imported goods, fuel, and food. The result is that these companies are net importers of capital, usually in the form of investment, credit, and remittances. Without correspondent banking, many of the transactions needed to secure these goods and services would not be possible. De-risking leads to high costs to sustain these transactions and can have adverse effects on market functioning. Simply, it would limit banking customers from sending and receiving payments or maintaining relations with foreign suppliers. This can lead to decreases in revenue for businesses, ultimately contributing to defaults on baking loans, which, in turn, weakens the domestic banking system.

Addressing de-risking is critical for U.S. national security and interests

While de-risking has severe impacts in the Caribbean, the United States, its national security, and interests are not spared. Because of the region’s proximity to the U.S. shores and as a logistics hub for the movement of people and goods, what affects Caribbean countries often impacts the United States. There are four main areas where de-risking affects U.S. interests: (1) the U.S. government’s ability to regulate monetary transactions; (2) the effectiveness of U.S. economic influence; (3) the role of the Chinese currency; and (4) the long-term potential rise of political instability and crime.

The U.S. dollar as the world’s most used currency is critical to U.S. influence abroad. For Caribbean countries, it is central to the health and functioning of their economies. And the main mechanism for accessing the U.S. dollar, beyond receiving hard cash during tourist arrivals, are through correspondent banking. De-risking curtails this possibility, and with it, U.S. monetary and regulatory agencies’ ability to monitor transaction activity. Therefore, de-risking is counterproductive to addressing concerns of money laundering in the region if organizations, enterprises, and individuals are forced to use alternative currencies or avenues – a process commonly referred to as shadow banking. These networks can hide criminal and terrorist activities, making it more difficult for U.S. investigative agencies to bring them down. This presents a clear national security risk for the United States due to the Caribbean’s proximity to countries that house illicit actors, such as Venezuela and Cuba. Increased shadow banking via de-risking coupled with limited U.S. regulatory capability due to lost access to the U.S. dollar exposes the Caribbean to becoming a future hub for criminal financing.

Over a 20-year period (1999-2019), the U.S. dollar accounted for an estimated 96 percent of all trade in the Americas, making the currency critical to the U.S.-Caribbean economic relationship. Companies that are seeking to shorten supply chains and nearshore to the Caribbean are likely to face barriers if they cannot pay service and product suppliers in the region. For companies looking to invest in emerging industries, such as the oil and gas markets of Guyana, Trinidad and Tobago, and Suriname, correspondent banking will be vital to ensuring that the U.S. private sector is able to compete for and maintain existing contracts. There are also implications for trade relations. Most owners of micro, small, and medium-sized enterprises purchase goods and services from the United States, specifically Florida. As of 2020, the Caribbean accounts for nearly 40 percent of all of Florida’s trade with Latin America and the Caribbean. An inability to export to the Caribbean can decrease the overall trade balance of the U.S.-Caribbean relationship, forcing countries in the region to source products elsewhere.  

Continued de-risking and loss of access to the U.S. dollar presents an opportunity for Caribbean governments and financial institutions to seek new or strengthen existing relationships abroad, notably with China. While Caribbean governments and people rely on the U.S. dollar, it is not the only internationalized currency. The euro is an alternative, but Caribbean governments face similar de-risking challenges with banks in the European Union. The result is an opportunity for Chinese RMB and its banks to strengthen ties with the Caribbean. Currently, Chinese RMB is not internationally traded to the extent of the U.S. dollar or the euro, nor are Chinese banks as present as U.S. correspondent banks. Chinese RMB also accounts for just 2 percent of global reserves. However, RMB use is increasing globally. From 2009 to 2016, Chinese CBRs globally grew from sixty-five to 2,246. Despite its limited global influence, the RMB still has the potential to be used in smaller markets t, such as the Caribbean. De-risking from U.S. and European banks can push them in this direction. More banking relations offer China new avenues to engage with partners in developing regions that are currently struggling to attract or maintain CBRs, such as Caribbean countries.

The draw of new banks and RMB usage from China is likely to be attractive for most Caribbean countries and can influence Taiwan’s allies in the region. At present, five of Taiwan’s remaining fourteen allies are CARICOM members (Belize, Haiti, Saint Vincent and the Grenadines, Saint Lucia, and St Kitts and Nevis). Except for Haiti, these countries have each lost more than 30 percent of their correspondent banking counterparties since 2011, meaning lost access to the U.S. dollar and potential economic benefits from the United States. China provides an alternative to its allies in the region and if the severity and frequency of de-risking rises in the region, Taiwan’s allies might look to switch diplomatic recognition. These countries, because of their small size, are pragmatic actors, who make decisions in the best interests of the needs of their citizens and their own objectives. Thus, if de-risking continues to threaten Caribbean economic development in Taiwan’s allies, Chinese assistance can be a plug for the holes left by U.S. banks that have de-risked the region.

Since the availability of correspondent banking relations underpins economic growth, the loss of them can drive people into poverty and unemployment as well as limit governments’ ability to respond to the needs of their citizens. This leads to security risks for the Caribbean and broadly for the United States. First, increased poverty and unemployment incentivizes citizens to engage in criminal activity to replace lost household incomes and sustain their livelihoods. Further, it can be a driver for people to join criminal organizations for similar reasons, thus increasing the power of organized crime relative to the state and its own police forces. Second, since de-risking adds another layer of constraint of the fiscal flexibility of Caribbean governments, social unrest and riots might ensue when leaders cannot immediately respond to citizen needs. The likelihood of this increases with frequent disasters and economic shocks – something that is a regular occurrence in the Caribbean. 

Strategies to address de-risking that can strengthen U.S.-Caribbean relations

Never has there been more appetite between the United States and the Caribbean to expand cooperation and strengthen their partnership. This was seen at the Ninth Summit of the Americas, where the United States announced the U.S.-Caribbean Partnership to Address the Climate Crisis 2030, otherwise known as PACC 2030. Further, Vice President Harris, on several occasions, and President Joe Biden at the Summit, has carved out time to meet with Caribbean leaders and listen to their perspectives and viewpoints on matters of shared interests, such as food and energy security and access to development finance. In fact, the Congressional Delegation led by Chairwoman Waters to Barbados in April of this year and this hearing to address de-risking in the Caribbean are added indications that U.S.-Caribbean relations are headed in the right direction.

It is important now to take these words and turn them into legislative action. Addressing de-risking can be a first, tangible step as correspondent banking is the lifeblood of economic activity in the Caribbean. In many ways, it is one of the most important avenues of U.S.-Caribbean relations, enabling U.S. government agencies to provide disaster assistance after natural disasters, allowing the U.S. private sector to invest in the region, and ensuring the trade relations with Caribbean countries remain strong.

Earlier this year, the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center released a report, “Financial De-risking in the Caribbean: U.S. Implications and What Needs to be Done,” of which the foreword was written by Chairwoman Waters. The report was a result of an almost year-long process, where the Initiative’s Financial Inclusion Task Force – a group made up of bankers, regulators, and multilateral representatives from across the United States and the Caribbean – met to provide recommendations on how U.S. policymakers can best curb de-risking.

Based on the findings of the report, there are several actions U.S. legislators can take to support Caribbean economic development and protect U.S. interests by addressing de-risking. Since correspondent banking is integral to a functional and healthy global economy, this Committee should consider putting forward legislation that categorizes it as critical market infrastructure or a public good. Through the U.S. Congress, this determination would provide justification for the U.S. Government and international financial institutions to incorporate access to correspondent banking as part of aid and development packages.

Key to the process of addressing de-risking in the Caribbean is ensuring that the affected actors are part of the overall discussion. Caribbean financial institutions and governments have first-hand accounts of the unique challenges they face to address the causes of de-risking and are therefore in the best position to provide feedback on which strategies are most effective. This Committee should consider, through legislation, working with the U.S. Treasury to consult with affected Caribbean actors when developing solutions that lead to greater financial access for the region.

Working hand-in-hand with the Caribbean financial institutions and governments also means providing them with a platform that shows progress these actors have made to fulfill compliance and regulatory requirements. As such, the Committee should consider adopting and passing “The INCSR Improvement Act,” which will help Caribbean financial actors and government leaders annually underscore actions taken to address money laundering, drug trafficking, and financial crimes. The passage of the Act will help promote healthy dialogue between U.S. and Caribbean actors.

Dialogue is critical to addressing de-risking. Therefore, the Atlantic Council is working alongside and in coordination with several key partners to create an annual U.S.-Caribbean Banking Forum. The intent for the Forum’s creation stems from the Atlantic Council’s report on financial de-risking and was supported by Caribbean government leaders and U.S. legislators during the April 2022 Financial Access Roundtable in Barbados. Since then, an organizing committee that comprises bankers, multilateral representatives from across the Americas, and the Atlantic Council has been formed to carry out the inaugural Forum and will look to include the recommendations and feedback from this hearing into its eventual agenda.

In sum, the health and future of U.S.-Caribbean relations may well depend on correspondent banking relations remaining present in the region. Caribbean countries face an uphill battle to address de-risking. Even some of their solutions to note such as launching a Central Bank Digital Currency (CBDC) to address de-risking comes with its challenges. An Atlantic Council tracker on CBDCs notes that cybersecurity is an increasing concern as well as the ability of countries to house these currencies where there is instability in the financial system – two areas where Caribbean countries are still in need of support.

Decisive action is needed for U.S. interests and national security, yes, but also for the prosperity and livelihoods of the average U.S. and Caribbean citizen. Thank you, once again, for the honor and the opportunity to appear before the Committee today. I look forward to answering your questions.

Staff

Wazim Mowla

Associate Director, Caribbean Initiative

Adrienne Arsht Latin America Center

Caribbean China

Related content

Report Mar 1, 2022

Financial de-risking in the Caribbean: The US implications and what needs to be done

By Jason Marczak, Wazim Mowla

This report identifies how the withdrawal of correspondent banking relations, otherwise known as de-risking, affects Caribbean economies, people, and US-Caribbean relations.

Americas Caribbean

Sep 23, 2020

Caribbean Initiative

The Adrienne Arsht Latin America Center’s Caribbean Initiative began programming in February 2021 to raise awareness about key Caribbean Community (CARICOM) priorities with US and global stakeholders while deepening US engagement with the region around shared interests. The Initiative is a platform for US and Caribbean stakeholders to offer new and innovative insights to benefit a closer US-Caribbean partnership and the overall prosperity, stability, and well-being of the region.

Testimony Jan 19, 2022

Marczak testifies to the House Committee on Foreign Affairs on the new Alliance for Democratic Development

By Jason Marczak

Adrienne Arsht Latin America Center Senior Director Jason Marczak testifies to the House Committee on Foreign Affairs regarding the new Alliance for Democratic Development.

Caribbean Economy & Business

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Explore more

The post The Atlantic Council’s Wazim Mowla Provides Testimony at US House Financial Services Committee Hearing on Caribbean Financial Inclusion appeared first on Atlantic Council.

What did Gorbachev believe?

Following Gorbachev’s passing, Senior Fellow Ben Judah spoke with Vladislav Zubok, Professor of International History at LSE and author of Collapse, on how Gorbachev saw Lenin, Europe and Ukraine. Did Gorbachev look to Lenin for inspiration? Was the Soviet collapse inevitable because Gorbachev was simply too naïve about economic management? What did Gorbachev feel about Ukraine and Putin’s foreign policy towards Kyiv?

You can watch #BritainDebrief on YouTube and as a podcast on Apple Podcasts and Spotify.

Fellow

Ben Judah

Director

Europe Center Transform Europe Initiative

Economy & Business European Union

Europe Center

Providing expertise and building communities to promote transatlantic leadership and a strong Europe in turbulent times.

The Europe Center promotes the transatlantic leadership and strategies required to ensure a strong Europe.

Explore the program

The post #BritainDebrief – What did Gorbachev believe? | A Debrief from Dr. Vladislav Zubok appeared first on Atlantic Council.

India, which is the largest source of international migrants in the world, has about 8.9 million citizens working in the Gulf. The subregion is a big draw for migrants from Pakistan, too: Among Pakistanis applying to work abroad in 2020, more than 95 percent applied to work in Gulf countries. As of July 2022, just over 600,000 Bangladeshi migrant workers—out of its total 691,000 migrant workers abroad this year—are currently employed in the Gulf region.

These flows remain strong despite the fact that migrant workers are often overlooked and overworked in the Gulf. For example, after arriving under the kafala sponsorship system—which has been adopted by countries like Jordan, Lebanon, and the Gulf countries—migrant workers sometimes face dangerous and poorly regulated working conditions that cause injury or death.  In spite of the significant role migrant workers play in keeping the world functioning—a role that they fill at great personal sacrifice—policymakers often treat migrant workers as invisible.

India, Pakistan, and Bangladesh must increase diplomatic pressure in Gulf countries, build on-the-ground bureaucratic infrastructure there, and improve labor laws and standards in their own countries. These changes, some of which have already been successfully deployed by origin countries such as the Philippines, would dramatically benefit South Asian migrants in the Gulf.

Increase diplomatic pressure

Under the kafala system, workers are subject to highly uneven power dynamics as their employers gain control over their employment and immigration statuses. Such exploitation is pervasive at the institutional level, and combating its effects will require the highest level of diplomacy.

South Asian countries sending migrant workers can begin by ramping up their diplomatic presence in Gulf countries and harnessing all sources of diplomatic leverage. The Philippines has utilized multiple diplomatic tools to protect its citizens: establishing strong diplomatic missions in the Gulf and banning workers from migrating to some Gulf countries (and only lifting the bans after signing agreements and memoranda of understanding, or MOU, with the United Arab Emirates, Kuwait, and Saudi Arabia guaranteeing protections for migrant domestic workers from the Philippines).

India has signed similar MOUs with Kuwait, the United Arab Emirates, and Qatar, with a specific focus on domestic workers. Pakistan has likewise signed MOUs with Qatar and the UAE, but neither agreement explicitly mentions domestic workers or their rights. As domestic work is a highly feminized field, migrant women domestic workers (MWDWs) are especially susceptible to exploitation and abuse under the kafala system. Therefore, all three of these South Asian countries should sign an MOU explicitly addressing domestic-worker rights with each Gulf country with which they already have a migrant-worker MOU. And finally, given their significant migrant-worker populations in Saudi Arabia, both Pakistan and Bangladesh must also work toward signing MOUs with the Kingdom to solidify high-level commitments to ensuring the welfare of migrant workers.

