Monthly Archives: October 2015

Last Sunday Ukraine held elections to local councils and city mayors that the Organisation for Security and Cooperation in Europe described as “competitive and well organized overall” adding that “the campaign generally showed respect for the democratic process”.

The holding of a third democratic election in Ukraine since last year’s Euromaidan revolution in a region where free elections are uncommon is one of many signs of how far Ukraine is moving away from Russia and to what extent the actions of Vladimir Putin, Russia’s president, have accelerated this process. Read more

Emerging market stocks, as measured by the MSCI EM Index, have seen more than a quarter of their value wiped out in the past four months, led by the travails of the Chinese stock market. We are not saying that now, or next week, or next month will represent the ideal buying point. We believe there is further disruption ahead, with suggestions that the devaluation by the Chinese central bank in August did not go far enough, and with others calling for a more profound market-clearing event to cleanse the final remnants of the price inflation seen earlier this year.

Many have been trying to call the bottom of the market; what we would say is that we are beginning to see tentative indications of discrete, selective buying of the babies that have been thrown out with the bathwater. We don’t think there is ever a bad time for rigorous, bottom-up analysis of companies exhibiting strong fundamentals. We do think that now looks like a particularly good moment to put old-fashioned research skills to work, and particularly in China. Read more

The Pan American Health Organization (PAHO), the World Health Organization’s agency for the Americas, recently voted unanimously to adopt a Regional Plan of Action on Dementia. It obliges governments in every country in the region, in both North and South America, to take further action to help people living with dementia.

The plan comes at a much needed time, with 9.4m people living with dementia in the Americas. This number is expected to rise to nearly 30m by 2050. With the commitment of every country in the Americas, from the most southerly point of Argentina to the tip of Canada, the plan could go a long way to ensuring millions more people can live well with dementia at all points of their dementia journey. Read more

In all likelihood, the IMF will announce next month that the renminbi is set to become one of the currencies – along with the dollar, euro, yen and sterling – used by the Fund to underpin the Special Drawing Right, or SDR, its own reserve asset. As a result, the RMB will be informally crowned with the status of a ‘reserve currency’. But what exactly is in it for China?

In the near term, the biggest pay-off for China is that reserve status for the RMB could act as a catalyst for capital inflows from the world’s central banks, who might be tempted to increase the share of their reserves that are invested in China. Read more

The steady economic growth that Africa has enjoyed over the past decade is now waning. Global commodity prices, particularly oil, have weakened and China, Africa’s largest individual bilateral trading partner, has slowed considerably as it rebalances itself away from investment and growth. According to the IMF, a 1 percentage point decrease in China’s investment growth is associated with an average 0.6 percentage point decrease in Africa’s export growth rate. The depth of the China-Africa trade relationship explains why this month, the World Bank, in its annual Africa’s Pulse report, downgraded Africa’s growth projections from 4.6 per cent in 2014 to 3.7 per cent in 2015 – the lowest growth the region will have seen since the ripples of the global economic crisis hit it in 2009. A new period of slow growth demands new and creative responses from African leaders.

While the commodity climate and China’s slowdown are certainly a challenge for African policymakers, they also present a unique opportunity. Relying on the beneficial economic climate that has fostered complacency with market inefficiencies is now no longer an option. Necessity will demand that African governments adapt to unfavourable global trends by squeezing greater productivity from the structures and systems that are already in place. East Africa is already quietly making strides in eliminating economic inefficiencies and the progress has much to teach the rest of the region. Read more

The mounting economic difficulties of many emerging markets – notably China, Russia, Brazil, South Africa and Turkey – are contributing significantly to a deteriorating 2016 global growth outlook and to mounting risks in financial markets. Indeed, the likelihood is rising of an international recession accompanied by deflation.

This is exacerbated by the rout in commodity prices and the decline in world trade growth, which is a key indicator on the state of the world economy. The World Trade Organization has revised downwards its 2015 forecast to a historically low 2.8 per cent from 3.3 per cent, and this is probably still an optimistic number. Read more

The plight of tens of thousands of Middle East refugees pouring daily into eastern and western Europe has prompted EU and UN emergency action to raise billions of dollars for unmet previous pledges as well the historic fresh influx. But the funding model that relies on governments supplemented by private donations has long been unable to keep pace with the global spread of internal and external displacement now affecting 60m people, 80 per cent in developing countries, according to the UN’s latest figures.

