Wednesday, 11 December 2013

The WTO Bali Deal: ‘Doha Lite and Decaffeinated’

By Dirk Willenbockel

Echoing the official World Trade Organization (WTO) line, many commentators hail the trade deal reached at the WTO Ministerial Conference in Bali on Saturday as a historic landmark agreement that will create 20 million new jobs and a trillion dollars in annual global economic gains. However, a number of charities and campaigners have criticised the Bali package as a scheme that exposes hundreds of millions to the prospect of hunger and starvation. Neither of these assessments withstands closer scrutiny of the actual contents of the package.

Is the WTO Bali Deal a historic moment?

For sure, the label ‘historic’ is justified in a sense. The Bali deal is the preliminary culmination point of 12 years of protracted negotiations under the Doha Round launched in November 2001.  It is also the first truly multilateral pact agreed among all members since the WTO inception in 1995. Over the years, the negotiation process ran into various impasses, and the Doha Round was declared dead by serious experts on several occasions. The fact that the new Brazilian WTO Director-General Roberto Azevedo managed to breathe a new lease of life into the Round by achieving unanimous approval of the deal by the 159 member states after just some 10 weeks in the job deserves respect.

What will the Bali accord mean for the poorest countries?

However, to strike the Bali accord, all the bones of contention within the ambitious wider Doha development agenda had to be taken out of the Bali package by designating it for future negotiation. What is left has been poignantly labelled ‘Doha Lite Decaffeinated’ by Jagdish Bhagwati, eminent trade economist and pro-globalisation guru par excellence.

The only legally binding commitment in the package is about trade facilitation – that is the implementation of measures to tackle red tape and streamline cumbersome customs procedures that cause costly delays at borders and impose other trade transaction costs. Empirical estimates show that such transaction costs are notoriously high, particularly in low-income countries. So the Least Developed Country members could potentially reap significant gains from a resolute implementation of such measures.

Implementation will require staff capacity building and equipment investments. Developed countries have committed to provide assistance for these investments. Doing so is obviously in developed countries’ own interest: a case of win-win. Of course, the required investments will take time and the deal includes provision for LDC’s to phase in the measures over a prolonged period – though in many cases it would make more sense not to exhaust these provisions. So the gains for LDCs will only emerge gradually over time.

Beyond trade facilitation, the Bali accord pays lip service to a range of other trade liberalisation measures of particular interest to the LDCs. For example, developed countries will:
  • “seek to improve” the product coverage of duty-free quota-free (DFQF) access for imports of LDC origin
  • “agree on the importance of pursuing progress” in lowering US subsidies for cotton farmers which particularly hurt cotton producers in a range of West and Central African countries
  • “endeavour” to relax restrictive rules-of-origin requirements that often prevent LDCs from making use of existing DFQF preferences.
So what do the benefits of the cited 1 trillion dollars overall gain actually look like on a regional basis? A glance at the Peterson Institute study, which is the source for this figure, along with some auxiliary calculations, suggests a real income gain of 1.0 per cent for developed countries and a 2.6 per cent gain for developing countries as a whole. Within the latter group, sub-Saharan Africa gains 2.5 per cent, South Asia 0.24 per cent and East Asia 3.2 per cent of baseline GDP from the trade facilitation component. These estimates are not based on an articulated multi-region simulation model.  They combine estimates of trade flow impacts due to trade facilitation from a separate World Bank study with a simple – if heroic - ad hoc scaling-up approach that transforms trade flow impacts into GDP impacts. It is remarkable that these estimates are significantly larger than corresponding typical estimates from model-based simulation studies that consider a full Doha agreement.

One recent CEPII study of this type allows a direct comparison with the Peterson results, as it includes a similar pure trade facilitation scenario. With a projected gain in global GDP of 60 billion dollars for 2025 (0.1 per cent of GDP as opposed to 1.5 per cent in the Peterson study), the CEPII results are more than an order of magnitude smaller, though the study also suggests substantially higher gains for sub-Saharan Africa (+0.5 per cent).

A potential reason for these divergences is that the World Bank study, on which the Peterson report draws, contemplates a far wider set of trade facilitation measures (including, for example, transport infrastructure investments) than actually included in the Bali agreement. It might be conjectured that these estimates contain an element of benign strategic over-optimism, and that this may even have contributed to the completion of the deal.

To conclude, the Bali package has modest ambition overall, but subject to proper implementation the trade facilitation measures can generate non-negligible gains for LDCs and other developing countries. Some see the wider significance of the deal in re-opening the door for the completion of a comprehensive multilateral agreement in the near future. Given the sheer pettiness of some of the issues not conclusively resolved by the Bali deal, I am not holding my breath.

Dirk Willenbockel is a Research Fellow with the Globalisation Team at institute of Development Studies.

Wednesday, 4 December 2013

Inclusive Business Case Studies – Reflections on timescales and communication

Elise Wach, Monitoring Evaluation and Learning Adviser at the Institute of Development StudiesBy Elise Wach

IDS recently partnered with the Business Innovation Facility (BIF) and Said School of Business to conduct a number of case studies (which we’re calling "Deep Dives") to find out more about the businesses that the BIF has been supporting.

The idea was to go beyond what was already being captured by the BIF’s monitoring and evaluation system and try to capture some of the rich lessons coming out of the pilot initiative. Specifically, these case studies aimed to provide useful insights into (a) commercial viability of the business models, (b) additionality of BIF’s technical support, and (c) development impacts.

Despite the fact that each case study was unique, in terms of business size (small social businesses to large corporations), market sector (agriculture, renewable energy, retail, etc.), stage of the business model development (early thinking to scaling up), and country (five countries in Africa and Asia), I did find that there were a few lessons to be learned across all eight.

One of the principal lessons for me was related to timescales, which I’ll break down into three points:

1. It takes time for business approaches to get off the ground
After three years of working with businesses to provide technical advice, very few of the business models have really taken off or gone to scale. Many of them may well be on their way, but it is important to note that they’ve all required a good amount of time (i.e. years) to get going, and that this process is outside of BIF's control.

2. It takes time to start having a development effect
Given that none of the businesses were at full scale at the time we conducted the Deep Dives, the development impacts (with a small ‘i’) were still a long way off. Therefore, much of the investigation around the development impacts was necessarily based on narrative and theory: speaking to people about what the effects might be, determining plausibility, identifying other possible effects that might also result and so on.

Even once the business (or business model) is up and running, just as in a development project, it will take time for the development effects to unfold: for markets to change, behaviours to shift, people to benefit. Many of the effects noted are indicative at this stage.

3. It takes time to actually assess all of this
The authors conducting the Deep Dives were able to get fabulous data and qualitative information from companies, which provided extremely insightful information about how the business model had unfolded, the additionality of BIF support, and commercial viability.

But in terms of development impacts, students had to rely on just a handful of interviews or focus group discussions: so they weren’t able to do anything representative or systematic. That doesn’t mean that the exercise hasn’t been useful: in some cases, the deep dives uncovered information which may enable businesses to overcome obstacles and function more smoothly.

Based on these time issues, one of my key takeaways is:

Regular communication with potential beneficiaries and stakeholders is vital

In other words, there needs to be channels for communication between the people whose lives will be affected (positively or negatively) by the business model, and the people who are involved in getting the model off of the ground. This is essential to ensure that we as practitioners aren’t basing our activities on assumptions made by business employees sitting in offices far away from where the development is meant to take place, but based on information and perspectives provided by the people who are or will be affected by the business.

This changes the business approach from a scenario such as, ‘I know that poor people grow carrots and this innovation is going to make carrot production more profitable, so the poor people will therefore benefit’, to a two-way dialogue in which carrot growers can discuss and identify strategies to improve their quality of life and how that relates to a value chain (or not) and also work on course corrections as things develop over time (e.g. when training is inappropriate or when crops fail). This approach goes beyond traditional market research of people’s preferences and behaviours, to understanding people’s broader lives and realities.