To bolster their MOUs, South Asian countries should consolidate their diplomatic weight and strategic approaches by consulting with one another. For example, the Colombo Process and similar institutions gather countries—including India, Pakistan, and Bangladesh—to discuss common goals between sending countries, share effective strategies, and ultimately commit to protecting migrant workers abroad. Since joining the Colombo Process, South Asian member countries have revamped legislation surrounding migrant workers such as Bangladesh’s Overseas Employment Policy, Sri Lanka’s National Labour Migration Policy, and India’s Emigration (Amendment) Rules. Increased engagement with these interactive institutions can significantly help improve migration regulations and future diplomacy with Gulf countries.

Build infrastructure in destination countries

India, Pakistan, and Bangladesh should establish comprehensive bureaucratic-support systems in Gulf countries so that once migrant workers arrive to their destinations, they have reliable access to services such as employment-contracts verification and legal assistance, and even a safe haven in times of distress. The Philippine Overseas Labor Office offers such services to its migrant workers, whether documented or not, throughout the Gulf—and also provides cultural programming to foster a sense of community among workers and connect them to their host countries’ cultures.

In contrast, India’s embassies and consulates are the main source of support for migrant workers in the Gulf. But many Indian migrant workers are not aware of the services offered by their embassies, nor do they feel the current offerings adequately serve their needs in times of distress, especially when their sponsors take their identification papers. Countries like Pakistan and Bangladesh have overseas labor and employment divisions within their governments, but their physical offices are only located in sending countries and thus can only provide limited aid once workers are actually abroad.

India, Pakistan, and Bangladesh are all lacking a robust bureaucratic presence in the Gulf. With services (and awareness of them) lacking, South Asian countries must revamp their support systems and the methods through which services are promoted. Governments should also seek out partnerships with existing migrant-worker community spaces in the Gulf, such as places of worship. Building up on-the-ground aid, with physical spaces for support, can exponentially improve the lived experiences of migrant workers.

Improve laws and standards in sending countries

India, Pakistan, and Bangladesh must also build stronger systems at the point of departure, where South Asian migrant workers are often recruited through informal and under-regulated channels. Brokers, agencies, and other private intermediaries can charge both workers and employers sky-high prices for visas, flights, and post-arrival services. On top of this disjointed recruitment system, migrant workers are often not provided with adequate orientation about their rights and services available to them abroad before traveling to their destination countries. Despite these disadvantages, however, many migrant workers still prefer to work with private intermediaries due to perceptions that government-associated channels are inefficient.

Rather than restricting migrant workers to government-associated channels, India, Pakistan, and Bangladesh should draw recruiting agencies into public-private partnerships. For example, in the Philippines, any hiring through a private-recruitment agency must be certified by the Philippine Overseas Employment Administration before the worker can depart the country. Using similar regulating recruitment tactics and practices while retaining the established recruitment networks can help South Asian countries eliminate redundancies in the system managing migration without sacrificing migrant workers’ safety and wellbeing.

Of course, it is not solely the responsibility of sending countries to guard against injustices occurring under the kafala system; Gulf countries must also work to remove the all-too-common practices allowed under this system that amount to modern-day slavery. But India, Pakistan, and Bangladesh shouldn’t wait. Beyond improving their own economies to make them equitable for those who have no option but to go abroad, South Asian countries should immediately improve policies specifically for migrant workers both at home and in destination Gulf countries. These steps cannot be taken in isolation, either: It is essential that these countries adopt all of these measures together to amplify their impact on the lives of South Asian migrant workers.

Elaine Zhang is a former young global professional with the Atlantic Council’s South Asia Center.

The post How South Asian countries can protect their migrant workers abroad appeared first on Atlantic Council.

The public sector external debt to be restructured amounts to $17.3 billion, more than half of the total Zambian public debt. According to the Zambian Ministry of Finance (MOF), official bilateral creditors account for 15 percent of public debt, multilateral and plurilateral financial institutions for 11.5 percent, Eurobond investors for 11.7 percent, and non-bonded commercial lenders for 11.4 percent. About $6 billion is owed to Chinese commercial and state-owned lenders alone—constituting the largest creditor group by nationality and giving China significant leverage in Zambia’s ability to restructure its debt. The classification of this amount of debt between official bilateral and private sector lenders has been a contentious issue, contributing to the uncertainty in restructuring process. For example, there had been contention about how to classify debt owed to China Development Bank, as bilateral or private sector debt. Now the Zambian MOF has classified it as debt to private creditors.

Zambia was one of the first countries to apply to restructure its sovereign external debt under the Common Framework for Debt Treatment in early 2021. The Common Framework (CF) was launched by the Group of Twenty (G20) Summit in November 2020, to provide a mechanism for low income countries to seek debt restructuring when unavoidable. Under the CF, an Official Creditor Committee for Zambia was formed, co-chaired by China and France. The Zambian OCC pledged to negotiate with Zambia to restructure its public external debt. Its commitment cleared the way for the IMF Board to consider and approve the assistance package for Zambia. These steps taken to restructure Zambia’s debt could form a template for future instances of sovereign debt restructuring under the Common Framework.

In addition to the progress made so far, according to the IMF, Zambia and the OCC aim to sign a legally non-binding memorandum of understanding (MOU) by the end of 2022. The MOU will set out the key parameters of Zambia’s debt restructuring terms regarding: the changes in nominal debt service over the IMF program period, the debt reduction in net present value (NPV) terms, and the extension of the duration of Zambia’s debt.

Zambia will then negotiate bilaterally with each official creditor for a restructuring deal, consistent with the key parameters set out in the MOU. Concurrently, Zambia will negotiate with private sector creditors, seeking comparable treatment as mandated under the Common Framework. The Zambia External Bondholder Committee has been formed, representing 45 percent of the outstanding value of Zambia Eurobonds, and presumably will engage in the negotiations.

The progress so far suggests that the OCC has found a compromise which is acceptable to China—which until now has insisted on bilateral negotiations with debtor countries instead of participating in multilateral restructuring efforts. The MOU will be legally non-binding, and the key parameters on NPV reduction and duration extension are consistent with many solutions containing various scenarios of interest rate cuts and maturity extensions that do not require a nominal reduction of the face value of the debt. Nominal haircut is something China has avoided in its previous bilateral debt restructuring agreements with debtor countries. As well, the actual restructuring deal will be negotiated bilaterally with each official creditor—something China has long insisted on. These features will presumably allow China to move forward with the other two cases under the Common Framework, Chad and Ethiopia. The Zambian case may therefore serve as the template for debt restructuring under the Common Framework.

However, even with such a promising , the current approach to sovereign debt restructuring is still plagued with many deficiencies. The process remains time-consuming and inefficient for the following reasons.

Firstly, the Common Framework is only open to 73 low-income countries. Middle-income countries also in debt distress, such as Sri Lanka, are excluded. Sri Lanka has reached staff-level agreement with the IMF for a $2.9 billion package, not yet approved by the Board. Aporoval of  the package  is contingent on progress in debt restructuring negotiations with Sri Lanka’s creditors. With more than $50 billion of external debt, about 47 percent with private sector creditors and bondholders, and 10 percent each with bilateral creditor China and Japan, Sri Lanka can benefit from the steps set out in the Common Framework to better manage its debt restructuring task. Therefore, the G20 should extend the Common Framework to middle-income emerging countries in debt distress.

Secondly, a way needs to be found to encourage countries in debt difficulties to use the Common Framework. Currently, countries fear being downgraded by credit rating agencies and losing capital market access if they take advantage of it. If the stigma around the Common Framework remains, many countries will avoid it; only three have applied so far (Zambia, Chad, and Ethiopia).

Thirdly, convincing private creditors to participate in debt restructuring on comparable terms with official bilateral creditors will remain difficult. Private creditors complain that the restructuring terms are reached in the OCC without their inputs, and their concerns are not taken into consideration. They do not receive the IMF and World Bank Debt Sustainability Analysis, which is the basis for restructuring negotiations in the OCC until it is too late to contribute to the assessment. These concerns must be addressed before one can hope for more participation by private creditors in the debt restructuring process under the Common Framework.

Zambia shows that progress can be made to render the Common Framework more workable to restructure low-income countries’ sovereign debt. However, more needs to be done to refine a comprehensive, efficient, and effective sovereign debt restructuring procedure. The international community  needs change now, with many low income and emerging market countries close to or already in distress, especially following the Covid-19 pandemic and the war in Ukraine.

Hung Tran is a nonresident senior fellow at the Atlantic Council, former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Zambia: A template for debt restructuring? appeared first on Atlantic Council.

With US domestic political winds pushing against global leadership, coupled with the climate and COVID-19 crises, China seized an empty space. Despite its obvious shortcomings in dealing with the virus domestically, Beijing has tried to turn this struggle into an opportunity to boost its international influence by flooding the world with medical aid and vaccines. And on climate, it went from blocking key international agreements to being the world’s biggest investor in renewables.

The way China’s new Global Development Initiative (GDI) was announced last September shows how much the country’s status and role in global governance has changed. At the General Debate of the 76th Session of the United Nations (UN) General Assembly, President Xi Jinping was given the floor to state that the world needs to work together to address the immediate challenges threatening the delivery of the Sustainable Development Goals (SDGs) while promoting more balanced and inclusive multilateral collaboration. The declaration was well-received, but it was more of an aspirational call to action than an actual roadmap, since its goals remained purposefully unclear.

In some ways, this is a positive development. The United States and its allies had long encouraged China to strengthen its participation in multilateral organizations in order to move it away from a purely bilateral aid model. And it did: Over the past decade, China has more than quadrupled its discretionary contributions to multilateral development institutions and funds and gained voting shares across nearly all international financial institutions (IFI). Over the same period, US contributions have shrunk. 

But there are fears that a growing Chinese presence in multilateral organizations and massive initiatives like the BRI could give Beijing undue influence over the developing world. With the GDI, China wants to lead what it hopes is a new era in development—not only by investing money, but also by leading the conversation. But letting China adopt this leading role means risking the spread of Beijing’s approach of decoupling human rights from governance and, consequently, fueling the rise of autocratic societies in the developing world. 

While China’s involvement in international development is beneficial—since alleviating poverty requires all possible resources and help—the West cannot let China lead this dance alone if it wants to preserve democracy and foster true prosperity around the world. This is why it must match China’s investments in IFIs, as well as regaining voting shares and pursuing key leadership positions in those institutions.

International development as an influence-builder 

China’s vision contrasts strongly with that of the West. For rich countries and traditional multilateral institutions, international development amounts to assistance provided to poor countries through aid, low-interest lending, and grants. But China sees this as an investment in its own influence—hoping that lending and trade will lead to economic opportunities for both China and its developing partners.

The BRI is the direct application of this vision. Yet with suspicions of debt-trap diplomacy and disappointing returns for local communities, partners began to question whether China’s path to prosperity was the best one. The country’s slowing growth, the drop in domestic demand, and the worsening of the global economic environment sparked suspicions that China needed to adjust its model. The GDI is here for that.

Today, China holds influence in traditional multilateral institutions such as the World Bank and the UN Development Program, which are the best platforms to advance its plan. No other country has raised its contributions like China has over the past ten years—and the developing world is watching. Like the BRI in its infancy, the contours of the GDI are not quite defined, but China’s intentions are clear: Projecting soft power by leading the conversation about global governance. Xi wants his country to be the leading voice pushing for multipolar global governance, in which smaller countries gain a stronger voice (and, in turn, reinforce Chinese influence).  

This message resonates within the developing world. The West’s failure to deliver vaccines to poor countries has increased resentment toward US-centric global governance, and while the West remains focused on the war in Ukraine, China continues to build its soft power elsewhere. The story being sold—that China is the one that hasn’t forgotten about you—is enticing and already gaining praise within developing countries and international organizations.

In less than a year after its launch, more than fifty-five countries have voiced their support for the initiative—calling themselves the Group of Friends of Global Development Initiative, which hosts working sessions at the UN. Last May, the GDI was discussed at the World Economic Forum Annual Meeting in Davos. The international community is commending the initiative, even though it does not provide tangible solutions yet.

Indeed, part of China’s vision of international development aligns with that of the international community’s, focusing on issues such as climate and health. But it differs on two essential points: human rights and internet governance—two essential tools to build authoritarian capitalistic societies. 

Riches over rights

On the surface, China’s promotion of the GDI seems to emphasize the importance of protecting and promoting human rights, a notion echoed by Xi when he called for countries to make global partnerships more equitable and balanced to achieve the 2030 development agenda. But in reality, China has supported a state-centric approach to development and an unconventional interpretation of human rights, in which it considers economic development itself as a human right, preceding all other rights. 

It said so as early as 1993, when China’s delegation to the World Conference on Human Rights that year stated: “For the vast number of developing countries to respect and protect human rights is first and foremost to ensure full realization of the rights to subsistence and development. The argument that human rights are the precondition for development is unfounded. When poverty and lack of adequate food and clothing are commonplace and people’s basic needs are not guaranteed, priority should be given to economic development. Otherwise, human rights are completely out of the question.”

While China’s development model has been heavily focused on rapid growth, thanks to capital accumulation and investment, high savings and low consumption rates have made that growth unsustainable and have resulted in distortions in the economy. China has one of the world’s highest national saving rates, which is explained by the government’s promotion of low consumption and high precautionary household savings (which in turn results in high levels of investment and growth). Officials have effectively stimulated savings by vacating the one-child policy and spending little on a number of fundamental human rights, such as health care, education, and other forms of social assistance. 

China’s significant urban transition has also resulted in excluding its rural areas from opportunity. Millions of children were left behind by China’s urbanization, experiencing poverty, lack of quality education, poor health, and deteriorating living conditions that are worse than in many other parts of the world. Co-author Yomna Gaafar witnessed such challenges when she volunteered in 2017 as a teacher for left-behind children in China’s rural in Jiangxi Province—where there was a shortage of resources and overcrowding. She witnessed students parenting themselves and even their younger siblings, since their parents had to leave to seek work in major cities in response to China’s rapid economic growth.

Today, China has changed its stance on human rights from a defensive to a proactive one. With the GDI, China is attempting to break Western hegemony over global human-rights governance. Leaders from countries that struggled to find a way out of poverty through traditional systems are offered a quick “people-centered” development model centered around wealth and material goods. But it is doubtful that a country widely criticized for seeking to effectively imprison an entire ethnic minority is truly planning on changing its ways. 

