Business & Economy

Iran’s startups promise paradise for the country’s unemployed youth

Iran’s self-proclaimed Silicon Valley stands on the road to mount Damavand, the tallest mountain in the country. Set up in 2005, its name is ambitious: Pardis, a “paradise” for technology.

Pardis is where Tehran just hosted the 6th International Innovation and Technology Exhibition (INOTEX2017) which opened on May 23.

More than a year after sanctions imposed on the country by the West for its nuclear program were lifted, technology and innovation may well be the key to Iran’s economic recovery.

Resetting the economy

On July 14 2015, Iran and the P5+1 group of world powers (the United States, United Kingdom, France, China, Russia and Germany) signed the historic nuclear agreement that led to the lifting of sanctions.

A day after the so-called “implementation day” of the deal – January 17 2016 – President Hassan Rouhani, who recently secured a second term announced his number one objective was to cut the Iranian economy’s “umbilical cord” to oil revenue.

Pardis Technology Park, the self-proclaimed ‘Silicon Valley’ of Iran.
Rmzadeh/Wikimedia, CC BY-ND

The president’s main challenge 16 months later is the nation’s high unemployment rate. It stands at 12.7% overall but is 27% for youth and more than 44% among women.

Reducing unemployment means boosting the economic agenda. Rouhani’s pledge to look beyond oil as the main source of government income is the first step to diversifying the economy and giving impetus to job creation in the country, especially among young educated Iranians.

In fact, during his 2017 presidential campaign, Rouhani pledged to create 900,000 new jobs a year.

The Inotex 2017 fair in Tehran where many local start-ups get a chance to network.
Inotex

Highlights and lowlights

Iran is a nuanced start-up incubator, with a range of companies such as Takhfifahn, the local version of Groupon; Digikala, the Iranian version of Amazon; ZarinPal, the Paypal twin in Iran; and Expedia’s Iranian model Zoraq.

Local hi-tech firms and entrepreneurs, specialised in software creation or online app services, such as Tap30 (the Persian Uber), could become the connection between the government’s openness to innovation and tangible results in terms of jobs for the youth.

But this rosy picture overlooks several obstacles. Even though sanctions have been removed, Iran’s economy has yet to deal with structural problems.

Rouhani has promised to reform the management of oil export revenues, so its proceeds can be used for long-term investments. But how he intends to do this is not yet clear.

Despite the president’s rhetoric, program for improving internet infrastructure and insistence on expanding 3G and 4G services (together with broadband connections for homes), start-ups face connectivity issues, mainly due to access restrictions and internet filters.

Advertisements for iPhones and 4G in Tehran.
Yuen Yan/Flickr, CC BY-SA

And even though the Iranian communication ministry’s 2015 budget was its largest ever (well over US$80 million), the overall amount may be cut by 16.5% this year.

What’s more, the country’s ultraconservatives fear too much internet freedom. Supreme leader Ali Khamenei fosters the idea of enlarging the local knowledge-based industry (and support for Iranian high-tech companies) because it chimes with his idea of the so-called “resistance economy” (a term that emerged as a response to the Western sanctions with the objective to strengthen the Iranian economy).

But free internet with connections to global social media is seen by hardliners as a threat to the moral values of the Islamic republic, in a country where about 60% of the population uses the internet.

Currently, about 57.7% of Iranian families have a laptop or tablet, although there’s a significant difference between cities (64.8%) and rural areas (36.1%).

The fear of the ultraconservatives about losing control of the people may well be justified. During last February parliamentary elections, for instance, Aparat, the Iranian version of Youtube, featured a video showing the former reformist president Mohammad Khatami, who has been prohibited from speaking in public since 2009 because of his support for the leaders of the Green Movement.

In it, Khatami asked Iranians to vote for reformist candidates. The authorities tried to stop the circulation of the video but failed to do so because the video was already viral.

Breaking more barriers

Before the lifting of international sanctions, Iran’s hi-tech industry was strongly undermined by the lack of access to advanced technology. Many companies could not buy necessary components for their work and exports of Iranian products were prohibited.

But, as underlined by researcher Mahmoud Pargoo, the sanctions also meant that Iranians started to purchase an increasing number of domestic products – from software to electronics.