What this communication actually looks like in practice will be different depending on context, business approaches, markets, etc. It may be direct communication or it might be mediated through a partner or a system.

Perhaps in the first instance, communication could be brokered or facilitated by an initiative such as BIF. Ultimately, however, there needs to be some way for these groups to communicate (directly or indirectly) with one another, after the support has ended and the inclusive business approaches are set to continue.

Given the relatively expansive timescale from conception to impact, this regular communication can help ensure that the approach isn’t just a well-intentioned business but one that actually contributes to improvements at the ‘bottom of the pyramid'.

Elise Wach is Monitoring, Evaluation and Learning Adviser in the Impact and Learning team at the Institute of Development Studies

Monday, 2 December 2013

Preliminary evidence on the impact of voluntary voting in Chile: Not good news

By Carlos Fortin

In a blog in early 2012, I reported on the debate in Chile about replacing the existing system of compulsory vote with voluntary vote in national elections. I cited the case of the Netherlands, where a similar change in 1970 led to negative impacts in the shape of a fall in overall participation and a proportionally higher fall in the participation of women, the young, the less educated and the poorer. Not, I concluded, exactly what Chilean democracy needs today.

The change was however duly approved and we have just had the first presidential and parliamentary elections under the new system. While the evidence is not yet in to pass a definitive judgment on all the aspects mentioned, some data on at least two of them seem to lend credence to the fears I was reporting on.

Figure 1 shows the level of abstention in the presidential elections in Chile since the return to democracy. Abstention in the first democratic election in 1989 was at a historical low of 13.2% and afterwards rose steadily but fairly gradually (except for a more pronounced increase in 1999) to reach 41.2% in 2009, the last election with compulsory vote. In the 2013 election it jumped nearly 10 percentage points to 50.7%. While there are no doubt many other factors at work, it is hard to escape the conclusion that the shift to voluntary voting has led to a decrease in electoral participation.

Figure 1. Chile: Abstention in presidential elections since return to democracy
Non-voters as percentage of eligible voters
Source: Gonzalo Contreras and Patricio Navia, Participación Electoral en Chile, 1988-2010, Buenos Aires, Instituto de Investigaciones Gino Germani, 2011

On the differential impact of lower turnout, there is some evidence concerning the impact by socio-economic status; it is less conclusive, but the direction it points to is also clear. Figure 2 plots all the municipalities of the Santiago Metropolitan Region in terms of the incidence of poverty in their populations in 2012 and the voter turnout. The negative correlation is apparent: the more the poor in a municipality, the lower the electoral participation (the correlation coefficient is -.496, significant at the 0.01 level).

Figure 2. Chile: Participation and poverty in the 2013 presidential election
Municipalities in Santiago Metropolitan Region
Source: Gonzalo Contreras and Mauricio Morales, Precisiones sobre el sesgo de clase con voto voluntario, 2013

This second finding is not conclusive firstly because it covers only the country’s capital; impressionistic evidence for the rest of the country is mixed, with at least three other regions showing similar tendencies to Santiago but others apparently showing no differential impact.

More seriously, the finding could be criticised for falling prey to the ecological fallacy: it does not tell us whether it was the poor within each of the municipalities that abstained to a larger extent.

More research is therefore needed to arrive at firm conclusions. In the meantime, though, the evidence presented is a serious warning signal; in fact, there are already voices in the Chilean Parliament calling for a reversal of the change, and they include some who originally supported voluntary vote in the hope that it would lead to higher, and more committed electoral participation.

Carlos Fortin is an IDS Research Associate currently working on the relationship between the emerging international trade regime and human rights.

Tuesday, 26 November 2013

South-South Cooperation in aid, trade and FDI? A closer look at the economic engagement footprint of rising powers in Africa

By Musab Younis 

What do the activities of Chinese businesses in Angola, Brazilian state agencies in Mozambique and Indian exporters in South Africa have in common? For one thing, they all might be seen to represent the trend of (re-)growing linkages between African, Asian and Latin American countries.

As such, they are surrounded by a specific discourse which contains a number of signifiers referring to a particular view of history and economic development. A recurrent phrase within this discourse, ‘South-South Cooperation’, suggests that such linkages represent a kind of post-colonial recovery of extra-European patterns of trade and exchange. And to varying degrees, bureaucrats and businesspeople from the ‘rising powers’ do claim that their modes of interaction with African countries are fundamentally different from those behaviours associated with rich countries in the OECD.

The true picture is complex, of course, and any overview does violence to subtleties. A number of headline stories are well known. There has been a major increase in South-South trade over the past 30 years in both goods and services. Such trade has been dynamic and has grown unusually fast. GDP growth figures appear to have been high in many African countries. Large countries of the South (Brazil, China, India) have expanded their ‘development cooperation’ programmes in poorer countries in a range of areas from agriculture to health policy. But few studies have elaborated on these headlines by looking closely at the nature of these evolving patterns.

Two recent studies take a closer look at South-South economic engagement

One exception was an instructive study published earlier this year by Kathryn Hochstetler, which found that: ‘the most important dimension of the rise of South-South trade is the way it has both followed and reinforced increasing differentiation among the countries of the South.’ Hochstetler observed that developing country exports are dominated by a group of just eight countries (Brazil, China, India, Indonesia, Malaysia, Mexico, Thailand, and Turkey), which alone accounted for almost half of the annual exports of all the developing economies from 2005–2009. The Least Developed Countries (LDCs), she pointed out, actually send larger shares of manufactured goods to higher income than to lower income countries. LDC exports to other Southern countries were dominated by agricultural, fuel, and mining goods.

Another exception can now be added in the form of the work of Xavier Cirera, until recently at IDS, who has just published a careful analysis of the ‘economic engagement footprint’ of the rising powers in Africa. Rising powers – which Cirera defines as the BRICS countries plus the Gulf states and Turkey – are found to be important trade and aid partners for sub-Saharan Africa. Their importance (especially that of China) has increased dramatically over the last decade at the expense, mainly, of the OECD. Analysing such trade flows, Cirera finds that they are largely represented by the export of natural resources from sub-Saharan Africa and products with very little added value.

Given the work of Hochstetler and others, Cirera’s findings are perhaps unsurprising. Using a statistical tool called a similarity index to assess the trade and FDI flows, he finds significant similarities appear between OECD and rising power countries in terms of their interactions with sub-Saharan African countries. By the same token, and contrary to some reports, Cirera does not find a pattern of aid allocation by the rising powers which conforms to political affinity, corruption or trade links any more than the existing pattern of OECD countries. In other words, Chinese aid appears to be statistically linked to China’s interests in African natural resources only as much as British aid is linked to its own interests in African natural resources.

Such findings do not render all talk of ‘South-South Cooperation’ redundant, of course. But they do suggest that some of its rhetoric is (at best) premature, failing to characterise the actual pattern of relationships that is evolving between countries of the South. Such relationships continue to develop, as a range of scholars from Giovanni Arrighi to Susanne Soederberg have reminded us, within the confines of a global capitalist economy in which sclerotic hierarchies of production, labour and value can still be found.

It is precisely in this context that UNCTAD’s recent Trade and Development report (PDF) warned of a race to the bottom amongst Southern countries attempting to develop by supplying cheap manufactured goods to the credit-fuelled markets of the North. “[T]he expansion of the world economy, though favourable for many developing countries, was built on unsustainable global demand and financing patterns,” it observed, adding: “reverting to pre-crisis growth strategies cannot be an option.”

