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
By Andrew Colquhoun, Fitch Ratings
The decline in global foreign exchange reserves thus far in 2015 may add to macro-economic pressures on emerging markets (EM), but it does not directly risk a “quantitative tightening” effect on developed markets (DM).
EM sovereign foreign exchange reserves fell by US$189bn between end-December 2014 and end-June 2015, according to IMF and Chinese data compiled by Fitch. The biggest declines were in China (down US$149bn) and Saudi Arabia (down US$60bn), partly offset by increases in other countries, led by India (up US$35bn). More timely data from some countries, including notably China suggest the drain continued in July and August.
Fitch estimates about US$100bn of the decline to June may have been caused by valuation effects, based on the 4.3 per cent trade-weighted appreciation of the US dollar in the first half of the year. Nonetheless, some of the decline will reflect genuine draw-down by EM central banks. Read more
By John Heathershaw, University of Exeter
Central Asian democracy was dealt another critical blow this month, in open defiance of Western efforts and engagement.
It is clear that the United States and Western powers have abandoned political engagement in Central Asia in the face of a resurgent Russia and the increasing significance of China as creditor, investor and patron.
If ever there were evidence that Western states’ calls for development and democracy in Central Asia are now only heard in an echo chamber, the story of the demise of Tajikistan’s Islamic Revival Party (IRPT) is it. Read more
One of the hottest topics for discussion at the United Nations General Assembly this week isn’t even on the official agenda. By the time of next year’s annual gathering the UN is expected to have chosen a new Secretary-General to replace Ban Ki-moon, who completes his second and final term shortly afterwards. The names of potential candidates, the qualities expected of them and even the rules of selection are now part of an intense debate that will take months of horse-trading to resolve.
Among those with a major stake in the outcome are the countries of Eastern Europe, the only one of the UN’s five regional groupings never to have held the job. Sidelined during the long decades of the Cold War and the post-communist transition, these countries feel that they deserve recognition for their success in transforming themselves into strong and independent nation states. What better way to throw off the past and confirm their new status than for one of their number to claim the World’s top diplomatic post? Read more
Commodity prices could well have further to fall, now China’s business model has changed. It is no longer aiming to achieve high levels of economic growth by operating an export-focused development model, supported by vast infrastructure spending. Instead, its New Normal policies aim to boost domestic consumption, by creating a services-led model based on exploiting the opportunities created by the power of the internet.
The only problem is that markets have failed to notice this change. They have fallen victim to the phenomenon of “anchoring” as identified by Nobel Prizewinner Daniel Kahneman, and assume the New Normal is similar to the Old Normal. Thus, much analysis on commodity markets still focuses on guessing “when will the rally begin?” Read more
The UN summit to agree the Sustainable Development Goals (SDGs) takes place against a depressing background. Seemingly every day there are new scenes of crisis, poverty, human displacement and environmental damage somewhere in the world. The urgent need for a concerted global effort to tackle the root causes of these disasters by promoting sustainable development has never been stronger.
Nor can anyone doubt the hard work that has gone into drawing up the 17 goals and ensuring that they focus on all that needs to be done. But it is this comprehensive nature – and the 169 sub-goals – which sets tough challenges for individual countries. Read more
As multilateral development banks (MDBs) gear up to fill serious gaps in infrastructure in Asia and elsewhere, attention also focuses on safeguards used to deflect potential spillover damages to communities, habitats and livelihoods from such large-scale projects. The value of such protection is at an all-time high because of the heightened fragility the environment and society face today—as the United Nations’ new Sustainable Development Goals emphasise.
Indeed, safeguards should be a top concern for established lenders such as the World Bank and the Asian Development Bank and for two new lenders: the Asian Infrastructure Investment Bank and the New Development Bank set up by the Brics countries. While the borrower is responsible for implementing these defences, the lender must be accountable for robust checks on the projects financed. Read more
When world leaders meet this week for the UN’s general assembly to adopt the Sustainable Development Goals (SDGs), they will also call for a “data revolution”. In a world where almost everyone will soon have access to a mobile phone, where satellites will take high-definition pictures of the whole planet every three days, and where inputs from sensors and social media make up two thirds of the world’s new data, the opportunities to leverage this power for poverty reduction and sustainable development are enormous. We are also on the verge of major improvements in government administrative data and data gleaned from the activities of private companies and citizens, in big and small data sets.
But these opportunities are yet to materialize in any scale. In fact, despite the exponential growth in connectivity and the emergence of big data, policy making is rarely based on good data. Almost every report from development institutions starts with a disclaimer highlighting “severe data limitations”. Like castaways on an island, surrounded with water they cannot drink unless the salt is removed, today’s policy makers are in a sea of data that need to be refined and treated (simplified and aggregated) to make them “consumable”. Read more
By Wolfgang Lehmacher and Victor Padilla-Taylor, World Economic Forum
In October 2012, Wang Jisi – professor at Beijing University – urged China to re-open its ancient commercial trade routes with the West. In 2013, China’s President, Xi Jinping proposed to its neighbors the “One Road, One Belt” initiative. China’s aim? To achieve $2.5tn in additional annual trade with the nations along the proposed routes over the next 10 years.
What is the current state of the project and how likely is it to succeed? Read more
By Chandran Nair, Global Institute for Tomorrow
The idea that a world of limitless connectivity, spreading democracy and freer markets promotes convergence and endless possibility may be fashionable, but it is far from the complete picture.
There is little appreciation that this idea is instead leading to a great “era of divergence,” as we see an expanding split between the lofty ideals of Western liberal thinking and the reality in much of the developing world. Possibility may be “limitless”, but the question remains: “limitless possibility” for whom? Read more
By Matt Gamser, SME Finance Forum
Financial inclusion has become something of a buzz term in development circles. It is generally understood to mean the provision of finance and financial services by regulated institutions to disadvantaged and marginalised sectors of society, those who have been ‘excluded’ in the past.