Financial markets, both debt and equity, could be mobilised for emerging economy frontline states to provide a new, long-term source for immediate infrastructure and social needs and future professional training and employment entry. Sovereign refugee bonds would be a logical start, building on existing investor local and foreign-currency portfolios across emerging market regions. Issues could carry partial guarantees from the World Bank and other development lenders, but more creditworthy governments are in a position to continue normal borrowing on commercial terms that could be discounted with a commitment to carefully track the proceeds for a range of refugee hosting and resettlement purposes. Read more

The crisis that has paralysed Brazil’s politics this year and thrown its economy into what is set to be its longest recession since the 1930s has reached new lows. Revelations by Brazilian and Swiss authorities about Swiss bank accounts held by Eduardo Cunha, a Rio de Janeiro congressman and president of the Chamber of Deputies, have complicated opposition efforts to impeach the discredited president, Dilma Rousseff.

Last week, Brazil’s Supreme Court suspended its deliberation of procedures instigated by Cunha as the gatekeeper of Congress to begin Rousseff’s impeachment on the grounds of illegally tampering with the 2014 federal budget and in connection with a massive corruption scandal under federal investigation, involving national oil company Petrobras, construction companies and politicians of all major parties. Read more

China’s economic growth surprised on the upside in the third quarter. Yet markets will probably remain fixated on the economy’s slow-down and on the devaluation of the renminbi in August. We are in a world where volatilities rule, economic opinions differ and geopolitical conspiracy theories abound.

The mainstream view on the Chinese economy is that it will slow considerably, and only return to healthy growth if it can be “rebalanced” away from investment and exports to a household consumption-driven model. This view is incomplete at least, and misguided in some aspects.

The Chinese economy, over the next two decades before China becomes a high-income country, will be driven by four engines. Read more

Friday, October 16, marks World Food Day, an annual moment to reflect on humanity’s ability to nourish itself. Making sure people have enough to eat – and, crucially, the right nutrients – is not only a moral imperative but an essential foundation for our economies to thrive.

A hungry child cannot concentrate at school and a malnourished child may not reach her full potential, physically or mentally. While proper nutrition can be lifesaving – for example, a child who is exclusively breastfed has a six times higher chance of survival than one who is not – achieving zero hunger boosts prosperity, too. Read more

Multinational corporations (MNCs) have been an essential part of China’s fast economic growth over the last three decades. They introduced new technologies, nurtured local managerial capabilities, created jobs and upgraded China’s export competitiveness. In return, MNCs found a new source of revenue by extending the life cycle of their mature technologies and products.

MNCs, however, got into a new playing field from the mid 2000s, with the preferential market access and tax benefits they previously enjoyed substantially reduced. The challenge from local competitors has become increasingly fierce. MNCs have had to adjust their strategies and market positioning to maintain a competitive advantage. Unfortunately their adjustment to the reality in China has not been working well. Read more

Like thousands of viewers and many critics worldwide, I have a new addiction: the Netflix series Narcos, depicting the building of a transnational criminal empire run from Colombia by the world’s most notorious criminal, Pablo Escobar. It is hard not to be baffled by the power and audacity wielded during the 1970s and 1980s by Escobar, played with a heavy Brazilian accent by Wagner Moura. But interested as I am by urban security studies, I am also fascinated by the series’ portrayal of Medellín, the Colombian city that was formerly the regional hub for transnational drug trafficking and Escobar’s headquarters. Read more

If there’s something weird / And it don’t look good / Who you gonna call? For many people in emerging markets, that question, coined 30 years ago in the movie “Ghostbusters”, might be painfully relevant.

But lacking the option to call on actor Bill Murray in a boiler suit, hard-pressed families in emerging markets are increasingly relying upon the assistance of relatives who have emigrated in search of work to the US, Europe and elsewhere.

But does the money remitted back home by migrant workers from emerging markets comprise a meaningful source of relief for recipient families and the economies they live in. Or are these remittances merely a phantom solution?