Stopping relying exclusively on oil revenues and opening up to innovation and technology will require accepting changes in civil liberties and transformations across the society, trusting local entrepreneurship, and breaking the legal barriers on civil rights and freedoms, internet access and filters. Iranian start-ups would benefit from these changes.

Iranian conservatives fear that the youth enjoy too much freedom.
Stella Morgana

In 2013, Rouhani told an Iranian magazine that “in the age of digital revolution, one cannot live or govern in a quarantine”. Although the country has taken a few steps forward, Iranians are still waiting for a real, free digital revolution.

But a cautious approach is needed because there are a number of consequences from fostering and embracing a technology industry, within the framework of Rouhani’s neoliberal economic policies. The labour market may be affected in terms of more short-term contracts, precarious work conditions, and also overall impact on the other sectors, potentially affecting working class identities.

Another dilemma may be the management of tech-related activities and their privatisation. Would this be done at the expense of Iran’s public sector companies, as intensively happened in the past 15 years, together with semi-public entities?

Young Iranians seem to be ready for a domestic technological upheaval. But are local policymakers prepared to allow the resulting process of social transformation?

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US cities have worse inequality than Mexico, with rich and poor living side by side

The cities of the Americas are unequal places.

US census data and recent American Community Surveys show that in most modern American metropolises, resources are unevenly distributed across the city – think New York City’s lower Manhattan versus the South Bronx – with residents enjoying unequal access to jobs, transportation and public space.

In 2014, New York City’s GINI inequality index was 0.48, meaning that income distribution was less even in New York City than in the US as a whole (0.39). It was also higher than the most unequal OECD countries, Chile (0.46) and Mexico (0.45).

Latin America, which is the world’s most unequal place, is also by far the most urbanised region of the globe. More than 80% of its population lives in large cities.

Between 1950 and 2005, the region’s big cities grew precipitously. Both Mexico City and São Paulo jumped from just under three million people to, in both cases, nearly 19 million.

Data on urban inequality is largely unavailable, but it is clear that this rapid urbanisation has been far from equitable. According to a 2012 UN Habitat report, the large majority of Latin America’s non-poor population lives in major metro areas, while the poorest live in rural areas.

A low-income area of Mexico City.
Edgard Garrido/Reuters

What does inequality look like?

No matter where you live, measuring inequality is tricky, because its incidence and extent changes in different parts of the city.

Sure, there are rich neighbourhoods and poor ones: high-income and low-income households sort themselves across cities according to preference (for local public goods and neighbourhood composition) and needs (according to budget, job location and housing prices).

But not every neighbourhood is comprised fully of households with the same income. Income sorting across space is often “imperfect”, meaning that rich and poor households might live in the same neighbourhood and share common social ties and local amenities.

As a result, a very specific and local kind of inequality emerges within neighbourhoods. This phenomenon is sizeable in US metro areas, Census Bureau data shows. Not only do unequal households live very close together, but neighbourhoods also represent small communities where local inequality, on average, seems to track overall urban inequality.

For example, New York City, Chicago and Los Angeles all have neighbourhood income inequality at least 20% larger than Washington’s, which matches the difference in the cities’ GINI indices. We found that inequality within individual neighbourhoods has also been rising precipitously over the past 35 years (even in very small neighbourhoods), indicating an increase of income heterogeneity at the community level.

This unexpected finding is likely related to the comeback of North American cities over the past decade – the so-called great inversion. Across the Americas, jobs and firms are moving back into major metro areas, attracting more skilled people, who are generally young, receive higher wages and prefer to settle down where their jobs are.

As high-income young couples buy up homes in historically distressed neighbourhoods long dominated by the working and renting class – and gentrify them – they push up income heterogeneity in those places. This is happening in cities across the Americas.

Gentrification has occurred in many North American cities, increasing local income inequality and, in some cases, tensions.
Michael Premo/flickr, CC BY-ND

Keeping up with the Joneses

We wanted to better understand this phenomenon. Why is local income inequality rising? How can we quantify it? What are the trends in uber-localised inequality? And what does it all mean for city dwellers?

Those were the questions driving our study – So close yet so unequal: Reconsidering spatial inequality in US cities – which focused on US cities. Our preliminary findings were recently published in a Catholic University of Milan Working Paper.