UNCTAD’s report comes at a time when the ‘developmental state’ paradigm is increasingly being questioned by a range of work looking at patterns of labour, dependency and industry. South-South trade and aid flows will, at least in the short term, continue to increase. But, as Cirera’s study suggests, the impact of these flows for the populations of sub-Saharan African countries remains open to question and contestation.

Musab Younis, formerly a Research Officer with the Rising Powers in International Development programme at the Institute of Development Studies, is now a PhD candidate at the University of Oxford.

Previous blogs by the same author: 

Thursday, 21 November 2013

From campaigner to crusty academic

By Jodie Thorpe

When I announced I was joining IDS, most people responded with “great opportunity” or “great fit – congratulations”! My partner was a bit less enthusiastic, it must be said, but only until I explained to him that it wasn’t the UK Secretary of State for Work and Pensions* that I was going to be working with.

My favourite response, however, was from a good friend and colleague.

She said IDS would be provide a fantastic chance to engage in high quality and rigorous analysis and methods, and in doing so make a difference to development. (Though she also cautioned me to be avoid becoming too “crusty”!)

A bit of context...For over 13 years now I’ve been working on business and development – the past four of which were at Oxfam.

My job at Oxfam was to help the organisation figure out how best to engage with business towards the vision of a just world with no poverty. By ‘engage’, I mean both ‘attack’ and ‘work with’, depending on the issue and the company.

Some people inside and outside Oxfam saw, and still see, this as a perilous strategy.

Given the often poor track record of many companies on issues ranging from child labour to environmental degradation, how could Oxfam risk its reputation working with these companies? Some thought even campaigning to change bad practice was a waste of time.

Certainly I could see the strategy was not without risks, but I found the critique frustrating. It seemed to me that many of the critics felt it was self-evident that no benefit could come from a private sector strategy. That the power and profit motive of business meant it was folly to expect meaningful engagement. In terms of influence, many saw governments as the proper development actor and advocacy target, despite the fact that many governments also have pretty mixed records themselves on human rights and poverty issues….

I wanted more robust evidence around the role of business in development

However, I eventually had to face up to the fact that I didn’t really possess evidence either. I was acting on the basis that business was an important actor, given the enormous power and reach of many companies. Sometimes their activities contribute to development and sometimes they hold it back, but it seemed clear to me that business plays an important role. Yet the more time went on, the more I wanted more robust evidence and analysis to support this.

This is where IDS comes in.

Next year, IDS is launching a new Business and Development Centre and for me it represents a golden opportunity to collaborate with others inside and outside IDS to grapple with these issues.

The types of questions I hope we tackle include:
  • What is the potential and what are the limitations of business as a development actor? 
  • How do you measure impact in a meaningful way?
  • And what does this tell us about what are the most effective interventions from a development perspective?
I don’t just want to tackle these questions in a theoretical way. I am hoping that we can generate some real evidence and come up with practical solutions and ways forward. This will, I hope, help those trying to understand business and its potential role in development, from NGOs like Oxfam, as well as from donors, governments – and from businesses themselves – to understand what interventions have the highest impacts and help them judge where they might best invest their time and energy.

I find the idea that we can achieve even part of this vision enormously energising. It’s a dynamic agenda with lots of potential for impact and influence. A small price to pay for a little crustiness!

*Iain Duncan Smith, popularly referred to in the UK as “IDS”.

Jodie Thorpe is a Research Fellow with the Globalisation Team at the Institute of Development Studies.  

Wednesday, 13 November 2013

Unpaid care work - should business care?

By Mar Maestre Morales

Last month I attended the seminar ‘Women’s economic empowerment: who cares?’ at IDS. We watched this beautiful video (that I recommend to everyone!), which unpacks what unpaid care work is, why it is important, and how it affects everyone’s wellbeing. It also highlights its invisibility in all agendas (policy, development, business) and why this has to be changed.

And it’s not just IDS and its research partners ActionAid International, BRAC University and SMERU Research Institute highlighting this issue.

UN Special Rapporteur, on extreme poverty and human rights, Magdalena Sepúlveda Carmona, recently presented a report stating that ‘unpaid care work […] is a major human rights issue […] unequal care responsibilities are a major barrier to gender equality and to women’s equal enjoyment of human rights.’

Strategic ignorance and the invisibility of care
In spite of this recognised importance, unpaid care work is ‘forgotten’ easily, or is considered too complex to include in development programmes. IDS Fellow Rosalind Eyben describes this as ‘strategic ignorance’, and explains in this blog post, it is one of the reasons why unpaid care work is still invisible in the agendas.(1)

Having experienced organisational challenges myself when trying to introduce care components in development projects; the seminar got me thinking firstly, how I can go about introducing ‘care’ into my work, and, secondly, who has influence to make care more visible.

What does cooking, cleaning or taking care of other family members have to do with businesses?
One of these influential actors is business. Although business and development have a somewhat contested relationship(2), business as an emerging and critical actor in development is a reality. As a result of this, and, also, because it is the focus of my research, the question I keep asking myself is, why should businesses care and how can they introduce ‘care’ on their agendas?

In her report, Ms Sepúlveda Carmona writes:
‘Unpaid care work is a major reason why women do not enjoy equal rights at work, including fair and equal wages and safe and healthy working conditions […] As a result, for many women living in poverty with unpaid care responsibilities, work is not empowering but rather a survival necessity.’
Does business have a role to play in addressing unpaid care?
On the other hand, more and more, businesses are promoting women’s economic empowerment programmes as potential ‘win–win’ solutions to improve poor women’s lives and reduce the gender gap, while still obtaining a benefit.(3) Incorporating women in business value chains is being considered a route to their ‘empowerment’.

Take for example Coca-Cola´s 5by20 programme. It aims to ‘enable the economic empowerment of 5 million women entrepreneurs across its global value chain by 2020’. They define empowerment as ‘access to business skills training courses, financial services and connections with peers or mentors – along with the confidence that comes with building a successful business’.

Hence, the programme and its hoped-for impact seem very straightforward: include women in Coca–Cola’s value chain so they can be empowered (following their definition). Nonetheless, it is important to acknowledge that, from the moment Coca-Cola started their 5by20 programme, they acquired a responsibility towards all the women involved.

What does economic empowerment have to with ‘care’ and what happens to ‘care’ when women are economically empowered?
Bearing that responsibility in mind, the immediate question is has Coca-Cola thought about unforeseen consequences that this new job might have on the women? What will happen to the unpaid care work they were doing now that they have less time to do it? And so on.

Consequences can be diverse: for example, women may now have a double burden, both working outside their household and inside it. Or, their care obligations might be transferred to their daughter, or might be left undone. It might be that women have to pay someone else to do the care now. Maybe, they have to migrate to work, leaving the responsibilities to older members of the family.

In my view, there is a gap between the goals programmes like Coca–Cola’s 5by20 aim to achieve, versus what actually happens in reality with regards to women’s economic empowerment. Outcomes vary, but by not asking these questions, the problem does not go away.

We tend to forget important things about unpaid care work. It can’t ‘not’ be done - if a woman cannot do it, the responsibility will fall to someone else, usually her daughter(s). Additionally, unpaid care is not only about hours spent, it is also about emotions, feelings and power relations within the household, hence the difficulty to measure it or include it on the programme goals (‘strategic ignorance’ again).

So, how can businesses care?
Recognising that care work is critical for everyone’s wellbeing is the first step. From here, programmes will start asking questions, identifying challenges and designing solutions.

New tools are emerging to help us deal with these challenges. For example, Oxfam has designed a ‘Rapid Care Analysis’ (RCA) exercise that helps assess these issues and define potential solutions in 1-2 days. By using this tool, businesses can obtain an assessment of the situation and include elements to deal with care concerns.

