Monday, 25 March 2013

Fairtrade movement: asking fairness beyond the label

By Tomoko Kunimitsu
(IDS MA Globalisation and Development student)

Last month, the Fairtrade Foundation announced that UK sales in Fairtrade products (i.e. products with the FLO label) increased from 1.32 billion GBP in 2011 to 1.57 billion GBP in 2012, a 19 per cent growth in spite of the current economic climate. Fairtrade products are well known in this country and about 78 per cent of UK people recognise the label. Fairtrade products such as coffee, tea, sugar, chocolate and bananas, are ubiquitous in our daily lives. As well as exclusively Fairtrade focused companies, such as Café Direct and Divine Chocolate, household name products such as Cadbury’s Dairy Milk and Kit Kat are now being produced with Fairtrade ingredients. This is where I feel there is an important difference between the UK and Japan, where only about 25 per cent of the population knows what the word Fairtrade means. In the UK, consumers’ choices of buying Fairtrade products might be established as a way to express their opinion on what they want, what kind of world they want. This is consistent with GlobScan’s report which shows that more UK consumers (59 per cent) agreed that ‘my shopping choices can make a positive difference to farmers and workers in poor countries’ than Japanese consumers (41 per cent).

What should be the goal for expanding the market for Fairtrade products in the UK – is it achieving its maturity or does it still have a high potential to grow? In fact, although continuing to grow, the pace of the growth is generally becoming moderate. The average annual growth rate during the recent three years is 23.3 per cent while that during 2001 to 2003 was 41.1 per cent. It is difficult to evaluate the stage of development of the market for Fairtrade products at this point, but the important thing is that Fairtrade cannot be measured only by its market size. In the process of becoming popular, the Fairtrade movement has faced a number of dilemmas/problems. One example is commercialisation of ethics. Fairtrade products can be used to maintain the brand reputation as a socially responsible company. To what extent these attempts bring positive effects on producers’ lives depends on the levels of enforcement/achievement/commitment of their Fairtrade activities. Another example is oversimplification of the meaning of fairness. The invention of the Fairtrade label has enabled consumers to see relatively easily how and under what conditions the products are made. On the other hand, it can also mislead consumers into believing that Fairtrade-certified products are ‘fair’ and non-certified products are ‘unfair’.

Furthermore, Fairtrade products no longer seem to improve farmers’ lives in developing countries on a dramatic scale these days. Kimberly Elliott, a senior fellow at the Center for Global Development, reported that Fairtrade products might not meet the consumers’ expectations since ‘market prices for coffee and other commodities have been high, often higher than the fair trade minimums’. The role of Fairtrade is now shifting from directly contributing to Fairtrade-products producers’ income to making markets work better for all producers who are in a relatively weak position in market activities, by adding ethical factors to market transactions. In other words, an advocacy function of Fairtrade is becoming more critical.

The UK, as one of the ‘Fairtrade-developed countries’, might be at the crossroads to rethink their movement: from expanding the market size to improving the quality of the market. I think the role of consumers at this stage is more responsible because making markets work better means more than just choosing products with the Fairtrade label. The expansion of Fairtrade products may still have a positive meaning as a signal to show consumers’ preference for ethical products. However, what matters more is that consumers pay much attention to the fairness of production and trade before arriving at supermarkets, whether Fairtrade-certified products or not. Consumers should ask the reasonability of the price and be aware of a possibility of extreme cost cut competition. Then companies need to increase their transparency in their value chains and avoid unfair business activities in these chains. Labels cannot tell everything as they generalise and discard some of the stories behind the products in order to translate them into a standard. What is this label telling and not telling? How about other products that do not have the label? We need to keep asking these questions as consumers. This is what the original concept of Fairtrade, including labeled and not labeled, has actually suggested to the world.

Friday, 15 March 2013

A reflection on Red Nose Day

By Spencer Henson

Today is Red Nose Day, a nation-wide initiative when, in the UK, people do funny things to raise funds for Comic Relief, much of which are spent on projects benefiting the poor in the developing world. The day successfully brings people together and raises awareness about global poverty. Perhaps more importantly it gets people to put their hands in their pocket; £107 million was raised on Red Nose Day in 2011. And they keep giving throughout the year. Roughly £1.1 billion was donated to organisations engaged in overseas development in 2011, on the basis of figures provided by UK Giving (PDF).