Unlike traditional assessments of inequality, which accept administrative partitions of the city as the unit of analysis and measure income inequality in those neighbourhoods, we look at inequality among neighbours, putting people at the centre of our analysis.

The underlying thought experiment consists of asking individuals to compare their income with that of neighbours living within a given distance range (from few blocks to entire census areas), thus quantifying income inequality in that particular person’s neighbourhood.

In doing so for every person in a city – any city – one should be able to measure two aspects of spatial inequality: the average income inequality within individual neighbourhoods (is my neighbour richer than me?), and inequality among the average incomes of each neighbourhood (is that neighbourhood richer than mine?).

We found that these two indices define a typology of cities that mirrors what urban planners have found at the city level. Some places are “even cities”. Like Washington DC, they display relatively low income inequality everywhere.

Other metro areas, among them Miami and San Francisco, show high urban inequality, but high and low-income households are rather evenly distributed throughout the city. These are so-called “mixed cities”.

The largest US metro areas also have the most unequal neighbourhoods. In New York and Los Angeles, the way high and low-income households are distributed across the urban footprint reflects what planners call the “unstable city” model.

The Great Gatsby in the ‘hood

Such substantial and increasing inequality appears to imply several contradictory things for cities and their residents.

As shown in Figure 1, lower neighbourhood inequality is associated, on average, with large upward mobility gains for young people who grew up in poor families, a phenomenon reported in recent work by Stanford University’s Raj Chetty.

FIGURE 1: Upward mobility in America’s urban neighbourhoods

Upward mobility gains/losses for children living in poor families in 2000, by Commuting Zone.

Children of better-off families benefit, too, from living in a homogenous local community, thanks to “positive contagion” facilitated by social interaction among wealthy young peers.

Both findings are evidence of a “Great Gatsby Curve” in America’s neighbourhoods. That is, greater income inequality in one generation amplifies the consequences of having rich or poor parents for the economic status of the next generation.
Yet greater income inequality within individual neighbourhoods may actually be a good thing for poorer locals. Figure 2 shows that they experience life expectancy gains, perhaps due to positive health modelling and increased aspirations among poor adult residents.

FIGURE 2: Life expectacy in America’s urban neighbourhoods

,
Author provided

Addressing inequality

For policy makers, then, our findings create an intergenerational trade-off. A “mixed city” model would seem to promote life expectancy gains for poor adults who live there, while the “even city” ideal furthers economic mobility of young people who grow up poor.

Lessons learned from such a policy debate in the US could have important international consequences.

No one has yet applied our neighbourhood-based inequality analysis to Latin America’s unequal cities. But we can see that in metropolises such as Mexico City, and São Paulo in Brazil, as well as in smaller cities, uncontrolled sprawl and lack of urban planning has increased the distances between high, middle and low-income households.

The view from the Rocinha favela, in Rio de Janeiro, where ‘urban renewal’ is now encroaching on some of the poorest parts of the city.
AHLN/flickr, CC BY

This is the “polarised city” model, and our paper found little evidence of it in US cities (with the exception of Detroit and Washington). Such places have substantial heterogeneity in income across neighbourhoods and relatively little heterogeneity within neighbourhoods.

In Latin America’s polarised cities, the poor are separated from the rest of the population. As a result, they have lower access and opportunities for education, employment and services. This inequality has been exacerbated by gentrification and by the region’s growing global economic engagement. This has strengthened urban elites’ connections to the world while relegating Latin America’s poor further into the periphery.

In such cases, increasing the urban income mix seen in New York City might actually have beneficial effects for the city’s neediest residents. This is a relevant area for future study. It would be interesting, for example, to plot cities across the Americas on the same graph, examining regional trends in longevity and mobility based on neighbourhood-level inequality.

Such hyper-local analysis would offer both policymakers and international agencies the kind of information they need to improve the lives of today’s city dwellers, both now and in the future.

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Why Tunisia’s banks are its main economic weakness

“Work, freedom, dignity” was one of the many slogans that Tunisians chanted in 2011 to vent their frustration with the government of president Ben Ali, which they accused of having looted the country for over two decades.

In less than four weeks, Tunisia’s “Jasmine” revolution forced the president to flee, and his regime to tumble.

After the upheaval, Tunisians found their state intact but crippled with debt, and their society – with its rate of youth unemployment hovering at 40% – at the mercy of a wavering economy based on the highly volatile tourist trade.