Still, the challenge remains today of engaging businesses to put care on their agendas. I have introduced Oxfam’s RCA tool as a possible starting point. What do you think? Do you know any other tools that businesses could use?

(1) To understand better why care has been forgotten in the development agenda, I recommend reading ‘The Hegemony Cracked: The Power Guide to Getting Care onto the Development Agenda’, also from Rosalind Eyben (2012). You can download it free at
(2) There is still reasonable doubt whether businesses should play a role in these issues or not be involved at all. However, I think it is important to acknowledge the role they are already playing and leave that debate for a different space.
(3) Care work does not only involve women, but given that, in many countries it is still considered a woman’s job, I have linked it with woman’s economic programme. This is, hence, another challenge for care, trying not to be categorised as a feminist or gender issue, while still being about women. Gender and care are related but not the same thing.

Mar Maestre is a Research Assistant with the IDS Globalisation Team. She is currently working on a case study of Grameen Danone.

Wednesday, 30 October 2013

Russian business in developing countries: challenges and perspectives

By Yuriy Zaitsev

The engagement of the Russian Federation into the system of international development assistance, as well as its accession to DAC OECD, implies that Russian authorities plan to allocate extra resources to implement development assistance projects in developing countries.

This is in line with DAC principles, as well as with the principles of innovative development finance. In light of the fiscal problems that the Russian economy is experiencing, the increase of public resources for development aid seems to be an incredible scenario.  That is why new sources of finance are required.

Such sources can be generated by Russian businesses operating in developing countries. It is not only Overseas Development Aid (ODA), but also private capital, which makes a major contribution to the development of capital-scarce developing countries and helps to smooth spending throughout the business cycle in the recipient country.  From a theoretical perspective business and government can be mutually reinforcing in terms of the implementation of corporate social responsibility (CSR) and ODA-related projects in developing countries. What is more, public-private partnership (PPP) can also be a splendid mechanism to unite public and private resources for developing countries. However, in practice Russian businesses lack incentives to engage in development assistance-relevant projects and are underrepresented at the developing countries’ markets.

Public-private partnership (PPP) and corporate social responsibility (CSR) are those mechanisms which could complement the existing and further development assistance programs implemented by Russia and other international donors, as well as to provide positive socioeconomic effects to support business activity. Such kind of cooperation would contribute not only to strengthening the position of national companies in foreign markets, but also to the development of the investment climate, which provides a basis for economic growth.

Nowadays Russian businesses and the government do not have a partnership position on cooperation in developing countries. On the one hand, the Russian government should develop conditions to engage businesses into international development assistance programs. On the other hand businesses should express their own vision regarding where governmental support is needed, providing information on planned projects which correlate with governmental projects in the field of international development assistance.

The mechanisms of PPP and CSR could expand the business’ stimulus to participate in international development assistance programs. The engagement of business into development assistance-related projects could contribute to the establishment of the Russian system for international development assistance, which assumes business to be one of the key partners of development.

Dr. Yuriy Zaitsev is a researcher at the Institute of Applied Economic Studies, Russian Academy of National Economy and Public Administration, Moscow. Dr. Zaytsev is also a Visiting Research Fellow for "Rising Powers in International Development Programme", Institute of Development Studies at Sussex University

You can read the full article, ‘Russian Business Investments in Developing Economies: Problems and Outlook, by Dr Yuriy Zaitsev on the Russian International Affairs Council (RIAC) website.

Thursday, 24 October 2013

More surprises from the IMF?: tax the rich, tax the multinationals

By Carlos Fortin

The IMF's standard policy prescription for dealing with fiscal imbalances in both developed and developing countries is well-known: reduce public expenditure, expand the base of the value-added tax (VAT), curb evasion. Critics have for a long time argued that this approach has a built-in unequalising bias; spending cuts have a more harmful effect on the poor than on the rich; VAT, as a consumption tax, is regressive; and multinational corporations and their wealthy owners are much more able to frustrate efforts at curbing evasion than the ordinary tax payer.

Such criticisms have historically fallen on deaf ears; until now, that is; or so it would seem.

In a previous blog I commented on a June 2013 IMF Working Paper on the distributional effects of fiscal consolidation which finds that fiscal consolidation through reductions of spending Increases inequality. This was seen as a move in the direction of unorthodoxy, albeit a very cautious one and unofficial to boot.(1)

But now an official IMF report seems to take the move further.(2) To be sure, the basic message is still orthodox:
"the scope to raise more revenue is limited in many advanced economies and, where tax ratios are already high, the bulk of adjustment will have to fall on spending … Broadening the base of the value-added tax ranks high in terms of economic efficiency … and can in most cases easily be combined with adequate protection for the poor. In emerging market economies and low-income countries, where the potential for raising revenue is often substantial, improving compliance remains a central challenge."(3)
There is however a frank recognition of the fact that tax systems around the world have become steadily regressive since the 1980s: they rely more on indirect taxes, and within direct taxes the progressivity of the personal income tax has declined, reflecting steep cuts in top marginal tax rates. Therefore, the report says,
"scope seems to exist in many advanced economies to raise more revenue from the top of the income distribution (and in some cases meet a nontrivial share of adjustment needs), if so desired. And there is a strong case in most countries, advanced or developing, for raising substantially more from property taxes … taxes on wealth also offer significant revenue potential at relatively low efficiency costs."(4)
The report goes even further in connection with the need to stop tax evasion and avoidance by multinational corporations which employ devices like base erosion and profit shifting to reduce their tax liabilities. It mentions cases in which the revenue lost to developing countries through tax planning by multinationals is as much as 20 per cent of all tax revenue. This is made possible by the fact that "the international tax framework is broken" and in need of a fundamental overhaul. The conclusion of this analysis: "The chance to review international tax architecture seems to come about once a century; the fundamental issues should not be ducked."

Fighting talk indeed, and certainly very welcome.

Carlos Fortin is an IDS Research Associate currently working on the relationship between the emerging international trade regime and human rights.

1. IMF Working Papers carry a disclaimer that reads: "This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy".
2. International Monetary Fund, Fiscal Monitor. Taxing Times, World Economic and Financial Surveys, Washington D.C., October 2013
3. Ibid., p. vii
4. Ibid., p. viii

Monday, 21 October 2013

From crisis to transformation? 40 years after the 1973 oil crisis

By Aurelia Figueroa
Photo of Aurelia Figueroa
Both devastating and inspiring, the 1973 oil crisis presented an opportunity to make a change. Like the Fukushima Daiichi nuclear disaster in March 2011, it opened a rare door through which public opinion and policy makers could meet with the common purpose of emerging from a crisis. Looking back today, the 1973 oil crisis can be seen as a turning point in the energy policy debate and the genesis of the energy transition.

Paid in US Dollars, oil exporting nations were negatively impacted by the demise of the Bretton Woods system and sought to improve their profits. The related negotiations between producing nations and western oil companies that preceded the crisis had resulted in failure. Against this backdrop, Western support for Israel in the Yom Kippur War became the ex facie cause of the oil export embargo to the US, the Netherlands, and other allies of Israel.

The crisis had financial impacts at all levels of society in embargoed nations and beyond. Prices at the petrol pump skyrocketed following the first of several production cuts and price hikes implemented by Middle East oil producing nations on 16 October 1973, raising the price of a barrel of oil by 70 per cent. The World War II refrain Don’t Be Fuelish was revived as lines at gas stations snaked into the streets.

The 1973 oil crisis brought remarkable financial gain for producing nations. In developing economies, the oil crisis had a drastic impact on economic development. The immediate impacts of this were lessened by borrowing through petrodollar recycling, whereby the current account surpluses of exporting nations funded the oil imports of developing nations.