So how does this public display of compassion in the face of global poverty tally with recent findings about public attitudes to the UK government’s aid spending and commitment to reaching the target of 0.7% of national income? Several surveys, including recent results from the UK Public Opinion Monitor (UKPOM) based at IDS, suggest that there has been a decline in support for UK overseas aid spending. Over 60 per cent of people appear to favour a cut in aid spending. Although many people do see the moral case for giving aid, it is common for them to believe that much of this money is wasted and that, especially in a time of austerity, priority should be given to the poor at home. In contrast, many UK businesses have expressed support for aid. In fact, a number of them, including BP and GlaxoSmithKlein, have recently written to David Cameron, lauding aid as a “smart investment” that not only works but that could bring benefits to the UK in the longer-term. The government for its part still appears committed to reaching the 0.7% target.

So, why this apparent disconnect between the propensity to donate to the likes of Comic Relief and such scepticism about aid? Do the UK public trust charities to deliver development (and spend their money) more effectively than government? Do people construct the notion of ‘aid’ differently to that of a ‘donation’? Is this about control; you know who you donate to and (at least in broad terms) how it will be spent, but maybe feel more distant from government decisions over who gets aid and what it is used for? For those who believe that the aid given by the UK government is an important weapon in the fight against global poverty, these are important questions.

Perhaps a new conversation around aid and development can help do this. One that moves beyond the seeming fixation with 0.7% and engages in a more honest dialogue about UK aid that reflects the realities of the world today, and the position of ‘developed’ versus ‘developing’ countries and the ‘rich’ versus the ‘poor’ within it. Perhaps then we could start to translate the UK public’s generosity to charities and their belief in the moral case for helping developing countries into more support for the UK government’s stance on aid?

Thursday, 14 March 2013

The Visegrád 4: An emerging development actor? An interview with Balázs Szent-Iványi

By Musab Younis

In the last decade the Visegrád Four countries (Hungary, Czech Republic, Slovakia and Poland) have emerged as development actors. I put some of questions surrounding the ascension of this small bloc in Central and Eastern Europe to Balázs Szent-Iványi, a researcher in the World Economy department at Cornivus University, Budapest, Hungary.

1. The Visegrád 4 (V4) countries have emerged in the last decade as new aid donors. What are their motives?

I think you could get different answers to this question depending on who you ask. I would definitely argue that the main motivation was external pressure. During the negotiations on their EU accession in the early 2000s, a more or less explicit requirement was voiced towards the Central and Eastern European (CEE) countries that they must create their own development policies. I would not go so far, but many observers would even argue that these countries wouldn’t be doing development at all today without this pressure.

Of course, if you asked government officials, they would frame the whole thing differently. They would say things like being a member of the EU, one of the global economy’s most prosperous regions, comes with moral responsibilities. They would refer to lofty principles like solidarity, but also talk about the benefits their contribution brings to global peace, security, development and poverty reduction. It seems that politicians in the CEE countries have definitely learned to talk the talk of global development politics!

2. What does Central and Eastern European aid look like on the ground? What forms does it take?

Ten years on, CEE aid is still very much in its infancy. These countries typically spend 0.08-0.15% of their gross national incomes on aid, which is very far from e.g. the 0.7% that the UK plans to achieve next year. Aid is typically in the form of small stand alone projects, implemented by national NGOs. While there is no official data, the overwhelming majority of aid is tied. Project values of a few 10,000 dollars are not rare. Aid is mainly concentrated in the neighbouring countries, i.e. the Western Balkans and the Post-Soviet region. CEE aid is highly donor driven and relies to a large extent on technical assistance.

Fragmenting scarce resources on many tiny projects like this is of course not really an effective way of doing foreign aid. The CEE countries seem to be following the lead of the more established donors, at least in a sense that they also try to be present in a wide range of partners and sectors, but have much less resources to do it meaningfully. There is also a clear need for visibility. You get the impression that the CEE countries have no strategic idea of what to concentrate their efforts on. Also, the current financial has impacted many of these countries severely. Hungary’s bilateral aid budget for example has been reduced by as much as 70%. Diminishing resources make the need to prioritise and develop a more strategic approach even more pressing.

3. You have written that there is now a ‘unique’ Central and Eastern European development cooperation model, what is unique about it?