On May 22, just weeks after Tunisian authorities had frozen the assets of eight businessmen suspected of corruption, the government launched a massive anti-graft operation called Main Propres (Clean Hands).

The initiative was in response to the fragility of the Tunisian economy, where public and private banks make up almost 50% of the country’s financial market capitalisation. This may be one reason why the Central Bank of Tunisia (BCT) is currently considering a raft of bills aimed at freeing up the capital account to stimulate foreign investment and develop investment by residents abroad.

Troubles and woes of Tunisian banks

Weak institutional governance existed well before Tunisia’s 2011 political uprising, and there have been several prior attempts to restructure the banking sector.

In 1994, a law was passed to reorganise the stock market under the aegis of financial backers – the International Monetary Fun, the World Bank and the European Union – whose loans were contingent on reform.

In 2005, a piece of legislation on the reinforcement of financial security sought to better balance the legislative framework and improve corporate governance.

Despite these efforts, governance in the banking sector continues to suffer from deep-rooted structural problems. As a 2009 Fitch Ratings report, “Corporate Governance: The Tunisian Perspective”, explains:

Corporate governance practices in Tunisia are still immature in spite of successive institutional reforms. (…) The main obstacle to the spread of good corporate governance practices is the ‘family-like’ (closed capital) structure of most Tunisian businesses, in which the founders and shareholders continue to exercise management roles.

The Central Bank in Tunis could better stimulate foreign investment.
Zoubeir Souissi/File Photo/Reuters

The need to promote banking governance becomes obvious when looking at certain statistics. The high number of non-performing loans made by public banks, for example, and the significant proportion of bank board members who also hold political office.

The revolution didn’t help

The Tunisian revolution opened up some promising prospects. In theory, a new democracy, freedom and good governance should have encouraged entrepreneurship and investment.

Instead, economic growth stagnated in 2011, causing unemployment to rise and increasing the need for external help to cover the state’s budget deficit.

Nor have the terrorist attacks that have plagued Tunisia over the last few years, aggravated by episodes of violence in neighbouring Algeria and Libya, helped the situation.

Issues from pre-2011 Tunisia have also worsened, including the rise of the informal economy, contraband and the spread of corruption.

Thanks to the Tunisian Central Bank’s post-revolution monetary policy, banks have had access to the liquidity necessary for funding the country’s economic activity. The crisis has thus had a limited effect on Tunisian businesses by lightening their financial obligations and the Tunisian banking system has been able to maintain its reliability.

Weighed down by multiple problems

But banks themselves remain fragile and under-performing, shackled by high levels of unproductive debt even as they continue developing new products and services, such as remote account access and smartphone apps. Other problems include weak capitalisation, poor quality assets and a lack of adequate funds to cover the risk of default.

There is no doubt that Tunisia’s high level of public debt – projected to reach 58% this year – also plays a central role in the country’s troubles.

What’s more, account withdrawals have reached new highs, leaving the banking sector with a massive liquidity gap. Since the revolution, private citizens and companies have favoured cash or investments over keeping their money in regular bank accounts.

This structural deficit required the intervention of the BCT in the form of sizeable capital injections that increased its credit exposure and led to a significant fall in international reserves.

The BCT reduced the compulsory reserve requirement for deposits of less than three months from 12% to 2%, and from 1.5% to 0% for deposits between three and 24 months, allowing a reduction in the ordinary current account balance of banks overseen by BCT.

Ordinary citizens pay the price

As a result, the banks have fallen back on mortgages and loans for private citizens.

Ramadan will be tough on many Tunisians’ budget this year.
Zoubeir Souissi/Reuters

At the same time, they are demanding increasingly high-risk premiums, and therefore also higher interest rates. Caught between their plummeting purchasing power and staggeringly high interest rates on bank loans, ordinary Tunisians are paying the price.

According to the Tunisian national institute of statistics, in May this year inflation rose to 5%, the cost of food and drink is up 5.2% and clothing prices have increased 8.4%.

Given this alarming situation, existing regulation efforts are coming up short. Among other policies that could improve their governance, banks need boards with competent, independent and responsible directors, strategic visions and the courage to make appropriate decisions at critical junctures.

Directors should be required to give guidance and exercise the control necessary for banks to run properly, while adhering to the regulatory requirements of the countries in which they operate.

