March 28 this year was a date for the history books. It marked the first time the Nigerian presidential election had been contested peacefully between two political parties, rather than between personalities in the same party. It was also the first time that the opposition had come to power in a presidential contest in the history of Africa’s most populous country.
The result might have been better news for Muhammadu Buhari, elected as president, than for his rival, Goodluck Jonathan, whose People’s Democratic Party had been in power since 1999, but in so far as it was peaceful and accepted by the defeated party, it marked the maturing of Nigeria’s democracy. Read more
If you think launching a start up in Silicon Valley is hard, try it in Sierra Leone, Surinam or Senegal. Emerging market entrepreneurs face extraordinary challenges to growth, including access to finance, access to markets and access to talent. Of these, talent is the most critical. Over the past few years, I have become increasingly convinced that the lack of quality managers in emerging markets is the lynchpin to unlocking the prosperity-creating potential of small and growing businesses. Yet we have seen little movement on the talent issue. And the time has come to change that.
Having qualified management teams is fundamental to receiving growth capital. Successful private equity investors look first at the team – and then consider the business plan and implementation strategy. Banks may look at financial statements first, but even a solid balance sheet is not enough if lenders are not comfortable with the management team. Read more
In August last year I received a phone call from President Koroma of Sierra Leone. His country was fast becoming the centre of the most widespread Ebola outbreak in history. He had just declared a national emergency, and he was asking for support.
My foundation, the Africa Governance Initiative, had been working in Sierra Leone since 2008. We had helped the government introduce free healthcare, push through agricultural reforms and turn on the lights in the capital Freetown. But the nation was now facing its biggest test since a brutal civil war ended a decade ago. It was clear our focus needed to change. Read more
By Gregory Chin and Kevin P. Gallagher
Former US Secretary of State Dean Acheson famously wrote that his generation was ‘present at the creation’ of the world order that ushered in US leadership. We may now be present at the unpicking of that order; the fate of the US Ex-Im Bank is set to be decided by the US Congress this month amid predictions that it may be scrapped.
After putting in place the pieces for domestic recovery after the Great Depression, the United States laid the foundation for a series of financial institutions that sought stable international economic and financial growth, and the export of American goods and values. Read more
It has been fashionable to paint Microsoft as laggards in the race for the world’s mobile users. However, two important developments this month could result in Windows being the dominant technology ecosystem in the developing and emerging markets.
The most significant was Microsoft’s launch of a $20 Nokia phone targeted squarely at aspirant consumers in the developing world. The new product has an affordable price tag and features ideally suited to places with unreliable power and limited connectivity such as a month-battery life and a flashlight. Read more
When a public health crisis on the scale of Ebola hits, the urgent focus is on the frontline agencies and individuals carrying out the heroic job of diagnosing and treating the sick while managing the wider emergency that follows in its wake.
At the same time, local businesses also play their own vital role. It is local businesses that often have the capacity and expertise to help response efforts. A well-functioning private sector, with firms who are able to provide these services quickly and efficiently, is a key part of a country’s resilience. Read more
For much of the past two decades, Brazil and Mexico seemed at times to be on a collision course. Diplomats from Latin America’s two largest nations were often preoccupied, if not obsessed, with a competition for an elusive role as regional leaders and players in the post-Cold War shifting global scene. The 2013 battle for the post of director general at the World Trade Organization, won by Brazilian diplomat Roberto Azevêdo over Mexican Herminio Blanco, a former trade minister, left plenty of hurt feelings. Ironically, the dispute for influence also led to convergence. The 2011 creation of the Community of Latin American and Caribbean Nations (CELAC), proposed by Mexico to affirm its Latin American identity and counter a perceived Brazilian effort to separate it from the region, was warmly embraced in Brasília as a way project leadership by promoting formats that excluded the US. Read more
Some 95 per cent of all global foreign exchange reserves are invested in just four currencies: the US dollar, the euro, the yen and sterling. The central banks of the ‘Big Four’ are all expanding their balance sheets or have been doing so for years with no sign of immediate reversal. They are all trying to convert huge debt problems into inflation problems, and when they succeed their currencies will weaken sharply.
In this currency war, EM central banks risk suffering the most collateral damage. Their reserves – so many of them held in the big four currencies – will be decimated in purchasing power terms. The world will become desperate for alternative currencies to act as replacements for the traditional reserve currencies once their currency debasement efforts really take root. Read more
By Lim Cheng Teck, Standard Chartered Bank
There was a lot of excitement recently at the World Economic Forum (WEF) in Jakarta about the Asean Economic Community (AEC), due to become a reality by the end of this year.
However, one wonders if the closer integration of the grouping’s 10 member states matters as much to Asean’s people and companies as it does to the policymakers and business leaders opining at WEF. Given the obvious potential of this powerful union of 625m citizens – the world’s seventh largest economy and one of its fastest growing – why hasn’t the idea of the AEC taken off in a big way yet? Read more
Emerging market (EM) official foreign exchange (FX) reserves have been falling steadily by an average of $58bn a month since reaching an all-time high of $8.17tn in June 2014. This has mainly been due to reductions in China and Russia, but is accentuated by declines elsewhere. Total reserves have also been falling year on year from December 2014, with the cumulative yearly decline accelerating to $385bn in March 2015 (see chart below).
Typically, reserve reductions indicate balance-of-payments pressures and/or central bank interventions in currency markets to dampen exchange rate depreciations. Greater exchange-rate flexibility across EMs and previous reserve accumulations alleviate most immediate concerns, including in China and Russia, but much depends on the direction of commodity prices and global market reactions to the eventual increase in US policy rates. Read more
The African migrant crisis is in the global headlines and rightfully so. It is high time people were talking about this dire problem and searching for solutions.