Don’t let China take the lead

It is inevitable that China will play a dominant role in global governance. This is why the West must take action now to mitigate the propagation of Chinese ideology in the developing world. 

First, it needs to seize the initiative in attracting investments by cutting down on stifling bureaucracy. International lenders and investors should compete with the terms set by China so that the developing world no longer sees Beijing as a better business partner. One could hope that the Biden administration will keep that in mind when implementing its Partnership for Global Infrastructure and Investment (PGII). 

Second, the international community should focus on what actually works. For this purpose, the Atlantic Council has built the Freedom and Prosperity Indexes, which offer lessons for policymakers to help understand what matters most for development. 

China has lifted many of its people out of poverty. But the main lesson is that true prosperity is not just gross national income per capita; freedom is still the best way to achieve prosperity. And on key components, such as political freedom (where it ranks 158 out of 174), property rights, and investment freedom, China underperforms when compared to free countries.

International organizations, development agencies, and nongovernmental organizations should continue to endorse economic, political, and legal freedoms as the best path to prosperity despite China’s influence. The United States and its allies and partners in the free world should urgently develop a strategy to mitigate Chinese global influence. The West tends to forget how powerful a tool international development can be to structure global governance. 

Through its PGII, which for now is a mere answer to China’s BRI, the United States is proving itself to be several steps behind. Infrastructure and investments are only one part of the puzzle. However daunting, competing with China where it is the strongest—infrastructure development—is a necessary step toward courting potential partners in the developing world. 

But it must be also complemented by a clear plan for how to regain the trust of developing countries. Part of that means providing support to vulnerable countries during crises, and, for instance, not allowing Americans to simply throw away COVID-19 vaccines (which opened an avenue for China to step in). Then there is leading by example: When Europe requalifies natural gas as sustainable energy, it loses legitimacy to discuss climate policies. And when it does, the leader of renewables—China—happily grabs the seat. 

When navigating a generation-defining war and dealing with global inflation, all this might seem like a low priority. But the game of influencing global governance is a long one. To start, the West must play a more active role in multinational organizations, such as IFIs, in a way that would balance out China’s growing influence within those platforms. It is a low-cost effort, but one which will prove essential in the long run.

Joseph Lemoine is the deputy director of the Atlantic Council’s Freedom and Prosperity Center.

Yomna Gaafar is an assistant director at the Freedom and Prosperity Center.

The post There’s more to China’s new Global Development Initiative than meets the eye appeared first on Atlantic Council.

It is estimated that the COVID-19 pandemic will increase poverty rates by around 10% globally, with most of the increase taking place in the Sub-Saharan Africa region. Though in the second half of 2021 the region surpassed its estimated growth rate of 3.7%, reaching 4.5%, the recent increases in global energy and food prices present new challenges to Sub- Saharan Africa’s economic recovery. Several lower middle-income economies in Sub-Saharan Africa could, despite an increased growth rate, move back to low-income status by the end of 2022, undoing three decades of slow and hard progress.

The global community, with the leadership of the IMF and the World Bank, needs to focus on this region. In addition to lifting hundreds of millions of people out of poverty in this region, sustained and inclusive growth over the next two decades in Sub-Saharan Africa could contribute to the growth in the global economy. The reason is simple. While the population in high-income and upper middle-income economies is aging rapidly (Figure 4), Sub-Saharan Africa is home to one of the world’s youngest population structure. Nearly 70% and 42% of the region’s population are under 30 and 15 years old, respectively. Nearly a quarter of world’s population under the age of 15 reside in Sub-Saharan African economies (Table 2).

Increased income in these economies will enable their young population to consume more as they grow older and establish their own careers and families. This will increase the demand for consumer, as well as capital goods in the global economy for at least the next five decades, helping offset the downward pressure on global aggregate demand due to rapidly aging populations in high-income and upper middle-income economies. In other words, economic development in low-income and lower-middle income economies of Sub-Saharan Africa (as well as in poorer economies of South Asia and Southeast Asia, where the world’s youngest population reside) reduces the risk of a prolonged global downturn in the coming decades.

Over the past thirty years, the World Bank and IMF have heavily intervened in Latin America and East Asia and the Pacific, providing billions of dollars to ensure financial stability and development. Countries in these regions have been able to shift into higher income categories, but for low income countries in other parts of the world this remains a distant dream. Future programs for Sub-Saharan Africa and South Asia will need to foster economic recovery from the COVID-19 pandemic and the severe economic shock caused by Russia’s invasion of Ukraine, without compounding prevailing debt issues. Looking ahead, the Bretton Woods Institutions will need to focus on the Sub-Saharan African and South Asian regions to promote sustainable and inclusive growth as new challenges to global economic stability and prosperity arise.

Amin Mohseni-Cheraghlou is a consultant with the GeoEconomics Center and an assistant professor of Economics at the American University in Washington, DC. @AMohseniC

Naomi Aladekoba is a consultant with the GeoEconomics Center focusing on Sub-Saharan Africa, Chinese foreign policy, and international development. @NAladekoba

Related reading

Econographics Apr 21, 2022

The North-South divide is growing. Can a new Bretton Woods help?

By Amin Mohseni-Cheraghlou

The growing divide is under the scanner as US Treasury Secretary Yellen and Colombian Finance Minister Restrepo both voiced a need to modernize the institutions.

Americas China

Econographics Apr 11, 2022

Democratic challenges at Bretton Woods Institutions

By Amin Mohseni-Cheraghlou

Voting quotas at Bretton Woods Institutions continue reflecting the 1944 power structure, despite significant changes to the global economy.

Africa Americas

Econographics Apr 11, 2022

“Inequality starts at the top”: Voting reforms in Bretton Woods Institutions

By Amin Mohseni-Cheraghlou

Full democratization of BWIs is not realistic. A more pragmatic approach would work towards a “double majority” system.

Africa Americas

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The global slowdown: Why Sub-Saharan Africa is so important appeared first on Atlantic Council.

Executive summary

There is widespread awareness among researchers, companies, policy makers, and the public that the use of artificial intelligence (AI) and big data raises challenges involving justice, privacy, autonomy, transparency, and accountability. Organizations are increasingly expected to address these and other ethical issues. In response, many companies, nongovernmental organizations, and governmental entities have adopted AI or data ethics frameworks and principles meant to demonstrate a commitment to addressing the challenges posed by AI and, crucially, guide organizational efforts to develop and implement AI in socially and ethically responsible ways.

However, articulating values, ethical concepts, and general principles is only the first step—and in many ways the easiest one—in addressing AI and data ethics challenges. The harder work is moving from values, concepts, and principles to substantive, practical commitments that are action-guiding and measurable. Without this, adoption of broad commitments and principles amounts to little more than platitudes and “ethics washing.” The ethically problematic development and use of AI and big data will continue, and industry will be seen by policy makers, employees, consumers, clients, and the public as failing to make good on its own stated commitments.

The next step in moving from general principles to impacts is to clearly and concretely articulate what justice, privacy, autonomy, transparency, and explainability actually involve and require in particular contexts. The primary objectives of this report are to:

• demonstrate the importance and complexity of moving from general ethical concepts and principles to action-guiding substantive content;
• provide detailed discussion of two centrally important and interconnected ethical concepts, justice and transparency; and
• indicate strategies for moving from general ethical concepts and principles to more specific substantive content and ultimately to operationalizing those concepts.

I. Introduction

Societies are increasingly being shaped by technological change, and the pace is increasing exponentially. Every day, organizations make decisions that participate in and shape this global transformation. As new technologies unlock unprecedented capabilities—and do so at scale—they also have the potential to bring about unprecedented existential risk. Organizations are being defined by their ability to manage these risks with a global perspective in mind, because the impacts of these decisions—intentional or not, direct or indirect—shape an organization’s role in the ongoing, global, digital transformation, often with societal implications. And, the intentionality with which an organization handles decision-making in this new era will be a differentiating factor in the marketplace.

As expectations shift rapidly beneath their feet, organizations have adopted a diverse set of strategies to manage these new risks. And, leaders know it is insufficient to inform decisions through legal bounds alone. Regulatory bodies in government struggle to keep up with the pace of digital change and have, thus far, failed to demonstrate a consideration of future risks in policies intended to be forward looking. As a result, existing laws and regulations easily become outdated, ineffective, and often mis-calibrated to current threats. In this context, even perfect compliance means potential exposure to existential risks—and when these are risks to the fabric of societies, action must be taken for the benefit of all. This means that to lead in this space, it’s insufficient to follow any existing compliance framework. Leaders must set new ones.

In this proposed framework, the overarching bias is to protect the continued sustainability and enrichment of the human condition. To aid in this endeavor, this paper adopts a useful framework from the 2001 Manifesto for Agile Software Development—the notion that technology practitioners guide their decision-making by applying values. These values are constructed in context-sensitive ways, with the understanding that the pathway from values, through principles, and to action is critical, making this a unique approach.

Throughout this paper, there will be “value spectrums” where one thing is valued over another. This is denoted as a greater-than sign, “>”. In practice, the spectrums are contextually relevant; here, they are used as examples for discussion. Designers, product managers, and development teams use these types of spectrums as guides for ethical decision-making. They do not prescribe any one correct answer; where any decision eventually lands on the spectrum is less important than the potentially stakeholder-rich deliberation that supports the final decision. Wherever an organization chooses to land along any one of the spectrums, the deliberate process of evaluating ethical priorities will necessarily be informed by the organization’s values. In this manner, the organization is empowered to draw clear through-lines from core values to the features in their products and services—and, ultimately, to their communications, facilitating an intentional and trusted relationship with their customers, users, and the public. This approach serves to curate a deliberate and informed company culture, and further serves to protect digital companies from the existential risks their own decisions could foster.

The overall goal of this framework is to recognize and respect the role that technology plays in the advancement of societies, while also recognizing the collective interest of societies to ensure the safety and security of individuals and groups. These spectrums are intended as a guiding tool to aid organizations attempting to walk a fine line between continuing to embrace the advancement of technology and realizing economic prosperity, without compromising their own values or their accountability to society.

II. Governance

As technology becomes as fundamental to the functioning of organizations as their boards of directors and employees, there needs to be a fundamental shift in the way responsibility and accountability are distributed.

Whether it’s a development team, an entire organization, or a nation-state, being a responsible body now includes accountabilities for all the inputs, outputs, impacts, hidden costs, and externalities of the technology tools in purview. The only way to achieve the level of insight needed is to develop a culture in which governance is so embedded and routine that it is second nature, and in which engaging with governance is commonplace. This exists today in regulated industries such as financial services, but less regulated industries can, and should, exercise this muscle too. Some spectrums to serve as a starting point might include the following.

Minimize harm > Maximize value

Risk mitigation and harm minimization are essential to any long-term value strategy.

As the Business Roundtable’s Statement on the Purpose of a Corporation advocates, “companies should be led for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders.”¹ Above all else, technologies should respect the persons subjected to them, particularly when used covertly or without consent. When technologies are used to unfairly limit an individual’s possibilities, meaningful harm occurs. When this happens at scale, genocide can occur. It’s serious. While no decision can perfectly account for all possibilities, every reasonable effort should be made. Even ripples from small slights, at scale, can have harmonic amplification, creating tidal waves of disadvantage for inadvertently targeted segments of the population.

No money is worth that societal cost. And, if a company values its stakeholders above shareholders, then the choice to minimize harm to individuals over maximizing (short-term) revenue is always the right choice.

Value stays with data subject/discloser > Data collector/aggregator/user

Ensure a robust data ecosystem to maximize the value that stays with data disclosers.

The more value retained by those providing data, the more apt they are to continue providing data. If all of the value resides with the data collector, the incentive structures for more data disclosure begin to deteriorate. To maintain a robust data ecosystem, it’s important to ensure data disclosers retain a substantial amount of value. This breeds a generative environment for data-centric ecosystems that is in abundance, giving more opportunities for innovation to the data collectors and aggregators and, ultimately, users.

Fairness through “values transparency” > Enforcing equality

Focus on creating a level playing field and disclose the values that drive that decision-making.

Equality is when everyone gets the same, regardless of their needs or situation. Equity happens when people are given what they need to engage fairly with others. With artificial intelligence (AI), “fairness” is in demand, and the only way to understand how an organization is optimizing for its unique definition of fairness is to understand the values it cares about, and which it is prioritizing and optimizing.

Manage internalities > Externalize internalities

Minimize potential harms with robust internal governance, before harms have a chance to scale.

The greatest advantage of digital technologies is their ability to scale. Similar to cataclysmic environmental harms from bad industrial actors (e.g., rivers catching fire, Chernobyl’s meltdown), relatively small oversights in AI governance can lead to radically outsized harms to communities, and existential risk to the organizations that proliferate them. Having robust internal governance practices go far to minimize this risk, but it is still necessary to have a plan of accountability in place for when unintended harms occur.

III. Data procurement and use

The amount of investment an organization needs to place in minimizing harm is directly related to the amount of value it derives from digital products or services that are informed by data. The value of data is increasingly compromised if the methods of procurement or use fall short of local laws or stakeholder expectations.

Being thoughtful across architecture, product development, and policy design doesn’t just protect organizations by mitigating risk; it can also generate new value by improving relationships and retention with existing stakeholders, as well as attracting new ones.

These are samples of spectrums an organization might use to make data-procurement and use decisions.

Collect relevant data > Anything/everything possible

Minimizing data collection leads to better analysis and less risk.

It’s always best to first consider the questions for which the answers could, and should, be informed by data. After the questions are articulated, data maps can be created to specify the data that needs to be collected. Then, data scientists can consider data-minimization techniques to further reduce the data needed to answer the questions. Doing so minimizes the data burden—the infrastructure, processes, and personnel required to handle large volumes of data—leaving the organization in a strong strategic position with minimal data risk should a breach or leakage happen.

Informed consensual use of data > Exploratory use

Plan for how to use data, be transparent about their use, and gain consent.

The more specific and informed the consent-sourcing process, the lesser the future liability, and the stronger the trust relationship with the data provider. Data subjects hold a range of expectations about the privacy of their data and what constitutes acceptable secondary and tertiary uses. These expectations are often context dependent. Designers and data professionals should give due consideration to those expectations, and align products and services accordingly.

Data expiration > Digital perpetuity

Outdated data is a risk to model integrity, informed decision-making, and legal liability.

It might be a priority to keep data as a record or as a resource for future use; however, the longer data is kept, the more security and privacy risks increase—and, all the while, value and public perception are degraded. All data has a useful life. Leadership and design teams should consider this as part of security protocols, consent regimes, and policymaking.