In the wake of the crisis, energy security and independence were eagerly sought. The underlying conditions which spurred the upheaval were not transitory – crisis could soon knock again. With the urgency of high fuel prices and uncertain supply, public calls were made for energy independence through improved energy efficiency, renewable energy and increased fossil fuel exploration within domestic borders or Western-friendly nations.

At the international level, it inspired the establishment of the International Energy Agency in 1974 which sought to prevent future oil crises by coordinating oil stocks of Member countries. At the national level, energy standards were spurred, such as the Corporate Average Fuel Economy (CAFE) standards in the US.

Short-term change or long-term transformation?
The changes prompted by the 1973 oil crisis seemed to vindicate the Club of Rome Limits to Growth report published the year before and have left many legacies which continue to impact energy policies and markets today. It is partly responsible for the creation of the German term Energiewende and sparked a debate of a global energy transition which is progressing today at varying speeds among countries and regions.

Perhaps the importance of energy efficiency and conservation would have had a more pervasive effect had the oil crisis lasted longer. The oil price shock lasted for less than a year and as it faded away, so did the urgency of the search for alternative energy sources and energy efficiency in some countries.

Still, technological advancement sparked by the 1973 oil crisis has gradually improved the cost-benefit calculus in favour of energy efficiency and renewable energy. Yet much progress is still to be made regarding technical and non-technical barriers on the path to implementation. Low carbon development must emerge within a world based on fossil fuel infrastructure. This compounds the innovation challenge and makes the emergence of low carbon energy technologies all the more difficult.

40 years on
In 1973, Western decision makers were blessed and cursed with the mandate to achieve energy independence and security. In that instant, the oil crisis was the deus ex machina in the energy policy saga. Yet with the exit of its workings of high energy prices in some countries, so did the potential for it to change the storyline also fade.

The change that began in 1973 in the heat of crisis has since followed the trend of energy prices; the urgency to implement energy efficiency and find alternative fuel sources rises and falls largely in sync. This unstable movement creates a market full of uncertainty for low carbon development and compounds the risk for potential investors and consumers.

The 1973 oil crisis formed the basis for the energy transition, the progress of which has been uneven. While the energy security challenges of the crisis lie dormant in relatively stable times, the urgency of implementing a resilient energy transition persists. Today as 40 years ago, energy efficiency and renewable energy sources remain key elements of a resilient energy system that is prepared for the next crisis – whenever that comes.

Aurelia Rochelle Figueroa is a researcher at the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), a strategic partner of IDS for work on the green transformation. Aurelia specialises in the energy sector and is a member of the Emerging Leaders in Energy and Environmental Policy Network.

A version of this blog post appeared online on 14 October 2013 in DIE’s The Current Column.

Monday, 14 October 2013

Why Are ‘They’ So Interested In ‘Us’? Distance, myths and imagination between China and the West

By Xiuli Xu

When I first started my journey into development studies, the field held little interest in China. In various buzzing international conferences on popular topics such as governance, gender, natural resource management, decentralisation and participation, most cases were from Africa, Philippines, Mexico, Brazil, India, etc., with much less reference to China’s experiences.

Ten years later, I suddenly find the pendulum has swung the other way.

The burgeoning academic and public debates on China’s internal development experiences and, in particular, its engagement in Africa are increasingly preoccupying journal articles and the global media. The role of China in both the traditional Bretton Woods system, and newly initiated G20 and BRICS architecture, as well as various thematic summits on climate change, food security, and poverty reduction, has attracted wide attention.

Contention has often arisen around demands from the West for China to be a 'responsible stakeholder' 1, or allegations from the West that China’s engagement in Africa is a ‘new form of colonialism’ (through resource grabbing, labour rights abuses, erosion of good governance, environmental pollution, etc) .

How can China better understand this global shift in dialogue and power, communicate better with the West, and ultimately shape the future international system? This has posed a great challenge for the Chinese government and academia, most of whom, up until now, have focused their attention on internal affairs.

‘Distance’, myths and imagination between China and the West

Much of the West was astonished to see China’s robust economic growth continue consistently over the last three decades, particularly in recent years, emphasized by a boom in overseas mergers and acquisitions. Many Chinese have, in turn, been shocked to see China depicted as an expressionless huge powerful man with army uniform in the shadow behind piles of overseas assets  in the global media. Both responses are fuelled by the ‘distance’, myths and imagination between China and the West.

Distance creates myths, and myths stimulate imagination which may be far from the reality. This distance is not just physical, but also social, cultural, and ideological.

Since the late Ming Dynasty, and following ongoing disruption from unbalanced trade relationships with and invasion by western powers from the 1840s, China chose to focus on domestic issues. This was accentuated by the ‘closed door policy, particularly to the West, implemented in Mao’s era alongside the powerful discourse of ‘independence and self-reliance’ (duli zizhu, zili gengsheng). It was not until after the reform at the end of the 1970’s that the ‘open door’ (gaige kaifang) policy was reintroduced.

China's 'Introducing in' and 'going out' policies

China started to attract foreign direct investment and aid, referred to this as ‘introducing in’ (yinjinlai), from western countries. Gradually China participated in more and more international organisations, such as the UN, World Bank, IMF, WTO, G20, etc.  China also started to enhance its overseas investment and aid under the strategies of ‘going out’ (zouchuqu), particularly since the turn of this century. In China’s 12th Five-year for Economic and Social Development (doc) (shierwu fazhanguihua), for the first time, the strategy of ‘going out’2  ranks ahead of ‘introducing in’(yinjinlai).

However, ‘going global’ is just starting.

In fact, for many Chinese the world is still quite stereotyped and dichotomised. Their conception of the “outside world”, typically Europe and the USA, is of one that is more advanced than China, meaning that China needs to work hard to catch up. This collective belief was born and reinforced by the invasion of China by modern powers, and was a move away from the ancient Chinese worldview of ‘tianxia’ which has China as the center of the world. In this view, there is no objectification of “self” and the “world”, since boundaries between the ancient Chinese empire and other lands had not yet been drawn.

As more and more Chinese gain overseas experiences through tourism, business, and education, so will collective beliefs become more dynamic and diverse.

Encounter and intertwinement 3 : the complexity of ‘them’ and ‘us’

Phrases such as ‘development encounter’, ‘knowledge encounter’ and ‘cultural encounter’ have evolved, partially in response to the rise of BRICS countries, with China at the forefront, and its implications for the current international development system. However, in reality since the 1980s, globalisation has been more an intertwinement than an encounter.

In Professor Nolan’s new book, ‘Is China Buying the World’, he describes how the new round of international business revolution, characterised by cascade effect with ‘systems integrator’ down to suppliers, is resulting in  mutual embeddedness of multinational corporations (MNCs) both from western countries and from China. He argues that high-income countries consider their giant firms to be deeply embedded in the Chinese business system, whereas Chinese firms have a negligible presence in high-income countries - “we are ‘inside them’ but they are not yet ‘inside us’”. However, he also reminds us of the complexity of ‘us’ and ‘them’ in the era of capitalist globalisation, emphasising that China’s ‘going out’ has only just started.

The nature of mutual embeddedness and fusion in the new globalisation era, not only in business and investment but also, to varying degrees, in aid, has reshaped the nature of international relationships. Encounters and intertwinement between China and the West are already bridging distances and creating spaces for mutual understanding and learning, through interaction, and thus is contributing to the demystification and reshaping of mutual imagination about each other in the long term.

With the above context in mind, an awareness of this ‘interest’ from the West, an understanding of ‘why they are so interested in us’, and an ability to communicate and react properly to the West’s ‘interest’ in China, might serve as a good start for the Chinese, and vice versa.