I wouldn’t call it a model, as a model sort of implies that it is something worth following for others. But I do agree that the CEE countries do represent a unique face of donorship, which I call “premature donorship”. CEE development policies have changed little in the past decade, with the possible exception of the Czech Republic. They seem to be stuck in this “low key” state without really moving forward. Essentially all of these countries are doing development policies with little domestic support for or even awareness of it. This is very different than doing development policy in the UK or Sweden, where there is clear social support for it and an active constituency. There is a clear perception among people in the CEE countries that they are poor and are in need of aid themselves. Due to this, politicians are reluctant to talk about foreign aid in fear of electoral backlash, and when they do, they frame it in a way to emphasize the immediate material benefits of giving aid for their countries, like increasing exports. Therefore, there is no political will to take development policy beyond the current set up, which you may argue is the bare minimum. The lack of social support and politic will for development implies that the CEE countries became aid donors before they were quite ready for it, thus the term premature donorship.

But there are positive sides to this ‘model’ as well. One of them has to do with the added value which the CEE countries bring to the donor community. CEE countries claim that they have amassed a large body of experience in reforming policies and institutions during their transition process, and would like to use this expertise in promoting democracy in their partners. Romania and Slovakia have been very active in assisting the democratic transition in Tunisia, the Czech Republic is supporting the opposition in places like Cuba and Myanmar, and Hungarian NGOs are active in helping the development of civil society in Serbia and Bosnia. Although it is not clear whether the experience of Slovakia has in privatisation for example, can be relevant in, say, Kazakhstan, it is clear that there is a need for knowledge on many transition issues in many developing countries, and the CEE donors are ready to provide this. Specialising more on transition experience and democracy promotion could be real niche for these new donors, especially since they could do democracy promotion in a much more credible way than large powers like the US.

4. How has EU integration of Central and Eastern European countries affected the way they view development cooperation?

Even though it was the EU who got these policies going in the first place, I don’t think it has been able to have much of an influence since then. If you look at official policy documents from the CEE countries, references to the EU or EU development legislation are very rare. Although the EU has a huge body of recommendations on what member states should do in order to increase the effectiveness of their development policies, the CEE countries have adopted very little of this (to be fair, a lot of the older member states aren’t doing too well in this either).

There are forces at play which may probably change this, however slowly. Being members of the EU has exposed these countries to a global dimension of policy making, and they may now feel that they have a say in shaping the EU’s external policies towards regions and countries with which they might not even have contacts with otherwise. The CEE countries should not think of themselves anymore as small or medium sized countries with only regional aspirations, but as members of a globally important community. With this global reach should come global responsibility as well, and thus should have an impact on development policies.

5. The V4 and Russia were once an aid-disbursing bloc, and after the instability of the 1990s they became, once again, aid donors at around the same time. How similar should we view the aid policies of the V4 and that of Russia? Is there any evidence of cooperation?

There are very few similarities between the V4 and Russia. The V4 countries are members of the EU and the OECD, and even though this had little actual impact on their development policies, they are very conscious about the fact that they do not want to be labelled ‘emerging donors’. Although Russia is probably one of the most ‘OECD-conform’ donors besides Turkey among the rising powers, I think that as it becomes more and more confident as a donor, it will gradually move away from the OECD and practices advocated by it. The V4 countries on the other hand are all members of the OECD and have made explicit signals that they aim to joint its Development Assistance Committee in the near future. Legacies of Communist-era development cooperation are also much stronger in Russia than they are among the V4.

There is hardly any cooperation among the V4 governments on development, save perhaps an informal mechanism to consult on development issues debated in the EU Council. There is absolutely no cooperation between the V4 and Russia, and I don’t think the V4 governments see Russia as a donor they could learn from or work with. V4 governments tend to look more towards donors like Sweden, Germany, Austria, the United States, or the UNDP, and while cooperation in the form of joint actions is still rather rare, there is an upward trend.

Thursday, 7 March 2013

Is it possible to be tired of talking about the BRICS bank before it even exists?