IV. Artificial intelligence

As the powerful tools of autonomous systems and artificial intelligence continue to define the products and processes of daily life, it is imperative to regulate them as the fallible tools that they are, and to ensure that at every stage—from development and deployment to maintenance—humans are at the center.

Prioritize human consequence and agency > Reliance on AI

A human-centered approach is key to deciding where it is appropriate to apply AI.

Every algorithm, system, and model holds the possibility for error. Where insights derived from data could impact the human condition, the potential for harm at scale to individuals and communities should be the paramount consideration. Big data can produce compelling insights into populations, but those same insights can be used to unfairly limit an individual’s possibilities in life. There are certain specific use cases for AI that require special consideration to mitigate the realization of severe adverse outcomes. Given the severity of consequences, such as risks to public health and safety, or even the loss of personal freedom, it may be appropriate to allow for appropriate governance methods that address fundamental AI deployment questions.

Re-train (dynamic) models > Static models

Dynamic models preserve value and provide sustainability.

There needs to be consideration of how a model’s data and decision-making ability will fare with time and shifting circumstances. Without retraining, a model is not just incomplete, but ineffective as a valuable and sustainable tool for the people it aims to serve.

Be trustworthy > Transparent

Transparency is a useful reform tool, but trust is what provides stability throughout an organization.

When it’s genuine, transparency can be a critical component of an effective communications strategy, but it can also be used to distract. Being trustworthy is a higher calling. To be trustworthy means attending to establishing, building, maintaining, or repairing trust at every opportunity and through many avenues. It could be answering the phone, immediately, without long, microtargeted phone trees. Or, it could be having customer service and sales agents trained on how to respond to end-user privacy concerns. Trust manifests in myriad ways; seizing the maximum number of opportunities to reinforce trust is a strong strategy to avoid unnecessary risk.

Model an aggregate population > Model an individual

Practice “clustering” to avoid excess collection of personal information; aim to derive similar value with less risk.

Today’s marketing holy grail is to communicate with an audience of one, but this requires organizations to know a substantial amount about an individual, likely including personally identifiable information (PII). There are myriad risks involved in having such depth of information about so many people. The use of clustering can minimize the amount of information needed for any single person and make marketing operations much simpler, so everyone wins.

V. Public sector

How technology interfaces with, and has the power to impact, historically marginalized communities should be a particularly heightened concern for public-sector organizations and policymakers. Governance bodies have a duty to ensure net societal benefits while protecting the public from harm. This means that, in the face of applying novel technology, balancing the potential for profound benefit while minimizing disparate and negative impacts should be the aim. More specifically, public policy should “make sure that people are not targeted, not harassed, and not murdered because of who they are, where they come from, who they love or how they pray.”² The opportunity to model governance behaviors and practices at the highest level of accountability should also be considered.

Inclusive consideration > Utilitarianism

Protect and plan for the most valuable populations, who are often on the fringes of consideration.

In the face of potentially harmful impacts from technology, the public sector must prioritize the needs of the most vulnerable, to minimize the potential amplification of preexisting, discriminatory institutional structures. The Universal Declaration of Human Rights is a baseline, and its provisions should be prioritized above all else. Where other sectors and contexts fail to consider certain populations due to minority status, disenfranchised identity, cost effectiveness, or other factors, the public sector must act as an advocate and a safety net. When considering the needs of the collective, these populations must be included in the whole. Rather than placing excessive weight on the experience and utility of the majority, governments must always weigh the risk of how the most vulnerable could be disproportionately affected.

Protection of the commons > Incentives of individuals

Consider the needs of the collective over the interests of individuals.

The “Tragedy of the Commons” describes a phenomenon in which a shared resource, from which no one can be excluded, is degraded over time due to each individual’s incentive to get more out than they put in. Public organizations and services should strive, as much as possible, to protect, maintain, and bolster the public “commons.” In the context of technology’s effects on society, consider, for example, the commons of public privacy. To avoid the detrimental effects of misaligned incentives, the public sector should prioritize the collective needs of the public and serve to set both guideposts and boundary lines for private behavior, preventing the private interests of individuals or organizations from infringing on the needs of the collective. These bounds should be informed by the values and priorities of the public, especially those most vulnerable, and apply to the principles and functions of public organizations.

Proactive iterations > Reactive incrementalism

Keeping pace with technology and its effects necessitates anticipation and creativity.

The pace of technological advancement is growing exponentially, and its impacts are too large to be approached with protocols designed for a previous decade’s status quo. The public sector should lean into existing policy-experimentation initiatives and expand their remit—contemporary approaches to agile governance are focused on being responsive to stimuli, often taking the form of technological progress. This approach can have an outsized impact. One example is applying data science to long-term policy. For example, the policy on standard retirement age could be tied to median life expectancy. This creates policy that matures alongside society. Dismissing these approaches because they deviate from the norm is a missed opportunity. Governance bodies could be leveraging these capabilities to enshrine new policies that proactively iterate, while still allowing for intervention.

VI. Conclusion

Leading organizations need to be intentional about their own behavior, and hold consideration for their impact that goes beyond government-mandated requirements. In doing so, companies have an opportunity to model responsible behavior, get out in front of competitors, and establish best practices and governance that can be codified and amplified by regulators. These are the companies that will set the bar for others to aspire to achieve. Will your company set the bar or play catch-up?

VII. Contributors

Steven Tiell
Nonresident Senior Fellow, GeoTech Center
Atlantic Council

Author

Steven is an author on this issue brief He is a Nonresident Senior Fellow with the Atlantic Council’s GeoTech Center. He is an expert in data ethics and responsible innovation working at Accenture, where he helps clients to integrate responsible product development practices and executives to manage risks brought on by digital transformation and widespread use of artificial intelligence. He founded the Data Salon Series, now a program at the GeoTech Center, in 2018. Since embarking on Data Ethics research in 2013, Steven has contributed to and published more than a dozen papers and has worked with dozens of organizations in high-tech, media, telecom, financial services, public safety, public policy, government, and defense sectors. He often speaks on topics such as governance, trust, data ethics, surveillance, deepfakes, and industry trends.

Lara Pesce Ares
Responsible innovation consultant
Accenture

Author

Lara Pesce Ares is an author of the Accenture Technology Vision. She develops thought leadership that covers technology futures and responsible business practices that often consider sociological implications. She is proud that her work creates impact through business-model innovations that position organizations to disrupt existing markets and enter new ones, influencing positive change at scale. She holds a BA in public policy from New York University, where she did a senior thesis on data-driven initiatives in city governments

The post Principles to practice: Using ethical spectrums to guide decision-making appeared first on Atlantic Council.

The post Lipsky interviewed by Inside Sources podcast on the role of China and the IMF in the Sri Lanka crisis appeared first on Atlantic Council.

Last month’s Summit of the Americas in Los Angeles is now in the rearview and drew ample criticism from US partners in the hemisphere. Despite this, CARICOM governments came away relatively pleased with the attention they received and with a clear sign from the United States that the region matters. Going forward, Caribbean eyes will be on the United States’ follow-up moves and whether engagement will be consistent and sustained—or fall aside.

The momentum for a new diplomatic and economic era is already building following the Summit of the Americas and after a meeting of CARICOM in Suriname, where governments discussed issues including food security, energy resilience, and climate change—and reflected on recent engagements with allies like the United States. CARICOM will meet again in the Bahamas in February 2023; by that time, the United States should put in the work to more deeply solidify its relationship with CARICOM and also make inroads on some of the commitments made at the Summit of the Americas. 

CARICOM is a strategic partner for the United States. Dispersed across the Caribbean Sea, South America, and Central America, CARICOM members’ priority areas overlap with most US interests. This includes migration, relations with Venezuela and Cuba, transnational crime, and Chinese and Taiwanese engagement in the hemisphere. CARICOM—whose members vote in major international organizations—is also vital to the United States’ multilateral goals.

Recognizing CARICOM’s challenges and importance to US interests, Vice President Kamala Harris announced the US-Caribbean Partnership to Address the Climate Crisis 2030 (PACC2030): a new framework focused on supporting climate and energy resilience in the region. The United States and CARICOM also established three new joint committees on food security, energy, and development finance. And while CARICOM countries have frequently spoken with Harris, US President Joe Biden—by holding his first discussion with CARICOM leaders since taking office—reinforced the unique challenges facing the region and underscored their need for immediate relief.

But the momentum from the Summit of the Americas and the CARICOM meeting has a short shelf life. Skepticism will arise about the United States’ commitments to CARICOM in the months to come, including about the effectiveness of the joint committees and whether PACC2030 will actually help the region overcome its climate and energy-resilience challenges. The summit’s success hinges on whether new commitments can move forward or produce tangible results. If not, the summit and PACC2030 will be seen as another broad US policy or framework lacking resources and teeth. And what was considered a bright spot in Los Angeles would be quickly dimmed if weeks and months go by without action.

This is why immediate moves are critical. The United States should use the time leading up to the next CARICOM meeting in February to strengthen the US-CARICOM relationship.  

First, the United States should send a cabinet-level delegation led by Harris to attend February’s meeting. CARICOM meetings often attract senior officials from across the world who believe in the value of holding discussions with the community as a bloc: United Nations Secretary General Antonio Guterres paid a visit to the Suriname meeting. A senior-level visit in February would add continuity to Biden and Harris’ meeting last month at the Summit of the Americas and would save that summit meeting from being written off as an ad-hoc event. With February’s CARICOM meeting seven months after June’s summit, it would also be an opportunity for the United States to assess progress on PACC2030 and the joint committees; participants could also gather insights from policymakers, the private sector, and civil-society leaders in the Caribbean who did not travel to Los Angeles. If this occurs, it would be a profound moment in US-CARICOM relations, especially as the region laments that it is often cast aside to the outskirts of US foreign policy in the Americas. This visit could bring positive visibility to US engagement in the Americas.

Second, the Biden-Harris administration should begin working with Congress to implement aspects of PACC2030 before February. An important measure from PACC2030 calls for exploring ways to increase access to US International Development Finance Corporation (DFC) financing for “underserved” Caribbean countries, including middle- and high-income countries, for climate and clean-energy projects. Most CARICOM countries have limited access to the DFC since the corporation, much like other international financing institutions, prioritizes low-income countries. Except for Haiti, all CARICOM countries are classified as middle- and high-income. As a result, members are unable to access needed concessional financing to build climate and energy resilience—the two focus areas of PACC2030.

However, expanding the scope of DFC requires congressional action. In 2019, Congress made amendments to the BUILD Act that allowed the DFC to work with middle- and high-income European countries that wanted to improve their energy security. Except for a few, Caribbean countries are dependent on fossil-fuel imports for energy needs and that makes them vulnerable to the volatility of global energy markets. Some citizens pay electricity prices that are more than double the average price in the United States. Out of necessity, several countries, such as Antigua and Barbuda and the Bahamas, are turning to Venezuela to offset the high costs of fuel via oil alliance PetroCaribe—raising the stakes for Washington to maintain and increase its presence in the region. Caribbean countries tend to enjoy bipartisan support on Capitol Hill, so it should be within reach for Congress to replicate the success of the DFC carve-out for European energy.

Finally, US state governments have a role in improving the US-CARICOM economic relationship through the Cities Forward Initiative announced at the Summit of the Americas. For example, expanding financial relations between CARICOM countries and local banks in the United States can help address de-risking in the region. De-risking, or the loss of correspondent banking relations, due to the limited profitability of the Caribbean for big US banks isolates the region from global finance. While big US banks have found small Caribbean markets as unprofitable, medium-sized banks might not. The challenge is to build relationships between small- or medium-sized banks and Caribbean financial institutions. Outreach from state governments to the Caribbean can be helpful as local US governments and their institutions can build new relationships between US and Caribbean financial institutions through mechanisms that bring financial actors together such as a US-Caribbean Banking Forum.

In addition, CARICOM offers US states new markets for their imports and exports. Several CARICOM governments—like Jamaica, Guyana, and Trinidad and Tobago—are building or have already established sectors such as call centers, boosting the region’s nearshoring potential. The prevalence of English and the similarity of time zones between Caribbean countries and the eastern United States increase the region’s potential in this sector and can be useful for smaller US companies.

The Cities Forward Initiative can also increase US engagement with the US-based Caribbean diaspora to help inform future US policy toward CARICOM. The Caribbean diaspora hovers close to 4.5 million and is concentrated in Florida and New York, with growing numbers in Texas. Leaders in these states should consider holding community consultations that teach locals about CARICOM markets and consider sending US local-government and private-sector leaders to the region to source new products and services that benefit both CARICOM and US subnational economies. This can also increase flows of people-to-people exchange, potentially improving relationships between institutions such as universities.

With just seven months until the Bahamas meeting, the United States should seize the moment to build goodwill with CARICOM and begin deepening its relationship with the region by connecting US and Caribbean cities and institutions. Talk is cheap but action is worth gold. To make sure that the positive outcomes from June’s summit don’t go to waste, it is time the United States shows how committed it is to its neighbors in CARICOM.

Wazim Mowla is the assistant director of the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center and is a nonresident scholar at Florida International University’s Jack D. Gordon Institute for Public Policy.

The post Three ways the United States can prove it’s invested in its relationship with the Caribbean appeared first on Atlantic Council.

These two initiatives underscore the increasingly prominent role of US cities in global affairs and outline a new vision of foreign policy that strengthens alliances from the subnational to international level. By renewing focus on city diplomacy, the commitments have the potential to revitalize relations across the Western Hemisphere and re-center US foreign policy on the needs of local communities.

But to ensure that these commitments are not one-off occurrences, the White House and State Department should introduce institutional reforms to support subnational government leaders across the country: first, by providing a roadmap for mayors to establish city offices of international relations; and second, by establishing a State Department office to advise and support regional initiatives.

Metropolises matter

Cities are hubs of economic growth and innovation that punch above their weight and attract the next generation of talent. The economies of many US cities are larger than those of entire countries: New York City’s gross domestic product (GDP) in 2021 was larger than the combined GDP of all of Mexico and Central America, while the GDPs of Ecuador and Jacksonville, Florida were nearly the same in 2020. In the United States, four in five people live in urban areas, and that number is expected to rise to almost nine in ten people by 2050. In Latin America and the Caribbean, city populations have also quickly expanded: Over the past two decades, the region’s urban population increased by 34.6 percent. As people flock to metropolises, mayors will represent an increasing percentage of a country’s GDP and population.