1. This proposition asking China to be a ‘responsible stakeholder’ was first raised by Robert Zoelick, the former president of World Bank, in 2005.
2.  Narrowly defining, ‘going out’ means China’s overseas investment in particular. Broadly defining, ‘going out’ includes overseas investment, aid, trade and even sending expertise or labors.
3.  Ackowledgements to Jin Zhang from Judge Business School of the University of Cambridge for the discussion on encounter and intertwinement, where I got some enlightenment in writing.

Professor Xiuli Xu is Associate Professor of Development Studies at the Research Center for International Development (RCID), College of Humanities and Development Studies (COHD), China Agricultural University, Beijing, China (CAU). She was recently a Visiting Fellow at IDS as part of the Development Studies Learning Partnership (DSLP), Rising Powers in International Development Programme (RPID).

Wednesday, 25 September 2013

How can we maximise the impact of nutrition interventions when evidence is limited?

By Stephen Spratt

The Scaling Up Nutrition (SUN) Movement has been holding its Global Gathering in New York over the past two days. Rather than the ‘high-level’ expert meetings of previous years, this event brought a range of stakeholders from different countries – 42 countries are now signatories to the SUN Framework – together to share experiences about what works and under what conditions.

This is essential. The profile of nutrition has risen rapidly up the development agenda over the past few years. If the opportunity this creates is to be realised, however, we need to move from the abstractions of the drawing board to the messy realities of the real-world.

Finding sustainable solutions to undernutrition is difficult. A wide range of factors influence outcomes at different levels. Ensuring an adequate dietary intake and good health are the most immediate determinants, but underpinning these factors are issues like food security, the care of children and women, and access to good quality health services.

To date, most attention has focused on the most immediate drivers. There is a large body of evidence on the most effective ‘nutrition-specific’ interventions – the fortification of food and treatment for acute malnutrition, for example. It is universally accepted, however, that any gains made through these types of interventions will not be sustained unless progress is also made on the underlying factors described above.

Little existing evidence about nutrition-sensitive interventions that work

The problem is that we know far less about the types of ‘nutrition-sensitive’ interventions that are likely to work best than we do about nutrition-specific options. What should be done under these conditions?

One option would be to do nothing until we have a more complete body of evidence. This is problematic for three reasons.
  • First, we know that the impact of nutrition-specific interventions will be greater if they are complemented by nutrition-sensitive interventions. 
  • Second, for the gains made by the scaling up of nutrition-specific interventions to be sustained, it is imperative that the underlying determinants are also addressed.
  • Finally, even if the full scale-up of nutrition-specific interventions could be achieved, this would only partially resolve the problem. 
In their costing work, Horton et al (2010) estimate that implementing the full package of nutrition-specific interventions would reduce the incidence of stunting by 20%, severe acute malnutrition by 50% and underweight by 20-30% ("Scaling up nutrition - what would it cost?" (PDF)). While these would be huge achievements, it cannot be acceptable to stop there, as many millions of children would still be afflicted by these conditions. To address this problem properly nutrition-specific and sensitive interventions need to be working in unison.

Another option would be to muddle through, prioritising areas where it is easiest to raise money, or which appeal most to different donors or national governments for their own particular reasons. While this is likely to yield positive results, it is very unlikely that these results will be the maximum that could be achieved with limited resources.

Action Against Hunger and IDS propose a 'four-step' diagnostic framework

In a recently published report with Action Against Hunger UK (ACF International), we sketch out a third option. In the report we develop a diagnostic framework to help prioritise nutrition-sensitive interventions in a situation where evidence is both limited and unevenly distributed. As well as potentially helping different stakeholders to enhance the effectiveness of their interventions, the approach performs another important function – by making the best use of the evidence that does exist, it clearly identifies the gaps in this evidence base.

There are four steps, with a set of criteria in each case. The criteria are flexible enough to accommodate the fact that different actors will have different priorities: 
  • Step 1 is the initial choice of location for the intervention, which is determined by factors such as the burden of undernutrition and the presence of conditions that are likely to amplify impact. 
  • Step 2 is the choice of sector, where criteria combine importance for nutrition outcomes with the greatest potential for impact. 
  • Step 3 entails the choice of ‘pathways’ within each sector. When considering interventions in agriculture, for example, there are a number of ways that agriculture affects nutrition outcomes. Here the criteria combine importance for nutrition in that particular context (e.g. the relative importance of subsistence versus cash crop farming), with potential for the greatest impact by focusing on groups that could benefit the most. 
  • In Step 4, specific interventions are chosen based on evidence of their effectiveness.
This is very much a starting point of what should be an ongoing combined research effort.

In the coming years, more evidence will accumulate on which interventions are most effective, for which groups and under what conditions. Already we know that country context is extremely important: interventions that appear to work well in some environments do less well in others. Improving understanding of what the crucial factors are in each case is essential, and this can only be done with a deep and rich understanding of local conditions.

Sharing practical experiences, as in the SUN Global Gathering, is an important part of this. Generating robust evidence in a variety of forms is also key. If we are to achieve the greatest possible impacts, however, it is essential that we develop mechanisms to translate this growing body of evidence into the most effective interventions on the ground. While better tools than the one proposed here will no doubt emerge in the future, it is hoped that this will serve as a useful starting point. 

Stephen Spratt is a Fellow at the Institute of Development Studies. His research interests relate to development finance, financial sector development, and the ‘green transformation’.

Previous blogs on Globalisation and Development related to this topic:

Wednesday, 28 August 2013

Austerity and inequality: the IMF going unorthodox?

By Carlos Fortin

Isabel Ortiz has brought to the attention of the Recovery with a Human Face network a recent IMF Working Paper on the distributional effects of fiscal consolidation(1). It makes interesting reading, not least in that it seems to indicate a departure from orthodox thinking on the matter.

The paper explores the impact on inequality of measures of fiscal consolidation, defined as "policy actions—tax hikes and/or spending cuts—taken by governments with the intent of reducing the budget deficit"(p.4). It is based on information on 173 episodes of fiscal consolidation for 17 OECD economies during 1978-2009, whose magnitude ranges between 0.1 and about 5 per cent of GDP, with an average of about 1 per cent of GDP; this is correlated with the behavior of the Gini coefficient as well as with the distribution of income as between profits and wages and with short-term and long-term unemployment in the countries concerned.

What the IMF found... 

Fiscal consolidation episodes have
(i) increased inequality in the very short term and in the medium term;
(ii) led to a significant and long-lasting fall in the wage income share of GDP; and
(iii) raised long-term unemployment over the medium term.

The impact is particularly striking in the correlation with the Gini coefficient. As the Figure below shows, fiscal consolidation episodes, on average, have been typically associated with an increase of the Gini of about 0.3 percentage point in the short term (two years after the occurrence of a consolidation episode) and of about 1.5 percentage points in the medium term (8 years after the occurrence of a consolidation episode).

Figure: The effects of fiscal consolidation on inequality Source: Ball et al. (2013)

Equally striking – although not unexpected – is the finding that reductions in spending tend to have larger distributional effects than tax-based consolidation measures. Specifically, the medium-term effect of fiscal consolidations on income inequality is about 1 percentage point for spending-based consolidations and 0.6 percentage point for taxes-based measures.

Austerity hurts the poor more than it hurts the rich

So, there we have it: the IMF beginning to recognise (2) that the austerity it has advocated for so long hurts the poor more than it hurts the rich. The policy conclusions the authors draw from their findings are, however, rather general and bland: "governments should pay special attention to the fiscal measures that they adopt"; "the distributional effects of consolidation must be balanced against the potential longer-term benefits that consolidation can confer"; "fiscal measures that are approved now but only kick in to reduce deficits in the future—when the global recovery is more robust—would be particularly helpful."(p.11).