In his new book “Migrating into Financial Markets”, Matt Bakker looks for the answer. Read more

Almost every week, a new infrastructure project is announced in Latin America. Roads, wind farms, hydroelectric dams, rapid transit systems, water and sanitation plants, you name it. How many of these become a reality? Sadly, only a few. The reason: while the region’s ambitions and needs are vast, government budgets are tight (falling commodity prices such as soy and oil don’t help) and the private sector is not playing an important enough role in these projects.

Latin America invests roughly 2 to 3 per cent of its gross domestic product in infrastructure. We need at least double that to reach the region’s infrastructure goals. Part of the solution lies in finding new and better ways to promote private sector participation. There are vast sources of private funding to be leveraged, not to mention technical and managerial expertise. By some accounts, pension funds, an essential source of domestic savings in Latin America, are investing only 1 per cent of their portfolios in infrastructure around the world. Similarly, only 2 per cent of global insurers’ assets are allocated toward infrastructure. Read more

How do large-scale economic and political transformations, such as the collapse of communism in the former Soviet bloc, affect perceived welfare? In a new working paper, we show that income gains in the post-communist region have failed to translate into convergence in life satisfaction.

Although scholars have acknowledged that transition has been an unhappy process, the expectation was that economic and political reform would eventually be rewarded. This prophecy has not come true yet. For example, Ukraine and Russia are consistently found near the bottom of rankings of life satisfaction, with scores lower than those of countries like Bangladesh and Senegal. Armenians, Bulgarians, Georgians, Moldovans and Serbians are less happy than Peruvians and Indians. Hungarians are less happy than Kosovars and Mongolians. Why, then, as economic advancements are materializing for most countries, are the psychological benefits lagging behind? Read more

China’s ruling State Council last month released a much-anticipated plan meant to kick the country’s huge state-owned enterprise (SOE) sector into shape. No small amount of kicking is required. Not all but many of China’s 155,000 SOEs are inefficient and often loss-making. Where SOEs do make money, it’s usually because of markets and lending rules rigged by the government in their favor.

Finding a truly good SOE, one that can take on and outcompete private sector rivals in a fair fight is hard. Gong He Chun is one. Customers throng daily to buy its high-quality products, often forming long queues. The employees, unlike at so many SOEs in China, are helpful and enthusiastic and take evident pride in what they are doing. Though local private sector competitors number in their hundreds, Gong He Chun has them all beat. Read more

With its 34tn cubic metres of natural gas, enough to satisfy current EU natural gas demand for 90 years, Iran has the biggest gas reserves in the world. Despite this rich natural endowment, the country has not yet translated potential into reality. Paradoxically, its natural gas production continues to be barely sufficient to satisfy its own domestic consumption.

There are two reasons for the under-exploitation of Iran’s natural gas resources: the international sanctions regime (which has targeted the country’s energy sector since 2007, completely halting the activities of international energy companies) and the country’s legal petroleum framework (the so-called ‘buyback scheme’, encumbered by very unattractive terms for international energy companies). Read more

In Nigeria, pensions and infrastructure development are not often mentioned in the same sentence, but this week as Africa’s finance and pension industry leaders gather in Nigeria for the second edition of the World Pension Summit: Africa Special, the focus will be on how the nation’s growing pool of pension funds can be mobilised to drive sustainable development.

Compared with many of its African peers, Nigeria has relatively advanced infrastructure networks that cover extensive areas of the nation’s territory and, thanks to its strong economy, it is better placed than many of its neighbours to increase the share of fiscal resources going to infrastructure. Yet, according to the African Development Bank (AfDB), the nation’s core stock of infrastructure is estimated at only 20-25 per cent of GDP, compared with 70 per cent for other middle income countries of its size, leaving a gaping infrastructure deficit of $300bn. Read more

I am the leader of a country of Muslims and Christians living in religious fraternity and with a proud history of the salvation of Jews during the Second World War.

I am the leader of a country, Albania, that, for all the problems we face, has made great strides in showing what a harmonious multi-faith nation can be. The highlight of my premiership so far was a visit a year ago to our capital city by Pope Francis. As people of all faiths and none came out to welcome him, I was proud to be Albanian, I was proud to be from the Balkans.

I believe that very moment in the Balkans had a broader significance, in terms of the enormous challenges we all face together. Read more