Mayors across the country are taking global issues head-on, with projects supported by their cities’ economic heft and innovation. At the start of the pandemic, the C40 Cities Climate Leadership Group, a network of major global cities established to confront the climate crisis, launched the C40 Global Mayors COVID-19 Recovery Task Force which responded to global economic shocks by creating a plan for a sustainable and equitable economic recovery. Similarly, at the 2021 United Nations climate change conference, C40 Cities—led by Los Angeles Mayor and then C40 Cities Chair Eric Garcetti—ran the Race to Zero campaign, committing over one thousand cities and local councils to go carbon neutral by 2050. It was one of the most substantial contributions towards lowering emissions made at the conference. The Biden administration’s new announcements would similarly tap into the power of city diplomacy by convening mayors and boosting their capacity to address shared challenges.

The move to elevate subnational government officials in US foreign policy will help connect local communities and commerce across the Western Hemisphere. These new city-focused initiatives announced by Blinken acknowledge local leaders’ abilities to provide a bridge between national policies and everyday citizens. This is particularly relevant following the Summit of the Americas, as mayors can demonstrate to the public how actions discussed at the summit can benefit local communities. However, these initiatives should go hand-in-hand with efforts to train and coordinate local leaders from a diverse array of metropolises.

The US State Department should formalize its approach to subnational engagement by creating a blueprint for international offices at the citywide level, with resources and coordination from Washington. The federal government should first conduct a widespread review of the current international engagements of each state and city to gain an accurate view of the current strengths and weaknesses of US subnational diplomacy. Next, the State Department should work with current offices to outline a set of best practices for local officials who lack the resources and training to prioritize international collaboration. This guide should also outline the economic benefits of collaborating with international partners, which could be used by elected officials and candidates as they reach out to voters. These resources will make clear the benefits of international partnership—but they’re not enough.

The United States should also consider creating a central office in the State Department to coordinate and improve cohesiveness between US regional initiatives. Currently, Congress is considering the bipartisan City and State Diplomacy Act to create a one-stop-shop in the State Department, headed by an ambassador-at-large for city and state diplomacy, that would include more federal resources to support subnational relationships. The ambassador would be able to send experienced career foreign-service members to support new statewide offices, leverage the State Department’s expertise in informing federal policy, and coordinate the policy goals of the myriad of subnational networks—from C40 Cities to the US Conference of Mayors. And if congressional action slows, the State Department can always create the proposed office unilaterally.

Mayors need a designated city-level team with resources to coordinate the host of new responsibilities and opportunities included in the new US government-led subnational effort. Most US cities are not yet fully equipped to lead their own foreign engagement due to a lack of training and resources. Nina Hachigian, the first US deputy mayor of international affairs, observed that “American cities are almost universally understaffed, and many do not have even one person dedicated to foreign policy.” While a handful of ambitious mayors in large cities such as Los Angeles and New York have taken it upon themselves to create their own specialized approaches to foreign diplomacy, existing action has occurred in a piecemeal and isolated process without streamlined guidance and support from the federal government. Without an intentional effort to assist local leaders from smaller states and cities, the benefits of international collaboration will continue to fall unevenly across states—further exacerbating national inequalities.

Streamlining a fractured environment

Skeptics of subnational diplomacy may fear that creating local offices for international relations will disaggregate and weaken national foreign policymaking, potentially even contradicting national priorities when local leaders are not politically aligned with federal government leaders. This line of reasoning ignores the reality that local leaders will continue to strike out on their own. Instituting local offices alongside a federal office devoted to subnational diplomacy will streamline the isolated approaches of different levels of government. Importantly, it will also avoid sending mixed signals abroad. A well-resourced federal office would further ensure that all cities and states have the ability to capitalize on the benefits of international partnership, no matter whether they are predominantly urban or rural, coastal or land-locked, or growing or stagnating economically.

The Summit of the Americas presents a critical moment to reprioritize both the creation of city-level international offices and a State Department office to coordinate between US regional initiatives. To start, these growing city-level offices could take the lead in following up on summit deliverables, using local policies in pursuit of achieving hemispheric aims. These offices of international affairs can also lay the groundwork for regional economic integration across the hemisphere that supports local communities. US cities need international economic policies on scale with their own growing capacity, and these new offices can lead international trade missions to attract foreign direct investment, boost local tourism, and spur job growth: locally driven commercial exchanges, unlike most international trade agreements, can prioritize small-business development. These bilateral economic relationships would also support US geoeconomic priorities like localizing production and friend-shoring to build more resilient supply chains with a large number of trusted countries.

The White House has a mere seven months until the Cities Summit. In this time, national US government leaders should create the local and national institutions needed to support mayors in their global aims. If mayors arrive in Denver with designated international teams and clearer understandings of their mandates, they will be prepared to set an ambitious agenda. The local leaders at the Cities Summit can then focus on tangible steps for achieving priorities set out at the Summit of the Americas. In doing so, these mayors will establish a solid foundation for continuous collaboration and spearhead a new form of foreign policy that is truly responsive to the people because it is led by locally elected leaders—but only if the national US government is ready to support this bottom-up approach.

Willow Fortunoff is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.

The post Mayors are quickly becoming international diplomats. The US can help them thrive. appeared first on Atlantic Council.

The post Mohseni-Cheraghlou interviewed in Bloomberg Stephanomics podcast on the potential impact of the 2022 FIFA World Cup on labor rights in Qatar appeared first on Atlantic Council.

The post Graham cited in International Banker on the lack of incentives in the US-led Indo-Pacific Economic Framework appeared first on Atlantic Council.

Around the world, governments used significant deficit spending to help their economies weather the COVID-19 storm. In EMs, the average public debt to GDP ratio just prior to the pandemic was 52 percent. In 2021 it increased to 67 percent, a historic high. This follows a decade long upward trend following the 2008 financial crisis. EM debt could more quickly spill over into domestic economic activity due to the large “sovereign-bank nexus” which characterizes many EMs. Their banks extended credit under government-backed stimuli. If EM governments face growing financial pressure and the public debt banks hold loses value, banks may be forced to freeze credit in dramatic fashion.

EMs currently face multiple pressure points. First among them the increase in global inflation, which caused central bankers in AEs to set higher interest rates. When AE central banks raise interest rates, EMs usually face capital outflows, higher borrowing costs, and currency fluctuations that impact their terms of trade. This time round, the JPMorgan EMBI Global Diversified EMs sovereign bonds index recently suffered its worst loss in nearly 30 years. 

At the same time, Russia’s invasion of Ukraine has exacerbated pandemic supply chain disruptions and significantly increased commodity prices for EMs. EM food and energy prices, especially when imported, have skyrocketed. The rising prices for key inputs, higher borrowing costs, and continued fallout from the pandemic is leading to extremely difficult situations for EMs. Sri Lanka defaulted on its debt last month and more countries could easily follow suit. For example, Pakistan is currently negotiating with the IMF for assistance in managing its debt burden. A growing percentage of EMs are considered “distressed” — defined as potentially unable to fulfill financial obligations on present terms.

Economic and financial instability in EMs would have major negative impacts, none more so than for these countries’ people. Divergent pandemic recoveries mean that most EMs’ income growth was less than America the past few years, for the first time in nearly four decades. EMs are likely facing even worse conditions ahead; more poverty, greater food insecurity, and even slower growth that could lead to a “lost decade” of worsening living standards. According to the World Bank “the level of per capita income in developing economies this year will be nearly five percent below its pre-pandemic trend” and the forecast for the next several years has been revised down.

Aside from the moral necessity of addressing these issues, the entire global community has an economic interest in doing so. Financial and economic crises in EMs would create another meaningful headwind given financial and trade linkages. EMs (including China) represent  around 45 percent of both global Foreign Direct Investment and trade, as well as about 35 to 45 percent of global GDP.

In addition, the opportunity cost of EMs forgoing climate spending, to instead service debt, is not a high-return proposition. EMs are projected to emit an increasing share of global emissions and are already struggling to make investments in sustainable development in wake of the pandemic. There is evidence that the latest debt developments are further limiting some EMs climate change investments. Notably, AEs have also not fulfilled their obligations in pledged climate finance assistance. Moving forward, AEs and multilateral institutions must help in multiple ways.

First, in certain situations, EMs should be encouraged to use capital controls — policy steps to curb the flow of foreign capital in and out of an economy. The international economics community has long frowned upon capital controls, believing they were inefficient. While free flowing global capital does have many economic benefits, research has shown the merit of smoothing out capital flow volatility depending on the country and macro environment. Capital controls can help prevent a surge of inflows from creating financial bubbles. They can also help manage “sudden stops” when foreign investors swiftly reverse course. For example, in the current context, temporary restrictions on capital outflows that are triggered based on preset crisis conditions could help prevent a downward financial system spiral and benefit most stakeholders. The IMF recently updated its Institutional View, although some suggest it should approve of capital controls even more broadly. Nonetheless, this evolution has come at the right time and should be a component of how some EMs manage the challenges ahead.

Second, mechanisms for debt restructuring must be enacted. At the onset of the pandemic official bilateral debt payments were frozen for certain countries, but they have since resumed. A new freeze for a broader set of countries should be instituted. The G20 framework for debt resolution also needs strengthening, most importantly by engaging private creditors and gaining clarity from Chinese State-Owned Enterprises on their lending terms extended to EMs.

Lastly, multilateral institutions should once again provide EMs in need with funding as they did earlier in the pandemic. Some have criticized the amount of support given to EMs during the pandemic as too little. To ensure effective support, member countries must leave no doubt and provide sufficient resources and leeway to help backstop a potentially large wave of distressed EMs.

One of the essential lessons of the COVID-19 pandemic is that countries are interconnected. EMs’ debt management is no different. Residents of EMs and other economies all over the world will be impacted by how this process plays out — now and later. Policymakers would do well to heed this important lesson and act boldly as they work with EMs to help maintain economic stability.

Jeff Goldstein is a contributor to the Atlantic Council’s GeoEconomics Center. During the Obama administration he served as the Deputy Chief of Staff and Special Assistant to the Chairman of the White House Council of Economic Advisers. He also worked at the Peterson Institute for International Economics. Views and opinions expressed are strictly his own.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

Further reading

Econographics Jun 17, 2022

The Fed has regained the initiative, but at a cost

By Hung Tran

The Fed may well have been right in taking forceful actions now to fight inflation after failing to control it, but such actions add to the challenges experienced by economies around the world.

Economy & Business Financial Regulation

New Atlanticist Jun 24, 2022

Seven trends to watch as the world’s richest countries get together

By the GeoEconomics Center

From inflation to sanctions, these are the key questions facing the G7 countries—which represent around half the global economy—at their upcoming summit.

Digital Currencies Economic Sanctions

Econographics May 25, 2022

A new type of global recession

By Josh Lipsky

For the first time, it’s China’s pronounced slowdown which could be the single largest factor in creating a global recession.

Americas China

The post Trouble for Emerging Markets could spell trouble for all appeared first on Atlantic Council.

Strong candidates for funding will present an achievable strategy for increasing economic, political, and legal freedoms in their country or community. We will consider grant requests of up to $35,000 from Atlas Network partners outside the United States. Evidence of matching funding is preferred.

These grants are inspired by our research on Freedom and Prosperity, aiming to increase opportunities for poor and marginalized individuals in developing countries. The Center’s Freedom and Prosperity Indexes show that countries with more freedom tend to also have higher incomes and other indicators of prosperity.

Atlas Network partners have proven to be effective catalysts for policy reforms that remove barriers to enterprise and offer greater opportunities to thrive. Our Freedom & Prosperity Grants will put resources into local projects designed to ensure self-determination and maximize human potential. We aim to drive an improved standard of living across the globe and particularly in developing countries.

Atlas Network accepts no government funding, so its giving capacity relies on the generosity of its donors.

Apply today at: https://www.atlasnetwork.org/grants/freedom-prosperity-grant

Questions? Contact Hane.Crevelari@AtlasNetwork.org

The post Freedom & Prosperity Grant appeared first on Atlantic Council.

Introduction

China’s flagship Belt and Road Initiative (BRI) is often directly compared to the United States’ postwar Marshall Plan. The comparison is made due to the BRI’s scale, global infrastructure investment ambitions, and geopolitical and security ramifications. But how accurate is this analogy, and what do the similarities and differences between the two infrastructure programs tell us about the economic and political anxieties of our time? While there are far more differences than agreements between the BRI and the Marshall Plan, the impetus behind both initiatives reveals important parallels between the postwar reality and post-financial crisis global posture. Through the analysis of several examples, this issue brief provides crucial insights as international political and business leaders once again call for a “new Marshall Plan”—this time to rebuild Ukraine should Russian aggression end.

Comparing the Marshall Plan and the BRI

There are more differences than similarities between the Marshall Plan and the BRI.

First, the method of financing for the two programs are polar opposites. The Marshall Plan was mostly financed through concessions, where countries received funds through grants or in-kind subsidies. The BRI instead relies on loans and liquidity support from the People’s Bank of China.

Second, the two programs were perceived differently. The Marshall Plan was largely celebrated, particularly in Europe. The European Recovery Program train, funded by the Plan, supplied goods and food to millions of European citizens. The Plan ultimately lowered trade barriers and catalyzed economic and industrial advancements. On the other hand, the BRI has received mixed reactions: in areas where it was successful, locals supported the program; but where infrastructure projects failed, delayed, or became more expensive than anticipated, locals blamed the BRI for increasing debt and the withdrawal of public services.

Conclusions

As the United States and the European Union jointly embark upon the G7’s Build Back Better World Initiative (B3W) and as the EU expands its Global Gateway infrastructure program, the successes and failures of the Marshall Plan and BRI provide a few caveats and helpful tips for regional infrastructure and development programs:

1. Local and national leaders should be heavily involved in project development, and an independent third party should monitor public tender. Programs should also work to stimulate and engage local labor markets. 
2. Sources used to fund the proposed infrastructure projects should be made publicly available. A higher grants to loans ratio will likely be more successful.
3. International actors should prioritize investing in sustainable, future-oriented, renewable energy infrastructure. Officials should consider the long-term economic and environmental benefits of each project before implementation.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The Marshall Plan and the Belt and Road Initiative: More differences than similarities appeared first on Atlantic Council.

On June 15, Nonresident Senior Fellow Ferial Saeed published an article in World Politics Review that critiqued the Biden administration’s Indo-Pacific Economic Framework for its lack of specifics and failure to make meaningful progress on trade policy.