And yet, it is possible to conceive of fiscal contraction that would be specifically designed to protect the poor and vulnerable and to reduce, rather than increase, inequality. In another paper (PDF) Isabel Ortiz and Matthew Cummins illustrate this possibility with the example of Iceland:

"In designing fiscal adjustment, the authorities introduced a more progressive income tax and created fiscal space to preserve social benefits. Consequently, when expenditure compression began in 2010, social protection spending continued to rise as a percentage of GDP, and the number of households receiving income support from the public sector increased. These policies led to a sharp reduction in inequality. Iceland’s Gini coefficient—which had risen during the boom years—fell in 2010 to levels consistent with its Nordic peers."

Surely an example to be followed.

Carlos Fortin is an IDS Research Associate currently working on the relationship between the emerging international trade regime and human rights.

  1. Laurence Ball, Davide Furceri, Danie Leigh and Prakash Loungani (2013) The Distributional Effects of Fiscal Consolidation, IMF Working Paper WP/13/151.
  2. The cautious wording takes account of the disclaimer included in all IMF Working Papers to the effect that "views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy."
  3. Isabel Ortiz and Matthew Cummins, "The Age of Austerity: A Review of Public Expenditures and Adjustment Measures in 181 Countries", Initiative for Policy Dialogue and South Centre Working Paper, March 2013 (PDF).
  4. Ibid, p. 38, quoting from Iceland’s IMF Article IV Consultation 2012

Previous Globalisation and Development blog posts on inequality:

Monday, 5 August 2013

Paying for nutrition? Challenges and lessons in selling healthy foods to the poor

By Ewan Robinson

Following the Nutrition for Growth event in June and the expansion of the New Alliance for Food Security and Nutrition, there is more interest than ever in using markets to tackle undernutrition, especially the so-called ‘hidden hunger’ of micronutrient deficiencies.

Some big businesses are trying to make low-cost products that are fortified with key nutrients, and to sell these to poor populations. Examples include Grameen Danone Foods in Bangladesh and Japanese multinational Ajinomoto’s venture with development donors in Ghana.

Early initiatives have shown that there are considerable challenges to be overcome. Despite operating for several years, Grameen Danone Foods hasn’t been able to turn a profit selling yogurt to rural mothers. In India, DuPont subsidiary Solae tried to market soy protein to poor women, but ended up closing the pilot due to inconsistent demand.

Obstacles to ‘selling nutrition’ to the poor
First off, very poor households already spend as much as 70% of their income on food, and are increasingly squeezed by volatile food prices. Social protection and getting people out of poverty has to be the first step. But for a number of reasons, it won’t be enough.

A second obstacle is that undernutrition is invisible. The groups who need nutrients most are babies and pregnant mothers (they also need to have access to water, sanitation, etc. so they can be healthy enough to use these nutrients). But the health benefits of good nutrition are years away. So you’re asking people to pay today for benefits in the future, which is always tricky.

And even if people know what nutrients they should be getting, it can be impossible to tell whether foods really contain these nutrients. (See this earlier blog post for more about the problem of invisible nutrients.)

People want much more than nutrients
This one is obvious: we choose to eat certain foods for many reasons: because they taste good, indicate our social status or connect with our identities. Most of the time, our main consideration is not nutrition.

Some recent research shows that once people move from extreme poverty to being able to afford enough rice, bread or cassava so they aren't hungry, they don’t use any additional money to ‘buy nutrients’. A study in China’s Hunan and Gansu provinces found that when the prices of staple foods were subsidised, very poor consumers decided to buy products that tasted good (like fish), and cut back on ‘poor person’s foods’ (like bean curd and vegetables). As a result, they actually got fewer nutrients in their diets.

A fourth problem is how people use foods once they have access to them. Some foods must be eaten regularly to provide health benefits (this is especially true for infant foods). Will poor consumers – whose incomes could fluctuate week-to-week – be able and willing to buy fortified products daily or weekly?

In spite of all this, there is evidence that poor people will pay relatively high prices for foods when they perceive them to be necessary for health. In Ghana and Nigeria, many lower-income households buy Nestlé’s Cerelac, a fortified product aimed at infants above 6 months. They prefer it over local products, even though Cerelac’s high price means they can’t afford enough of it.

The challenge of creating consumer demand for nutrition
Convincing poor people of the value of nutritious foods – whether nutrient-rich vegetables or fortified products – will be crucial to donors’ and businesses’ efforts.

Current initiatives are trying to create this demand in a number of ways:
  • through social marketing channels (tried by Grameen Danone) that deliver products to where standard distribution systems don’t reach, while also providing information on nutrition (and promoting the product);
  • by integrating messages about products into nutrition and health behaviour campaigns (tried by USAID in Ghana);
  • by focusing on a narrow range of products, especially those targeted at infants 6 months to 2 years old.
Will these efforts be enough to change how people buy food? How do they square with rapidly changing food systems, where many people increasingly aspire to eat the processed and branded products associated with higher income lifestyles? We need more evidence to say conclusively. But it seems that, given the scale of the problem, we need more comprehensive approaches.

Share your experiences: What examples can we learn from?
There is much to learn from research and experience with how markets work in other areas. Large-scale evaluations have tested how charging a fee for vital products, such as vaccines and bed nets, affects people’s use of these products. (See this J-PAL Bulletin for a useful summary of several of these studies.) The key findings include:
  • Small changes in cost have a major influence on whether people buy a product.
  • Charging even a small fee can exclude a major portion of the poor.
  • Although programmes long assumed that if people paid for a product, they would be more committed to using it properly; this turns out not to be true.
  • Educating people about the benefits of a product doesn’t necessarily make them willing to pay for it. (This one is particularly worrying for nutritious foods.)
What about you? There are surely many more examples to learn from. Do you have experience promoting the use of nutritious foods? What can we learn from other markets, places and contexts? Share your thoughts in a comment below!

Ewan Robinson is a Research Officer in the IDS Globalisation Team working on agriculture nutrition value chains, in order to contribute to policies that leverage value chains for nutrition.

Previous Globalisation and Development blog posts on nutrition:

Wednesday, 31 July 2013

What is ‘inclusive green growth’, and how should it be financed in low income countries?

By Stephen Spratt

Last year, colleagues from the Initiative for Policy Dialogue (IPD) at Columbia University and I were asked to assess what institutional investors (pensions funds and the like) could do to boost ‘inclusive green growth’ in low-income countries (LICs). We were also asked to consider what donors could do to support this. Our answers to these questions have now been published.

To get a handle on this, we had first to unpack the phrase, ‘inclusive green growth’. First up, we have two dimensions – ‘inclusive’ and ‘green’ – both of which mean different things to different people. ‘Inclusive’ can mean that the poor benefit to some extent from the process of growth – this is its ‘weak’ form. It can also mean that the poor benefit more than other groups, so that inequalities decline – this is ‘strong inclusivity’. A similar approach can be applied to ‘green’: proponents of ‘weak green’ growth, for example, would assume that many forms of ‘natural capital’ can be replaced, while supporters of ‘strong green’ growth would be less sanguine, and more likely to apply the precautionary principle to the exploitation of environmental resources. Already we can see that ‘inclusive green growth’ in its ‘weak’ or ‘strong’ form would imply very different things.

The next step was to consider what impact institutional investors could have on these versions of inclusive green growth. We identified investment in the energy sector as crucial, particularly how private investment might be used to increase the supply of renewable energy, to increase energy efficiency (green), and to expand affordable access and eliminate energy poverty (inclusive).

The purpose of these institutions is not to mitigate climate change, however, but rather to build and manage a portfolio of investments that produce the best risk-adjusted returns for their members. The question, therefore, is how compatible this goal is with investing in energy efficiency or renewable energy generation in LICs, and doing so in such a way that energy poverty is reduced?