By Noshua Watson

The BRICS Development Bank will likely be announced at the BRICS Summit in two weeks, with an initial capitalisation of US $50 billion. The work of former IDS Professorial Fellow Stephany Griffith-Jones on regional development banks sheds some light on the BRICS bank’s potential. RDBs can approve loans faster and at lower rates, finance infrastructure projects over longer timeframes, lend in local currency, provide guarantees that attract private financing, and help provide regional public goods, all with lower conditionality too! But what is the BRICS bank parallel? What externalities will be generated and who will benefit?

After all, the BRICS are an artificial grouping based on similar economic power and the desire to translate that economic power into international political influence. The hope is that the BRICS bank will complement existing global financial institutions and create a space for constructive conversations about South-South cooperation and sector issues like health, food security and conflict. Another possibility is that the BRICS bank, like RDBs, can provide counter-cyclical lending and mitigate the pro-cyclical effects of financial markets. The development benefits of increased South-South trade between the BRICS and through the BRICS as gateway countries also shouldn’t be underestimated. Lending in local currencies will help develop local capital markets.

Within the bank, the focus will need to be on good lending practices and providing technical assistance. Given the greater lending risk, but also the difficulty of enforcing cooperation between the BRICS, the bank will need higher capital base requirements and reserves. Civil society organiser Carlos Tautz points out that the burden of democratic participation will also be on the bank, with a responsibility to widely provide public information, hold participatory project approval processes, align with human rights conventions and adhere to international accountability criteria.

The greatest risk is that the BRICS bank will emerge directly into irrelevance. Recognising the importance of new powers and South-South trade is not the challenge that aid institutions face. Kharas and Rogerson rated a number of aid agencies on how prepared they are to deal with geographic shifts in the populations of the poor, private sources of aid, South-South cooperation and trade and climate change disruptors. How does the BRICS bank rate? Are they ready?

Monday, 4 March 2013

Taxation and foreign investment: Some counterintuitive evidence from Chile

By Carlos Fortin 

A recommendation to increase the taxation of mining contained in the latest OECD report on the Chilean economy has fuelled a controversy in Chile. Mining is the main export sector for the country. The argument of the report is that the tax burden is low enough to allow for the rise without negatively affecting investment.

The issue had in fact already come up in a more general way in the Chilean public debate in 2010 as the centre-right government of Sebastián Piñera sought additional fiscal revenue to meet the needs for reconstruction in the aftermath of the February 2010 earthquake.  For those purposes it increased the tax on corporate profits from 17% to 20%, a move that was met by business spokespersons and right-wing politicians with warnings of dire consequences in the form of a drying up of investment and output and reduced fiscal intake.

The objection was presented with special forcefulness as applied to foreign direct investment: the rise in taxes would, it was argued, inevitably scare potential foreign investors away. The latest figures on foreign direct investment inflows released by the Chile Committee on Foreign Investment seem to give the lie to those predictions.  Direct foreign investment as a percentage of GDP in the 2011-2012 period (when the higher tax was applied) was 129% higher than in the period 2002-2010. In per capita terms the 2011-2012 average was 250% higher than the average for 2000-2009. It seems clear therefore that the tax increase did not frighten away foreign investors.

The point is confirmed by the findings in the 2011-2012 Survey of Mining Companies of the Fraser Institute. The survey covers the main metal mining and exploration companies and mining consultants in the world to assess how mineral endowments and public policy factors such as taxation and regulation impact on exploration investment. One of the questions in the survey specifically explores how the taxation regime, including personal, corporate, payroll, capital, and other taxes, and complexity of tax compliance, affects investment. The respondents are asked whether the tax regime:
  1. Encourages investment
  2. Is not a deterrent to investment
  3. Is a deterrent
  4. Is a strong deterrent
  5. The company would not pursue investment due to this factor. 
The responses are presented in the following table, together with the figures for 2009-2010 for comparison:

      World mining companies and investment in Chile: impact of the tax regime
Not a
Would not

The impact of the tax increase in 2011-2012 is negligible and, in fact, counter-intuitively positive for foreign investment. The percentage of those not deterred or feeling encouraged went up from 83% to 86% and no respondents felt they would not invest in 2011-2012 because of taxation, as against 1% in 2009-2010 when the corporate tax was lower.

The conclusion is not, of course, that higher taxes attract foreign investors. It is, though, that the serious and economically sophisticated international investor looks at a host of factors, including the availability of raw materials, the quality of the labour force, the institutional and legal context, and the investment climate as whole, of which taxation is only a part, and clearly not a deciding one.