“Biden officials are betting that a “nontraditional” trade pact will be an easier sell domestically, but the negative reaction of many US-based and overseas civil society groups to the IPEF—groups the administration had hoped to satisfy—should give them pause. While advanced Asia-Pacific economies will likely keep the IPEF alive to keep China in check, they will not wait forever,” Saeed explains.

“One thing is certain: The U.S. must think seriously about where it is headed on trade, as a strategic disconnect with the most vital region of the world is not in the country’s interest.”

More about our expert

Former fellow

Ferial Saeed

Nonresident Senior Fellow

Scowcroft Center for Strategy and Security Scowcroft Strategy Initiative

Defense Policy Defense Technologies

The post Saeed in World Politics Review: Biden’s Indo-Pacific economic ‘whatever’ misses the mark appeared first on Atlantic Council.

Sovereign Wealth Funds

There are more than 130 sovereign wealth funds (SWFs) around the world with assets totaling more than $9.65 trillion. More than half of these assets is concentrated in Persian Gulf and Chinese (including Hong Kong) SWFs—31 and 24 percent respectively (Figure 1).

SWFs serve various macro-economic objectives of their respective countries ranging from stabilization (Turkmenistan’s Stabilization Fund and Chile’s Social and Economic Stabilization Fund) to economic development (Fund for Reconstruction and Development of Uzbekistan), foreign exchange management (China Investment Corporation) and saving for future generations (Australia’s NSW Generations Fund and Norway’s Government Pension Fund Global). Most SWFs, especially the larger ones, are established as surplus or saving funds in resource-rich economies such as Chile, Norway, and Persian Gulf countries. However, one can point to China Investment Corporation and Singapore’s Temasek Holdings as two of the largest SWFs that are not based on revenues generated from the export of oil, gas, copper, or other natural resources.

Since the mid-2000s, SWFs have played an increasingly important role in global development finance and financial stability, two roles that have been traditionally designated for the BWIs. According to data from SWF Institute, since 2011, SWFs have engaged in more than $500 billion in transactions related to the infrastructure sector of countries other than their own. More than 70 percent of these transactions took place between advanced economies. Moreover, investment by Chinese SWFs into the construction spree in developing economies around the world points to the growing importance of such structures to global development finance. For example, between 2018 and 2020 the value of Chinese investments and construction projects in the SSA region was about $54 billion, $20 billion more than the World Bank’s total disbursed amount to the region during the same period. The value of Chinese investment and construction in the MENA region between 2011 and 2021 is estimated to be around $211 billion, 83 percent of which targeted the energy, transport, and real estate sectors of this region. The same is true for many of the Persian Gulf SWFs which have invested heavily in infrastructure and real estate projects in advanced and developing economies. Abu Dhabi Investment Authority’s investment in India’s GVK Airport Developers Limited in November of 2019 is just one example of close to 100 such transaction of Persian Gulf SWFs in the infrastructure sectors around the world.   

The great financial crisis (GFC) of 2007-9 was a watershed moment for Persian Gulf and Chinese SWFs to showcase their growing relevance in the global financial structure and put their liquid financial firepower on display. For example, in 2007 and at the early days of great financial crisis, these SWFs invested about $27 billion in troubled U.S. financial institutions, accounting for more than two-thirds of all foreign SWF investments in U.S. financial institutions at that time. To put this in perspective, in fall 2008, the IMF extended about $43 billion in loans to several developing countries, including a $2.1 billion package to Iceland after the collapse of its banking system.

Pension Funds

Recent decades have witnessed the strong emergence of pension funds as institutional investors. As of end of 2020, global pension assets exceeded $56 trillion, almost double the amount in 2010. With its pension assets worth $35.5 trillion, or more than 63 percent of the world’s total, the United States leads all other economies in the world and with a large gap (Table 1).

The average real investment rate of return of these funds in 2020 was 4.1 percent in OECD economies and 3.2 percent in 32 other jurisdictions around the world. While, bonds and equities were the two main asset classes driving these returns, pension funds are increasingly investing in less liquid asset classes with longer return time-horizons such as infrastructure and real estate. For example, Hong Kong, Switzerland, Croatia, and Romania are a few of the recent jurisdictions that have relaxed their pension fund investment limits in long-term public good projects in infrastructure and real estate sectors.  Such policies are in line with pension funds’ long-term investment horizons while also increasing the overall welfare in societies. This could be a gamechanger in filling the massive global infrastructure financing gap, estimated at $15 trillion by 2040. To this end, The World Pension Council (WPC) and OECD first convened a meeting in 2012 to focus on how to promote pension funds’ exposure to infrastructure investment. Since then, there have been increased calls to make infrastructure an asset class for investment and the World Bank has managed to establish the Global Infrastructure Facility (GIF) to promote more public and private investment in the infrastructure sector. With their financial firepower in tens of trillions of dollars and their long-term investment horizons, SWFs and Pension Funds are particularly well-positioned to bridge the global infrastructure financing gap in the coming decades.

The rise of SWFs and Pension Funds highlights the slow but steady emergence of various alternatives to BWIs. Regional Multilateral Development Banks and Financial Institutions, SWFs, pension funds, and state-led multilateral development finance programs such as China’s Belt and Road Initiative (BRI) and the United States’ Build Back Better World Initiative (B3W) are entering areas that were traditionally designated to BWIs. This has contributed to the declining relevance and effectiveness of BWIs in a constantly evolving global economy and financial landscape.

Twenty-first century economic and financial multilateralism is no longer only about states. Alongside sovereigns, quasi-state actors such as SWFs and Pension Funds as well as other non-state actors, such as multinational corporations (MNCs), have important complementary roles to play in the global economic and financial governance of the 21^st century. For example, without meaningful involvement of MNCs in policy discussions around climate change, BWIs and their member states will most likely fail to make any significant strides on global climate targets. Hence, to achieve their global objectives in a more efficient and effective manner, the IMF and World Bank must define independent venues of collaborations with quasi-state and non-state actors. This will certainly go against the traditional definition and workings of international organizations. But for the IMF and World Bank to remain at the forefront of the governance of the global economy for the remainder of the twenty-first century, they must welcome such non-traditional reforms.

Amin Mohseni-Cheraghlou is a consultant with the GeoEconomics Center and an assistant professor of Economics at the American University in Washington, DC.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

Related reading

Econographics Apr 11, 2022

Democratic challenges at Bretton Woods Institutions

By Amin Mohseni-Cheraghlou

Voting quotas at Bretton Woods Institutions continue reflecting the 1944 power structure, despite significant changes to the global economy.

Africa Americas

Econographics Apr 11, 2022

“Inequality starts at the top”: Voting reforms in Bretton Woods Institutions

By Amin Mohseni-Cheraghlou

Full democratization of BWIs is not realistic. A more pragmatic approach would work towards a “double majority” system.

Africa Americas

The post Quasi-state financial institutions and the Bretton Woods: A case for collaboration? appeared first on Atlantic Council.

Consider China: Through its “Digital Silk Road,” Beijing is spending tens of billions of dollars to build the internet abroad, with the China Development Bank often financing the purchase of equipment from Chinese-owned, -backed, or -affiliated companies. For instance, Huawei alone reportedly controls 29 percent of the global market for network equipment. If the status quo continues, most new internet users will take their first online steps into a state-controlled, authoritarian-inclined digital landscape. At each step in this journey—from the fiber they use to connect to the hardware and the software they use once online—their data will feed Chinese firms that have few qualms about supporting Beijing’s authoritarian agenda. 

Not only is China increasing its control over critical infrastructure and enhancing its surveillance capabilities, but it is also expanding its sphere of influence. For many governments interested in expanding internet access and growing their digital economies, Chinese financing is often the only option. In Africa, for example, Chinese investment in information and communications technology (ICT) infrastructure surpasses spending from African governments, Group of Seven (G7) nations, and multilateral agencies combined. Despite the fact that virtually all democracies have interests that are threatened by the expansion of authoritarian control over internet infrastructure, the democratic world hasn’t come up with a compelling alternative to Chinese financing.

US President Joe Biden’s Build Back Better World initiative and the European Union’s Global Gateway strategy both aim to mobilize development and private capital to invest in infrastructure in low- and middle-income countries. But neither of these initiatives is expected to provide enough resources or funding needed to counter China’s digital ambitions—or enable the types of community-focused connectivity providers that can best connect the unconnected. If democratic leaders want to meaningfully tackle digital divides in a way that promotes openness, democracy, and human rights online, the world needs substantially more money and new strategies to connect the hardest-to-reach people. 

Financing the digital future

Failed efforts to close the gap have largely been a result of the false belief that the free market will deliver ubiquitous digitalization. But with more than twenty-five years of opportunity, and hundreds of billions of dollars in government subsidies for domestic expansion, it’s clear that traditional telecom operators alone will not connect everyone. Time and again, these operators have created broadband deserts and practiced modern forms of digital “redlining,” or leaving behind communities they deem too poor or too remote to be sufficiently attractive to connect.

I co-founded Connect Humanity, a fund to accelerate digital equity, out of a steadfast conviction that it’s possible to change the way broadband is built in order to connect everyone. We know how to connect people; it’s not a complex technical challenge. There are a plethora of viable operating and business models, and community connectivity providers—a collection of municipal networks, community networks, cooperatives, and other smaller and social ventures grounded in their communities—have already shown remarkable progress in connecting people in areas that have previously been left out. 

In South Africa, Zenzeleni, a community-owned wireless service provider, offers affordable and reliable internet access to rural residents at the same speeds as those in the country’s urban centers. In Mexico, Rhizomatica is profitably connecting underserved rural indigenous communities. The most affordable broadband in the world is arguably a municipal network in Ammon, Idaho, which offers residents lightning-fast 1GB upload and download speeds for less than ten dollars per month.

These are the types of operators that can lead the world toward universal internet access, connecting the hardest-to-reach communities and often delivering better service at much lower prices. That’s because they’re maximizing value for the communities they serve, not far away shareholders. But they frequently turn a profit, and nearly all struggle with access to capital.  

A Global Fund for Digital Equity

Most of these networks are too big for microfinance and philanthropy and too small for the huge loans offered by development-finance institutions, international aid, and commercial banks. Even when these connectivity providers have projects big enough for the latter, communities must often overcome discrimination or a lack of understanding from investors who are accustomed to working with traditional operators and don’t yet understand that other models are better-placed to provide internet for some communities.

A Global Fund for Digital Equity, led by an alliance of democratic countries, could fill this capital gap by providing the right types and sizes of support—primarily in the form of long-term, low-interest financing—for the community connectivity providers that have repeatedly proven able to connect the unconnected. There is precedent for such a fund in both enterprise funds and green banks; in both models, government funds have underwritten financial institutions dedicated to spurring the development of strategic but underserved markets. These funds have returned the principal to the governments while enabling new communities of entrepreneurs to emerge and flourish. Loans and credit guarantees from the US Development Finance Corporation (DFC) provide another useful model.

In addition to significant amounts of money, there is an urgent need for intermediaries that can disburse grants and loans in the sizes, structures, and blends tailored to the target communities and the operators serving them. Root Capital, for instance, has leveraged DFC credit facilities and guarantees to distribute $1.6 billion to small farming businesses across the Global South to improve the lives of more than ten million people in farming families, and has generated $4.6 billion in economic activity. Similar structures and intermediaries will be key to achieving digital equity for all.

The need to expand internet access to everyone—in a way that offers viable alternatives to China’s funding and vision for the internet—has never been clearer. The future of democracy, human rights, economic opportunity, and national security may all depend on it. But this demands that democracies of the world get off the sidelines, commit significant resources, and support the community-based models that have proven successful for connecting the unconnected. Will they step up, or continue to allow digital authoritarians to shape the online experience of billions of people?

Jochai Ben-Avie is a nonresident fellow at the Atlantic Council’s Digital Forensic Research Lab, the co-founder and chief executive of Connect Humanity, and a Truman National Security Fellow. A version of this post was published on Connect Humanity’s blog.

The post Don’t let digital authoritarians lead the way in connecting the world appeared first on Atlantic Council.

By the Freedom and Prosperity Center

The Freedom and Prosperity Center aims to increase the prosperity of the poor and marginalized in developing countries and to explore the nature of the relationship between freedom and prosperity in both developing and developed nations.

Learn more

See how scores have changed over time

Explore the data

downloaD data set

Executive Summary

The Atlantic Council’s Freedom and Prosperity Center aims to increase the prosperity of the poor and marginalized in developing countries—and to explore the nature
of the relationship between freedom and prosperity in both developing and developed nations.

To aid in this task, this report introduces the new Atlantic Council Freedom and Prosperity Indexes.

The Freedom Index measures economic, political, and legal freedoms for nearly every country in the world, using the latest available data when the index was constructed at the end of 2021. The Prosperity Index measures economic wellbeing and human flourishing for the same countries and time period. In addition, we collected historical data to allow us to track and analyze change over time. We constructed the same indexes going back in five-year increments for the years 2006, 2011, and 2016; 2006 is the earliest date for which data on our indicators are available.

To be sure, there are limits to any data-collection effort. The world changes quickly, and the data we collected at the end of 2021 may not still represent current realities in every case. Russia, for example, is less free today than when we collected the data, due to Vladimir Putin’s invasion of Ukraine and his related crackdowns at home. In addition, we needed to choose indicators that could be applied across all countries and over time, but these generalized measures may not always fit neatly with the unique circumstances in every country. Still, despite these limitations, we believe that these indexes provide new and valuable information on global freedom and prosperity.

Going forward, we plan to update the indexes annually. The methodology to produce the indexes is straightforward and transparent, and is described in detail in the appendix.

We have built on the work of several comparable country indexes. Many of these measure one aspect or another of freedom or prosperity. Some combine freedom and prosperity indicators and produce a single index. Our approach in designing the Atlantic Council Freedom and Prosperity Indexes was different in a few ways.

• We defined freedom comprehensively. Many existing indexes measure economic, political, and legal freedoms separately, whereas we combine all three in our Freedom Index.
• We defined prosperity comprehensively. We also take a broad view of what constitutes a prosperous country. We go beyond material measurements like income per capita and healthcare. We argue that a truly prosperous country should also score well on the quality of the environment, its treatment of minorities, and the general happiness of the population.
• We constructed separate indexes for freedom and prosperity. By creating two distinct indexes, we hope to give researchers a better opportunity to analyze the relationship between freedom and prosperity. We also offer policymakers and other thought leaders clearer benchmarks for reforms and tracking results over time.