On this question, the first point to make is that renewable energy remains more expensive than fossil-fuel generation in most instances. Potential returns are thus lower than comparable, alternative investments. Given this, most countries have used a variety of subsidies (feed-in tariffs, for example) to boost returns and attract private investors. While LICs are no different, the question of who should pick up this bill is different? Our conclusion was that donors should make a major contribution.

LICs bear no responsibility for climate change, and it is therefore unfair for them to be penalised for implementing measures needed to address it. As well as this ethical point, there is also a pragmatic argument: the credibility of financial support for renewables is key to attracting private investors; our interviews in the City of London made it clear that donor involvement could be essential in boosting this credibility. By providing financial support for mechanisms like feed-in-tariffs, therefore, donors would be both boosting returns and reducing risks: a double benefit.

The second point relates to inclusivity. Generally, the ‘stronger’ the level of inclusivity that is desired the lower the potential profitability of the project. This does not always hold, but doing things like ensuring access to remote rural areas, and making tariffs affordable for the poor, are unlikely to boost the returns available for investors. This is why definitions matter: the ‘stronger’ we want inclusive green growth to be, the more financial support is likely to be needed to make these investments attractive to private investors. A key finding is that this issue needs to be recognised and explicitly addressed if inclusiveness is to be realised, particularly in its strong form.

Not everything comes with a price tag though. We also found that donors can do much to mitigate the different forms of risk that act as obstacles to institutional investors.
  • Reduce early stage project risk: many developing countries have real advantages with respect to renewable energy resources. Institutional investors, however, are not going to invest in projects until they are fully ‘investment ready’. Sourcing and developing projects so that they reach this stage is a precondition for investment, and an important role for donors.
  • Reduce regulatory risk: renewable energy projects in particular are heavily dependent on the maintenance of a supportive policy framework. Donors can do a number of things in this regard. First, they can boost the credibility of policy instruments by directly contributing as described above. Second, by co-investing they may provide some ‘insurance’ for private investors, who believe that policy is less likely to be changed in these circumstances. As well as partnering on individual deals, there is potential value in donors establishing – and investing in – dedicated investment vehicles that focus on low-income countries.
  • Reduce information asymmetries and logistical barriers: for energy efficiency, interventions are needed less to improve project economics, than to overcome informational and structural barriers. Projects tend to be small in scale but large in number, raising transaction costs. There are also costs to identifying viable projects, and structures need to allow diversified access to the sector. Here donors have an important role to play in helping develop these structures. They may also play a role as co-investors and guarantors.
As described in the report, there are many examples of best practice that can be drawn upon. While it is possible to imagine how most of the key obstacles to institutional investment could be addressed, we also identified a major underlying issue. Achieving a shift to a trajectory of inclusive green growth in LICs requires very large investments. The assumption has been that only institutional investors can provide resources at the scale required. As well as the level of finance, the attraction of institutional investors is that they may also provide long-term finance with reasonable return expectations. An important finding is that some investors have excessive expectations in developing countries, which do not seem to have been adjusted downwards in the light of the global financial crisis and the low yields available in developed countries.

Projects that can attract long-term financing at 5-8% in Europe or the US, might need to yield 25-30% in low-income countries to attract the same private investors. This could only be achieved by charging very high tariff rates, or by increasing public subsidies to high levels. Neither is particularly attractive in a low-income country setting.

Achieving growth that is both green and inclusive is inherently difficult. Doing so using private investment which requires very high returns may be impossible. Unless investors can be persuaded to adopt more reasonable expectations, alternative sources of finance may be needed if the goal of generating genuinely inclusive green growth in low-income countries is to be achieved.

Stephen Spratt is a Fellow in the IDS Globalisation Team working on development finance, financial sector reform and regulation, socially responsible investment, the emerging climate change financing architecture and the intersection between these issues.
Previous Globalisation and Development blog posts on investment, energy and the green transformation:

Wednesday, 17 July 2013

Business Leaders From The South: Addressing Inequality to Increase Business Sustainability

By Akansha Yadav

Many have observed that economically and culturally diverse countries such as Indonesia, Singapore, Malaysia, Colombia, Turkey and the Gulf Cooperation Council (GCC) countries are latching on to the global dynamics created by China, India and Brazil in business and trade. At the same time, the fact that business ventures in the South can no longer focus on profits alone while leaving the provision of public goods and development of local capacity to national governments has finally been acknowledged. If this is not addressed, it could threaten business sustainability.

This was the focus of the Growth Net, an international business conference held early this year in New Delhi. I attended the conference while working on the ‘Business From the Rising Powers in Africa’ strand of the Rising Powers in International Development programme led by Lizbeth Navas-Alemán.  The conference, which centred on the new and emerging players of the global economy, brought together business leaders from emerging economies to discuss common aspirations, business opportunities and challenges.

Despite a clear diversity in trade practices, discussions were grounded in the reality of the participants’ countries, with perspectives that have evolved from common experiences rather than being borrowed from industrialised countries. A number of challenges were highlighted as some of the constant risks to investors in these countries, including:
  • diversifying markets
  • optimum use of available funds and resources
  • corruption
  • lack of hard infrastructure
  • Government accountability.

A Southern way of doing business

While the BRICS (Brazil, Russia, India, China and South Africa) were not the sole focus of the conference, the need for a new development bank was acknowledged by industry representatives who expressed general dissatisfaction with institutions such as the IMF and the World Bank.

Conference participants called for various South-South Cooperation (SSC) initiatives aimed at increasing regional trade agreements, keeping emerging markets open for more investments, enhancing domestic market capacity and addressing supply-side constraints. Many wished to establish their own network, recognising the challenge this implies for the established order of current global governance. A core component of these discussions was the stress on equitable patterns of growth in the host countries from the South, where business leaders are making informed decisions on new ventures, embracing all their societal and market complexities.

This interest in social equity from business leaders reflects the growing belief that there is a need to create a strong middle class on which a robust domestic market can depend. It is also linked to the growth of Multi-National Corporations (MNCs) and Small and Medium Enterprises (SMEs) in the emerging economies, which aspire to venture beyond the traditional domestic market. Understandably, they are now pushing for market access in countries which have been traditionally dominated by companies based in rich countries.

In this context, it makes sense for these business leaders to come together and press for better policies in general (whether in terms of trade, infrastructure or social protection) and to work towards bridging the social class gap in particular. The key to this lies in addressing and facilitating both the supply- and demand-side issues of access to basic services and commodities in the emerging economies. Similar ambitions have also led these industry representatives to agree on the need to take on more responsibility in public-private collaboration.

For example, it is vital for agribusiness to consider the issue of food security and for the pharmaceutical industry to address the issue of Intellectual Property Rights and patent issues. This is because the majority of the population in emerging economies is not otherwise able to afford access to medication (and often food) without heavy government subsidies, which in turn leads to fiscal deficit and impacts macro-economic stability.

Resource diplomacy

Claude Smadja, formerly of the World Economic Forum, acknowledged the structural problem of money and power going hand in hand in the current global governance system. It is true that the era of focusing only on growth figures appears to be giving way to an increased focus on the quality of growth – addressing the issue of inclusivity, reducing the digital divide, developing a skilled workforce, and managing wealth to reduce inequality.

But it is also apparent that there is little love lost between India and China, the two largest BRICS economies, whose trade potential is still affected by strained diplomatic ties. The elephant in the room surely is the increased competition between them for markets in the African continent. The resulting resource diplomacy in Africa, which has been hotly debated by observers and scholars, certainly has the potential of reproducing the current dominant trade structure. Whether talk of social equity within the opportunity of increased trade within BRICS and emerging economies addresses this and creates a collaborative framework remains to be seen.

Akansha Yadav worked as a Research Assistant on the Rising Powers in International Development programme at the Institute of Development Studies. You can follow Rising Powers on Twitter @IDSRisingPowers