The European Union has announced its 10 point plan, focused on tackling human smugglers and with a changed approach to the migrant vessels that traffic tens of thousands heading for Europe every year, often with tragic consequences.
While these are crucial steps, African leaders should also work with the EU to make progress on another track entirely: solving the problem at its roots – making fundamental changes to the factors that contribute to these migrations. Because the problem starts here in Africa. Read more
This year, global leaders could set the world on a path to overcoming extreme poverty by 2030. Achieving this will require political leaders to prioritise the very poorest, particularly girls and women. As diplomats negotiate in New York in preparation for a global meeting on Financing for Development in Addis Ababa in July, leaders and ministers must set their ambition high for what must be a game-changing conference.
ONE’s flagship 2015 Data Report, published today, calls for a deal between developed and developing countries to help the poorest in society prosper in the coming years. Read more
In recent weeks, investors have been reminded how supposed risk-free assets, like Treasuries and bunds, can still inflict substantial losses. So far in the second quarter of this year, 10-year yields have risen by nearly 0.48 per cent in Germany and by 0.31 per cent in the US.
As a result, the JPMorgan GBI Global bond index is down 2.72 per cent in the year to date. With bond yields expected to drift higher as global growth and inflation pick up, this will continue to be the case. Puchasing bonds with wafer-thin yields means there is no cushion for capital losses.
Even locking in current bund yields of around 0.70 per cent, an investor would make a zero annual return if yields inch up by just another 0.07 per cent. A rise in yields of 0.25 per cent would be enough to erase dollar returns of ten-year Treasuries yielding 2.23 per cent today. Read more
In 1986 The Economist magazine famously created its Big Mac Index, a guide to the fair value of a currency based on the principle of purchasing-power parity, which states that exchange rates should adjust to bring prices of identical goods into line across national boundaries.
But Big Macs are not sold everywhere. Seeking a similar mechanism applicable to countries in Africa, we have created our Milk Index, based on the price of a gallon of milk. Read more
Even Western executives who are good at geography may have a hard time picking out Surat, Foshan and Porto Alegre on a map. Yet over the next decade, each of these cities will contribute more to global economic growth than Madrid, Milan or Zurich.
While China’s move to cut interest rates this month has sparked some concern about emerging-market growth, , we see no let-up in one of the most disruptive trends of our time: the shift of the world’s center of economic gravity from advanced economies to the developing world, and in particular, to rapidly growing cities in Asia, Latin American and Africa. Even at 6 to 7 per cent growth, China is adding the equivalent of a Canada to the global economy every two years.
We are currently living through the biggest mass migration from countryside to cities in human history. The global population of cities is growing by 65m people annually – that’s the equivalent of 7 Chicagos a year, every year. Between now and 2025, we calculate that 440 cities in developing countries will generate nearly half of global GDP growth. Read more
Obituaries have been written for the World Bank following the arrival of China’s Asian Infrastructure Investment Bank (AIIB), the implied question being whether the US remains willing and able to lead the global economic governance system. Yet the other Washington-based Bretton Woods institution, the International Monetary Fund, reveals a different story. It appears to be on the verge of a third epoch in which it is set to become indispensable, ushering in the global economic reforms now considered necessary in the ‘new mediocre’. Read more
Imagine you’re a policymaker from an emerging economy, and you’re comfortable with the idea that your exchange rate needs to weaken. Maybe that’s because you’re a commodity exporter, and prices have fallen; or because global trade growth isn’t what it used to be, and your exports are weak; or because the prospect of higher US interest rates could make external financing less plentiful. Now, the question is, what would you rather see: a quick-and-nasty currency collapse? Or a fall in your currency’s value that’s smooth and sedately spread over time?
That’s the difference between Brazil and Russia. In the 12 months following February 2014 the rouble fell 30 per cent in trade-weighted, inflation-adjusted terms. But it took Brazil almost four years to achieve that same 30 per cent gain in competitiveness. What works better? Read more
It seems to be getting harder and harder to find a news story about the Middle East and North Africa (MENA) that doesn’t fall within the narrow narrative of disorder and political violence. From state collapse in Libya and the tragic conflict in Syria to the geopolitical flashpoint in Yemen, the headlines from the broader region make for bleak reading indeed.
These challenges are real and they are significant, but there is another story about the region that remains under-reported. It is a story of dynamism and entrepreneurship, and it’s one of how private capital is playing a critical role in creating new realities for the region and its people. Read more
How worried should you be when the US Federal Reserve goes ahead with its first interest rate hike? After all, following years of close to zero policy rates and three rounds of quantitative easing, this will be a significant change in policy.
Financial markets do not appear too concerned. One could even say that they are being complacent. Nevertheless, the usual commentators are once again stating that Fed hikes will bring the end of the world and of emerging markets.
So who is right, the complacent markets or the doomsayers? We think neither. Read more
A lot has been made of the IMF’s recent warning that potential growth has fallen dramatically in emerging markets (EMs). Many have correctly pointed out that potential output is expected to fall from to a yearly average of 5.2 per cent in the 2015-20 period while developed markets (DMs) are expected to see potential growth increase to 1.6 per cent. This has, in turn, caused renewed cries of concern about emerging economies. It is, however, possible to draw a dramatically different conclusion using the same data set. The IMF predicts that the growth differential between EMs and DMs will be higher in the 2015-20 period than it was in 2001-07, a period when EMs were very much in favour. Read more