The indexes demonstrate that there is a strong relationship between freedom and prosperity. This report draws on the trajectory of the results over time, and other historical evidence, to argue that freedom tends to result in prosperity. In other words, freer countries tend to be more prosperous, and we have reason to believe that improvements in freedom will, over time, lead to greater and more durable prosperity.

The report also shows that autocracies generally do not deliver prosperity for their people. All countries rated Prosperous in our index (except for Singapore and Israel) also rank as Free. All countries in our Free category fall in either the Prosperous category or in the upper half of the Mostly Prosperous category. Both China and Russia rank lower in the Prosperity Index than Free countries do.

These findings lead us to recommend that governments, international organizations, private-sector companies, philanthropic organizations, and others concerned with prosperity promote economic, political, and legal freedoms.

The center will use the indexes and supporting data for its own research, and will also make them available for other researchers. All the research and resources used to produce the indexes and this report are publicly available. The Freedom and Prosperity datasets are accessible on the center’s website. The indexes will be updated annually, allowing thinkers and doers to track progress over time. Through our work and the work of others, we hope to make the world freer and more prosperous.

Summary and key takeaways

We hope that scholars and practitioners can use these data to conduct a wide range of analyses and to forge practical recommendations. In this section, we present some of our own preliminary analysis to explore the central question of this project: what is the relationship between freedom and prosperity? To be sure, this has been the subject of enormous scholarly debate, and we will not be able to resolve this question in a single report. Still, this analysis brings new data to bear on this question. The data and analysis in this report indicate that freedom and prosperity are correlated, and provide further support for the thesis that freedom contributes to prosperity.

Prosperity is highly correlated with freedom

A central finding of this report is that prosperity and freedom are highly correlated. The correlation coefficient between the indexes is 0.81. High values of Freedom are associated with high values of Prosperity, and low values of Freedom are associated with low values of Prosperity. The R² statistic shows that 66 percent of the variation in prosperity around the world can be explained by freedom (Table 5).

The strong relationship between freedom and prosperity can also be seen in simple descriptive statistics. With the exception of Israel and Singapore, every country in the Prosperous category is also in the Free category. Israel and Singapore (due to the latter’s high levels of economic freedom) occupy the two highest positions in the Mostly Free category (Table 4).

Moreover, no Free countries in 2021 are Mostly Unprosperous or Unprosperous; they are either Prosperous or Mostly Prosperous. The forty-one countries that comprise the top category of the Freedom Index also all rank in the top fifty for the Prosperity Index, except for Romania (fifty-one in the Prosperity Index) and Cabo Verde (eighty-one).

In addition, all Unfree countries in our Freedom Index rank in the Mostly Unprosperous or Unprosperous categories in our Prosperity Index—except for Cuba, which scores above fifty on Minority Rights and Health.

Continuing with the descriptive statistics, we find that citizens in Free countries are five times richer in per capita income ($36,142) than citizens in Mostly Free countries ($7,246) (Table 3). They are six times richer than citizens in Mostly Unfree societies ($5,791).

Table 3: Descriptive statistics across Freedom Index categories

Category	Country counts	Freedom Index		Population covered		GNI per Capita (US$)		Health Score
		Mean	Median	Mean	Median	Mean	Median	Mean	Median
Global	174	56.7	55.7	7,686	100%	13,312	5,070	62.2	67.2
Free	41	83.2	82.3	1,131	15%	36.142	32,290	87.5	89.9
Mostly free	67	60.8	59.7	2,824	37%	7,246	7,246	60.6	65.9
Mostly unfree	55	39.7	40.5	3,570	46%	5,791	5,791	49.1	47.1
Unfree	11	18.3	18.9	157	2%	2,775	2,775	43.7	42

Table 3 Continued: Simple statistics across Freedom Index categories

Category	Country counts	Environment Score		Happiness Score		Minority Rights Score		Prosperity Index
		Mean	Median	Mean	Median	Mean	Median	Mean	Median
Global	174	45.4	46.1	62.2	56.1	79.1	87.6	51.2	49
Free	41	80.7	89.2	79.4	78.4	94.6	95.9	76.9	79.1
Mostly free	67	38.7	41.6	52.1	52.4	85.3	88.9	48.2	47.7
Mostly unfree	55	30.4	27.1	47.0	45.3	66.7	70.0	40.0	38.3
Unfree	11	29.4	29.5	27.5	22.6	47.6	45.6	30.5	31.3

The quality of life is also different in Free and Unfree societies. As can be seen in Table 3, Health, Environment, Happiness, and Minority Rights improve as a country moves toward greater freedom. The average Health score jumps from 60.6 to 87.5 when moving from the Mostly Free to the Free category. The average Environment score drops by more than 50 percent when moving from the Free group to the Mostly Free group. People in Free countries are almost three times happier than people in Unfree countries. For Minority Rights, the gap is smaller between the Mostly Free and Free groups (nine points), but the score drops significantly as freedom decreases, with gaps of almost twenty points between Mostly Free and Mostly Unfree, and again between Mostly Unfree and Unfree. These results suggest that more freedom is associated with a better life for the average person.

Table 4: Overlap between freedom and prosperity categories 

Evidence suggests that freedom contributes to prosperity

In this section, we examine whether freer countries tend to become more prosperous over time. Scholars have long debated the direction of the relationship between freedom and prosperity. The insight that freedom promotes prosperity goes back at least to Adam Smith’s The Wealth of Nations, which argues that laws and institutions that protect the liberty of individuals to pursue their own interests result in greater prosperity for the larger society.

Others argue the relationship goes in the opposite direction. Barrington Moore, for example, argues that a country cannot sustain democracy without a thriving middle class. People acquire property and material wealth first, and then demand a voice in government, including the freedoms to protect their wealth. This hypothesis goes all the way back to Aristotle, who posited that a large, prosperous middle class may mediate between rich and poor, creating the legal foundation upon which political freedom may function. A century ago, Max Weber extended this line of thought, proposing that the middle class defends its economic power by enshrining it in laws and institutions.

A third possibility is that there is a positive feedback loop; freedom begets prosperity, which, in turn, begets more freedom.

The idea that institutions are the key to long-run economic growth is well established in contemporary economic theory. Institutions provide the rules of the game. Rules that incentivize entrepreneurship, hard work, long-term planning, and broad access to economic opportunities tend to produce wealthier societies. Rules that stifle innovation, discriminate against certain segments of society, and do not guarantee that individuals will be able to enjoy the fruits of their labors and creations tend to produce poorer societies.

In theory, both democratic and autocratic countries could put in place sound economic institutions to produce long-run growth. But, in practice, democracies are much more likely to do so. Dictators often establish rules that maximize their political control and benefit themselves and their supporters, to the detriment of broader segments of society. On the other hand, because democratic leaders are drawn from, and represent, broader cross sections of society, they tend to put in place institutions that benefit wider swaths of that society.

We will not be able to definitively resolve this complex debate in a single report, but we do bring new data to bear on these questions. We believe that our data and associated analysis provide evidence that freer countries tend to become more prosperous.

In an effort to disentangle this relationship, we examined the strength of the correlations between freedom and prosperity over time. Using the same methodology, we re-created the 2021 Freedom and Prosperity Indexes for 2016, 2011, and 2006. We examined whether measures for freedom in prior years are associated with levels of prosperity in subsequent years. After all, changes in prosperity do not happen overnight. If freedom drives subsequent prosperity, then we should see the correlations between freedom in prior years more strongly associated with levels of prosperity in subsequent years.

This is what we found. Indeed, as one can see in Table 5 and Figure 6, the longer the time lapses between our measures of Freedom and Prosperity, the stronger the association. A country’s level of Prosperity today is better explained by its level of Freedom in 2006 than by its current Freedom. In this analysis we are concerned with the general trend over time, not the absolute differences from year to year. The correlation and R2 statistics are higher the further one goes back in time, indicating a stronger fit between past Freedom and future Prosperity. The 2006 Freedom Index, the earliest measure of Freedom calculated for this report, is most strongly associated with levels of Prosperity in 2021. While the relative differences may seem small, they are in a consistent direction. This rough test does not provide definitive proof that advances in freedom produce subsequent prosperity, but it is suggestive of such a dynamic and worthy of further investigation.

Table 5: Historical correlations

Prosperity 2021
Freedom Index Year	R2	Slope	Simple Correlation
2021	0.656	0.762	0.810
2016	0.662	0.771	0.814
2011	0.673	0.809	0.821
2006	0.677	0.834	0.823

Note: The table is based on the results of simple ordinary least squares regression, in which Prosperity Index 2021 is the dependent variable and time series of the Freedom Index are the explanatory variables.

We also tested the alternative hypothesis. Are past levels of Prosperity more strongly associated with current levels of Freedom? While there is a relationship, it is weaker than the link between Freedom and subsequent Prosperity. For example, the R2 statistic between Prosperity in 2006 and Freedom in 2021 is 0.613, while the same statistic for Freedom in 2006 and Prosperity in 2021 is 0.677. Freedom in a given year is more strongly associated with subsequent prosperity than the reverse. This simple test suggests that the relationship is driven more by a country’s level of freedom shaping its subsequent level of prosperity than by the reverse.

As we plan to update the data annually, we look forward to conducting further analysis on the direction and magnitude of the relationship between freedom and prosperity, and we encourage others to do the same.

We also analyzed the countries with the biggest score changes in the Freedom Index between 2006 and 2021. If our hypothesis is correct, we should expect big shifts in the independent variable (Freedom) to be associated with meaningful changes in Prosperity.

Two countries stand out for big changes in freedom over this period, and we found that their prosperity levels changed in the same direction.

Bhutan had the biggest jump in Freedom of any country between 2006 and 2021, and also showed an increase in Prosperity. In 2008, Bhutan experienced a transition from an absolute monarchy to a constitutional monarchy, including the establishment of an elected legislature. Bhutan’s Freedom Index score reflects these changes, with a 74-percent increase in Legal Freedom and a whopping 166-percent increase in Political Freedom between 2006 and 2021. Bhutan’s income score increased by 91 percent, and there was a 35-percent increase in its Environment score.

Venezuela, by contrast, is the country that lost the most freedom and prosperity between 2006 and 2021—a result with roots in Hugo Chávez’s increasing political repression and embrace of socialist and populist economic policies as he consolidated power. The country dropped more than 42 percent in its overall Freedom score. The fall in its Political Freedom score was most pronounced—a 68-percent drop. On the Prosperity Index, Venezuela’s score plummeted 24 percent from 2006 to 2021. The country was once among the wealthiest and most developed in Latin America, but now scores poorly on Health, Income, and Happiness.

Divergent development paths for formerly communist countries in Eastern Europe

As our next test, we look to the divergent paths of countries’ political and economic transitions after the end of the Cold War. The fall of communism in Central and Eastern Europe in the 1989–1990 period can be viewed as a kind of natural experiment. Before the fall, these countries had similar levels of freedom and prosperity. Some countries, like Estonia, Latvia, Lithuania, and Romania, chose democracy and free markets. Others, such as Belarus and Russia, came to be ruled by autocratic regimes over the following years. What was the result of these choices on the trajectories of their subsequent economic development?

These six countries had divergent economic paths between 1995 (the first year for which all countries had comparable data) and 2020. As we can see in Table 6, the countries that chose freedom are between seven and nine times wealthier today, while the countries that remained autocratic are only between three and five times richer.

Table 6: Increase of GDP per capita in selected former communist countries (1995–2020)

	GDP per capita (current US$)
	1995	2020	Multiplier
Estonia	3,134	23,027	7.3
Latvia	2,330	17,726	7.6
Lithuania	2,168	20,234	9.3
Romania	1,650	12,896	7.8
Belarus	1,323	6,424	4.9
Russia	2,666	10,127	3.8

The data from our Freedom and Prosperity Indexes show similar results, as can be seen in Table 7. Russia (ranked eighty-eighth) and Belarus (ranked eighty-second) underperform in the Prosperity Index relative to their freer neighbors.

Divergent development paths for people living under communist and democratic governments

Table 7: Scores of selected former communist countries

	Freedom 2021		Prosperity 2021
	Score	Rank	Score	Rank
Estonia	87.2	14	65.6	36
Latvia	81.7	25	62.6	42
Lithuania	81.8	24	63.9	39
Romania	76.3	36	59.8	51
Belarus	39.4	139	50.0	82
Russia	41.2	135	49.0	88

We can draw similar conclusions by looking at World War II as the starting point for a new development period. For decades after World War II, China, Germany, and Korea were divided. Some people lived in communist countries, while others lived in countries with free markets and with political regimes that either were democratic from the beginning (West Germany), evolved into a democracy (South Korea and Taiwan), or had a wide range of freedoms (Hong Kong).

This provides us with another natural experiment. Did people living in freedom become more prosperous over time?

We begin with Germany. According to Organisation for Economic Co-operation and Development (OECD) data, democratic West Germany’s gross domestic product (GDP) per capita in 1950 was only about 1.5 times larger than that of communist East Germany ($4,280 vs. $2,796). But, by the reunification of Germany in 1990, West Germany’s per capita income had grown to be 3.6 times larger ($19,441 vs. $5,403) than that of East Germany.

Let us now turn our attention to the Korean Peninsula. North and South Korea were both exceptionally poor in 1950. While both countries lacked political freedom from the end of the Korean War until 1980, they selected very different paths regarding economic freedom. South Korea’s dictators chose capitalism and secure property rights, while North Korea’s leaders selected a state-planned communist economy. By 1980, South Korea’s per capita income ($1,589) was more than double that of North Korea ($768).

Starting in the 1980s, South Korea transformed itself into a democracy, while North Korea remains a dictatorship. The addition of political freedoms in South Korea resulted in an even larger divergence in the economic paths of these two nations. United Nations data for 2021 show GDP per capita of $31,947 for South Korea and $639 for North Korea. Today, people living in the free South Korea are fifty times wealthier than those living in the unfree North Korea.

North Korea is not ranked in our indexes because it does not provide sufficient data. South Korea ranks thirty-fifth and Free in our Freedom Index and twenty-fifth and Prosperous in our Prosperity Index.