What is not spoken about or generally well understood is that the group of ‘excluded’ includes the owners of small and medium-sized businesses (SMEs). When we speak about where financial inclusion is most critical, we are generally referring to the 4bn people on the planet who live on less than $2 a day.
The owners of small businesses are generally not in that group. But they are the most likely employers of the 4bn and are themselves being starved of capital. Read more
By Richard Samans, World Economic Forum
“Are emerging markets already mired in a ‘crisis’,” the FT asked this week. The word is starting to surface, it noted. Economic growth slowed, global demand slumped, and trade plateaued, in recent months and years.
But leading emerging markets (EMs) such as China, Brazil and South Africa can still avert a real crisis. To do so, they would do best to broaden their attention beyond traditional measures of GDP growth to specific drivers of social expectations. They may find a more diversified strategy for growth itself along the way.
While news reports recently zoom in on the currency, debt, and stock markets woes in emerging markets, EM governments may worry about popular discontent at home more. From the BRICS over to Chile and Turkey to Indonesia, governments as of late are grappling with demands for wider social inclusion. Read more
Youth unemployment across the G20 is stuck at 16 per cent. Globally, some 358m young people are not in education, employment or training – more than the population of the US and Canada combined. The scale of the problem is such that the major economies of the world are at serious risk of another financial crisis if nothing is done. How do we ensure a bright future for our youth that not only contributes to their livelihood, but builds upon and strengthens our economic foundations?
The answer of course is obvious – produce more jobs and provide skills and confidence to young people. But how we get there is a better question to ask. Read more
The global commodity super-bubble is coming to an end. It is exactly a year since we forecast that a Great Unwinding of stimulus policies was underway, due to a major slowdown in China. As we warned on beyondbrics:
Oil and commodity prices are falling sharply as supply/demand once again becomes the key driver for prices; the US dollar is strengthening and liquidity is tightening across the world; equity markets risk sharp falls, as investors realise they have overpaid for future growth and rush for the exits; China’s economy is slowing fast as the new leadership implements the World Bank’s ‘China 2030’ plan; interest rates are becoming volatile as some investors seek a ‘safe haven’, while others worry that stimulus policy debt may never be repaid.
Today, it is clear that risks are rising in all these areas. And fewer people now believe that the problems can be magically wished away by a further round of stimulus – even if this was economically and politically possible. Read more
It was perhaps fortuitous that this month’s 70th anniversary of the atomic bombings of Hiroshima and Nagasaki followed so soon after the announcement that Iran had reached a deal with the US and others to step back from the nuclear brink. Whatever the critics say, the world’s most serious proliferation threat has been averted for now. By agreeing to reduce stockpiles of enriched uranium and accept stronger verification, Iran has extended the breakout period needed to build a nuclear weapon from two or three months to around a year, reducing the temptation for other countries in the region to take pre-emptive military action or acquire nuclear capabilities of their own.
This news is particularly welcome because elsewhere the nuclear arms control agenda has stalled and important agreements that defined the end of the Cold War have started to fray at the edges. Without a concerted diplomatic effort there is a danger that the world will slide unwittingly into a new era of nuclear competition. There is a pressing need for new multilateral initiatives and agreements that strengthen norms of restraint, co-operation and trust in the field of nuclear weapons policy. Read more
By Benjamin Sporton, World Coal Association
Over recent weeks, World Bank climate change envoy Rachel Kyte has made a number of comments claiming that coal is not part of the solution to energy poverty. Pointing to investments being made globally in renewable energy, Kyte argues that coal is a fuel of the past, which we all need to be “weaned” off.
But her comments do not match up with the numbers. The International Energy Agency (IEA) forecasts coal use in electricity generation to grow 33 per cent by 2040. Demand for coal in Southeast Asia alone is expected to increase 4.8 per cent a year through to 2035. Read more
By Neville Mandimika, Atria Africa
Since Ben Bernanke suggested that the US Federal Reserve was starting to consider slowing down its asset purchase program (QE), markets have been trying to price this in. The difficulty has always been in the timing of the ‘lift-off’ as the Fed has insisted that it all depends on the data. Read more
By David Lubin, Citi
You often hear economists and investors talk these days about the ‘broken growth model’ in emerging markets. It isn’t a terribly precise term but it’s easy to see what people mean. The problem in EM is that none of the three possible sources of GDP growth – exports, or public domestic spending, or private domestic spending – have much going for them.
Exports from EM are hobbled by a collapse in the growth of global trade and the related fall in world commodity prices. Public spending growth is weak because many governments are too nervous to loosen fiscal policy, fearing a loss of sovereign creditworthiness at a time when the outlook for capital inflows isn’t encouraging. And private domestic spending is hampered by the fact that credit markets in many countries are in ‘post-boom’ mode: neither domestic lenders nor borrowers have much in the way of risk appetite. Read more
How do you classify the countries known as emerging markets (EM)? That question has become more relevant since the FT declared the EM term unhelpful and obsolete as a definition.
So what should replace the EM term? Alexander Kozhemiakin recently argued that investors should look at the risks affecting an EM’s growth to get a sense of how safe their investments in particular markets might be.
Andrew Karolyi, a professor of Emerging Market Finance at Cornell’s Johnson School, however, also focuses on measuring risk, and has come up with a matrix to do so. In his book “Cracking the Emerging Markets Enigma”, Karolyi ranks 57 emerging markets and developed markets by averaging their score on six components. Read more