How does this story look when examining Chinese people living under different political and economic systems? The People’s Republic of China (PRC) has been under the control of the Chinese Communist Party (CCP) since 1949. China has never had political freedom, although it started instituting liberalizing economic reforms in the 1980s under Deng Xiaoping. Until its takeover by the PRC in 2020, Hong Kong was either under British control or an autonomous PRC region, enjoyed some democratic freedoms, and ranked among the freest markets in the world. Taiwan was established as a dictatorship at the end of World War II, but adopted free markets. It started transitioning to democracy after 1975. What were the results of these institutional choices?

The PRC, Taiwan, and Hong Kong were all poor in 1961, with GNI per capita of $76, $163, and $437, respectively. But, their different levels of freedom resulted in different levels of prosperity by 2020. Free Taiwan and Hong Kong were able to break out of the middle-income trap, while unfree China, at least to date, has not. The middle-income trap, a measure created by the World Bank in 2006, refers to a situation in which a developing country moves from the poor to the middle-income category, but gets stuck below the high-income threshold—currently calculated by the World Bank as $12,695 GNI per capita. In 2020, per capita income in China, Taiwan, and Hong Kong was $10,055, $25,055, and $46,324, respectively. These differences are also clear in our indexes. Taiwan ranks Free and Mostly Prosperous, while China ranks Mostly Unfree and Mostly Unprosperous. We have chosen not to rank Hong Kong because it is now under the control of the PRC.

Autocracies are generally not prosperous

Some might think that an autocratic ruler can guarantee stability and push through needed economic reforms. They might point to Singapore as an example of a prosperous non-democracy. But, such examples are few and far between.

Authoritarian leaders like to centralize power, and dislike strong economic institutions that may check their power. While authoritarian leaders may sometimes make good economic decisions, they frequently make catastrophically bad ones. For example, the collectivization of agriculture led to mass famine in Joseph Stalin’s Soviet Union, in Mao Zedong’s China, and in Kim Il-Sung’s North Korea. More recently, and less dramatically, bad financial decisions by Turkey’s leaders led to high inflation and currency collapse, while in Kazakhstan the long-lasting kleptocracy of former President Nursultan Nazarbayev and his family led to social unrest. Even if a country has a wise authoritarian leader who makes consistently good decisions, like Lee Kuan Yew of Singapore, there is no guarantee that his successor will be equally wise. Moreover, a model that might work for a small city-state like Singapore does not easily apply to larger countries.

Autocracies are also subject to rapid and dramatic reversals along the path toward greater prosperity. Venezuela, for example, a country rich in natural resources and with a democratic tradition, adopted authoritarian and socialist policies in the early 2000s. As a result, Venezuela lost two-thirds of its GDP from 2014 to 2019. This is comparable to the 60-percent drop in GDP Syria experienced during its civil war. Bad authoritarian leaders curtailing freedoms can devastate a country as much as a civil war.

Unfree societies do not depend on rules and institutions but, rather, on authoritarian decisions. These decisions may, at times, redirect capital and people toward more productive outlets and have a positive impact in the short term. But, over the long term, if these decisions are not accompanied by greater freedoms, these autocrats are likely to undermine any progress they achieve.

Likewise, the authoritarian tendency to accumulate power makes leaders reluctant to allow free markets, which, when properly regulated, reflect the decisions of numerous economic agents and are a sounder path to economic development than the decisions of an autocrat or central bureaucracy.

Figure 7: Comparative rankings in the components of the Prosperity Index

Note: We use the rankings of China and Russia and the average rankings of all countries included in the Free category. The five axes represent the five indicators forming the Prosperity Index. The center point represents a rank of one hundred and seventy-four, the worst possible performance. The outer line represents a rank of one, the best possible performance on each indicator.

China

China is often cited as a model of successful economic development, but our indexes do not bear this out. After seventy-three years of Communist Party leadership, China ranks one hundred and fortieth in the Freedom Index and one hundred and fourteenth in the Prosperity Index.

To be sure, China’s economic growth has been impressive in many ways, but it is still far from achieving broad-based prosperity. Looking at the components of the Prosperity Index, China ranks only fifty-seventh on the Income score, with a GNI per capita just over $10,000. This puts it squarely in the middle-income range, well below other Asian countries such as Japan, Taiwan, South Korea, and Singapore. While elites in China’s coastal cities are wealthy and there are far fewer Chinese living in poverty than in the past, the country’s interior remains largely poor.

China’s low position on the Prosperity Index is also explained by its Minority Rights rank of one hundred and sixty-seven out of one hundred and seventy-four (Figure 7). This score, part of our comprehensive view of prosperity, reflects China’s brutal policies in Tibet and genocide in Xinjiang.

There are also real questions about whether China’s state-led capitalist model can continue to deliver income growth. Xi Jinping prioritizes political control over economic growth, and has been backtracking on liberalizing reforms, as seen in his crackdowns on the Chinese tech sector. Moreover, China’s past path to growth was driven largely by exporting cheap manufactured goods and major infrastructure investments by the CCP.

To break out of the middle-income trap, however, China will need to become a true innovation leader and develop a consumer-based market. It is unclear whether it can make that transition without more freedom.

Furthermore, China has many other structural deficiencies, including high levels of pollution, massive corruption, a shrinking of the working-age population as a result of the failed one-child policy, excessively harsh yet ineffective COVID-fighting policies, and an international community that is becoming more fearful of economic dependence on China. The CCP announced in March 2022 that China’s GDP growth target for the year was “around 5.5 percent,” the lowest in thirty years. But, just a month later, the International Monetary Fund projected a 4.4 percent growth rate and some economists predict growth rates of under 4 percent. Even Xi Jinping has admitted that slow growth in China is “the new normal.”

Russia

Russia is a prototypical example of a Mostly Unfree and Mostly Unprosperous country. It ranks one hundred and thirty-fifth on the Freedom Index and eighty-eighth on the Prosperity Index. This is the result of more than seven decades of communism and two decades of authoritarianism after the fall of the Soviet Union in 1991 (with a brief period of experimentation with freer markets and political pluralism in the 1990s).

Russia enjoyed strong economic growth in the early years of the 2000s, thanks largely to high oil prices and more open markets. Russia, like China, is a middle-income country with a GNI per capita of approximately $10,000. Russia is similar to China on many metrics of Prosperity, with the exception of Minority Rights (one hundred and forty for Russia), where China ranks even worse. The data for our analysis were collected before Russia’s invasion of Ukraine. As Vladimir Putin clamps down on Russian society during the war, we expect Russia’s freedom and prosperity to decline further in the coming years.

Oil-extracting autocracies

The major exception to our finding that autocracies cannot produce prosperity comes from oil-rich states, like the Gulf monarchies. Oil revenues have allowed these autocracies to provide their citizens with some of the highest per capita incomes in the world.

Gulf monarchies

The Gulf monarchies, with the exception of the United Arab Emirates (UAE), all fall into the Mostly Unfree category.

Due to their ability to generate large revenues from oil extraction, however, these countries rank highly in one of the key prosperity indicators, GNI per capita. Their scores on our Prosperity Index, however, suffer because they rank poorly in other prosperity indicators like Environment and Minority Rights.

While Gulf monarchies have seen record income from high oil prices over the preceding decades, the world may be moving away from fossil fuels and toward cleaner forms of energy. To succeed in such an environment, oil-producing states will need to liberalize their economies and allow their people more freedoms.

Some Gulf monarchies are already taking limited steps in this direction. In Saudi Arabia, for example, the government has recently granted women greater rights and further opened to foreign investment.

United Arab Emirates

The UAE has been leading the way toward more freedom in the Gulf region. It outperforms all the other Gulf monarchies in both freedom and prosperity. While its Political Freedom measures are quite low, it does allow a wide range of Economic and Legal Freedoms. Indeed, taken together, these freedoms are sufficient to move the UAE into the Mostly Free category—the only country in the Gulf to receive this distinction. These greater freedoms have also resulted in superior economic performance. The UAE bests its neighbors to rank as the thirty-fourth most prosperous country globally in our index.

Singapore

Singapore is often mentioned as the leading example of how autocratic systems can provide economic prosperity. Our Freedom Index reveals, however, that the secret to Singapore’s success is quite straightforward. While Singapore ranks poorly on Political Freedom, it has among the highest levels of Economic and Legal Freedoms. Indeed, Singapore ranks as a Mostly Free country, and barely falls short of our threshold for fully Free.

Singapore demonstrates, therefore, that this model can work, but its example may be sui generis: Singapore is a small city-state. Indeed, there is much evidence that small countries open to international trade can prosper. But, it would not be easy to run a larger country in such a centralized manner.

In addition, Singapore has been governed, so far, by fairly wise autocrats who have continually prioritized economic and legal freedoms. Given that political power in the country is concentrated, however, there is always the risk that future leaders would choose to rein in these freedoms. While it may seem foolish to kill the goose that laid the golden egg, there are many examples of autocratic leaders doing just that if they feel that it is necessary to protect their political power. Allowing more political freedom in Singapore would provide guardrails against arbitrary changes to Singapore’s successful economic model, and better ensure its future prosperity.

Methodology and FAQ

2021 methodology

In depth Methodology

FAQs

Frequently Asked Questions

1. What are the Atlantic Council Freedom and Prosperity Indexes?
The Freedom Index measures economic, political, and legal freedoms for nearly every country in the world. The Prosperity Index measures economic wellbeing and human flourishing for the same countries. The indexes can be used to inform policymakers about real-world reform opportunities in developing countries.

2. What time period does the report cover?
The 2021 Freedom and Prosperity Indexes use the most recent data available. Most of these data are from 2021. Where data from 2021 are not available, data from the most recent year available are used instead.

In addition, we collected historical data to construct the indexes for the years 2006, 2011, and 2016. This allows us to track national trajectories over time, even in the first year of the indexes.  Going forward, we plan to update the indexes annually.

3. How are the data collected?
The Freedom Index and the Prosperity Index are constructed on a diversified data and analytical basis, comprising different databases produced by the American Economic Journal, the Center for Economic and Policy Research, the Credendo Group, the Fraser Institute, Freedom House, the Fund for Peace, the Heritage Foundation, NASA, Transparency International, the United Nations, the V-Dem Institute, the World Bank, and the World Justice Project.

4. What do the scores capture?
The Freedom Index and Prosperity Index are two separate indexes that rank 174 countries around the world according to their levels of freedom and prosperity. The Freedom Index measures Economic Freedom, Political Freedom, and Legal Freedoms. The Prosperity Index measures Income, Environment, Health, Minority Rights, and Happiness.

For more details on the construction of the indexes, please refer to the Methodology section.

5. How does the scoring system work?
All measurements in the indexes are weighted equally and the score for each index is the simple average of its parts. Scores range between zero and one-hundred, with higher values indicating more freedom or prosperity. Where appropriate, raw data are converted to a 0-100 scale.

6. What are the different scoring categories?
Countries on the Freedom Index are divided into four categories based on their overall score: those above a 75-point score (Free), those with scores between 50 and 74.9 (Mostly Free), those with scores between 25 and 49.9 (Mostly Unfree), and those with score from 0 to 24.9 (Unfree).

The same categorization is used for the Prosperity Index: those above a 75-point score (Prosperous), those with scores between 50 and 74.9 (Mostly Prosperous), those with score between 25 and 49.9 (Mostly Unprosperous), and those with scores from 0 to 24.9 (Unprosperous).

7. How is the ranking constructed?
We rank Freedom and Prosperity separately, and countries are ranked according to their score. Scores range between zero and one-hundred, with higher values indicating more freedom or prosperity.

8. Where can I view past years’ scores?
All the data are accessible on this website and can be downloaded.

9. Is there a link between Freedom and Prosperity?
We find that freedom and prosperity are highly correlated. The correlation coefficient between the indexes is 0.81. High values of Freedom are associated with high values of Prosperity, and low values of Freedom are associated with low values of Prosperity.

We find that the strength of this relationship increases the further one goes back in time. A country’s level of Prosperity today is better explained by its level of Freedom in 2006 than by its current Freedom, suggesting a relationship that is worthy of further investigation.

10. What makes the indexes different from other existing indexes?
There are several existing indexes that measure freedom and prosperity around the world, and our research built on these efforts. But the Atlantic Council Freedom and Prosperity Indexes are unique.

We define freedom comprehensively. Existing indexes measure economic freedom, political freedom, and legal freedoms separately, but no other index combines those measures to offer a comprehensive measure of freedom. It is our belief, supported by scholarship and historical evidence, that countries with all three types of freedom, working together in a manner that is mutually reinforcing, are best able to secure durable development.

We define prosperity comprehensively. We go beyond material measurements like income per capita and healthcare. We argue that a truly prosperous country should also score well on environmental performance, treatment of minorities, and the general happiness of the population.

We constructed separate indexes for freedom and prosperity. By creating two distinct indexes, we hope to give researchers a better opportunity to analyze the relationship between freedom and prosperity. We also offer policymakers and other thought leaders clearer benchmarks for implementing reforms and tracking results over time.

11. How do you prevent political bias?
The methodology used to produce the indexes is straightforward and transparent. We provide all the information to replicate them.

We did our best to collect the most reliable information available. The objective of these indexes is to provide standardized measures that can be applied to every country. One might argue that the methodology or the data collected is irrelevant to certain types of political situations or specific countries. That might be the case in some instances, but rarely so. Moreover, there is an inherent tension between generalizable and specific knowledge. We self-consciously opted for the former. We would encourage other researchers to explain how our indexes illuminate or obscure country-specific dynamics.

12. What are the limitations of the indexes?
Ensuring comparability of the data across a global set of countries was a central consideration. When selecting sources to be included in the indexes, coverage was the determining factor. In the rare case of missing data for a certain year, we have replaced the missing data with data from the closest available year. All these instances are described in the dataset.

Data were collected over the past year, using the most recent information available. They might not reflect the latest political or economic developments. These indexes should not necessarily be taken as an accurate reflection of the most recent current events. We will, however, update the indexes over time to capture real-world changes on an annual basis.

Authors

Staff

Dan Negrea

Senior Director

Freedom and Prosperity Center

China Economy & Business

Staff

Matthew Kroenig

Vice President and Senior Director, Scowcroft Center for Strategy and Security

Scowcroft Center for Strategy and Security

China Defense Policy

Technical Advisers

Staff

Joseph Lemoine

Deputy Director

Freedom and Prosperity Center

Africa Economy & Business

Former staff

Joel Kesselbrenner

Freedom and Prosperity Center

Economy & Business Inclusive Growth

The post Do countries need freedom to achieve prosperity? appeared first on Atlantic Council.

]]>