The road back to balance will be long for Tunisia, a small country with limited resources. Its own political instability and turmoil, combined with the threat of terrorism on its doorstep, make the task even more problematic.


Translated from the French by Alice Heathwood for Fast for Word.

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Jim Yong Kim starts his second term as World Bank president despite a rocky first five years

Jim Yong Kim is set to begin his second five-year term as World Bank president on July 1, having been unanimously reappointed by the United States and with clear support from Brazil, China, and France in September 2016.

Nearing the end of his first five-year term (and bypassing questions of the continued opaqueness of the selection process), there are five significant items that have shaped the World Bank since Kim became its president in July 2012.

These are the “solutions bank” approach, a revised mission, an institutional reorganisation, new lending instruments, and leadership challenges.

As the world’s leading development institution, providing financial and technical assistance to developing countries, drafting libraries worth of research, and leading global initiatives, what the World Bank does, how it changes, and what it represents are issues of considerable importance.

The “solutions bank” approach

On October 11 2012, four months into his first term, Kim addressed his board of governors at the annual meetings of the IMF and World Bank in Tokyo. He called for the World Bank to become a “solutions bank”.

A throwback to the reforms pursued by former presidents James Wolfensohn (1995-2005) and Robert Zoellick (2007-2012), who respectively introduced the “knowledge bank” approach and Open Data initiative , Kim held that the institution had to “seek answers beyond [its] walls”; be honest about its “successes and … failures”; and apply “evidence-based, non-ideological solutions to development challenges”.

He said:

It is time for us to write the next chapter in our evolution: it is time for us to become a ‘solutions’ bank. We must listen, learn, and partner with countries and beneficiaries to build bottom-up solutions. This is how we will increase our relevance and our value in today’s and tomorrow’s global economy.

Contending that the World Bank had to become more flexible, collaborative, and inclusive, Kim concluded that its “new strategic identity” as the “solutions bank” was necessary for revitalising the institution’s relevance and legitimacy.

A revised mission

Supporting the “solutions bank” approach, Kim revised the World Bank’s mission in October 2012 to pursue the two new goals of reducing extreme poverty globally to 3% by 2030 and promoting income growth among the bottom 40% of the world’s population.

Kim wants to reduce extreme poverty globally to 3% by 2030.
Danish Siddiqui/Reuters

While the pursuit of poverty alleviation is not new to the World Bank, with the presidencies of Robert McNamara (1968-1981) and Wolfensohn making poverty their core mission, what has not been seen in the institution since the 1970s is a dedication to promoting “shared prosperity”. This is a rhetorical rejection of trickle-down economics, which holds that gains for the wealthy will inevitably lead to gains for the poor.

This revised mission was reiterated in October 2016, when Kim stated that the future of the World Bank would be directed towards accelerating inclusive and sustainable economic growth and investing more in human capital.

Institutional reorganisation

A process of organisational reform was launched in October 2013, the first in nearly two decades. Lasting throughout 2014, it was intended to align the World Bank with the “solutions bank” approach and its revised mission by making it quicker on the ground, breaking down internal silos, and doubling its annual lending portfolio.

Three major changes took place. First, the bank ended the partition of its operations into six regional departments, replacing that structure on July 1 2014 with 14 “global practices”. The previous organisational structure had led Kim to conclude that the institution was “less than the sum of our parts”.

Second, it made several administrative changes, including cutting costs (by US$400 million between 2014 and 2016; an 8% cut), increasing efficiency (by dismissing hundreds of staff), and aligning budgetary expenditure with the goals of poverty alleviation and shared prosperity.

Finally, the bank created a presidential delivery unit. Its objective is to increase feedback facilities and improve the accountability of lending operations; the “solutions bank” approach writ large.

New lending instruments

In July 2014, Country Partnership Frameworks (CPFs) were introduced to replace Country Assistance Strategies (CASs). CPFs and CASs are survey reports prepared by the World Bank in collaboration with governments that receive its funds, which review the country’s development standing and propose a several-year lending schedule.

RTX TV.
Akintunde Akinleye/Reuters

The significance of the introduction of CPFs is that they operationalised the “solutions bank” approach and revised the mission within lending operations by aligning them explicitly with loan objectives and results matrices.

Leadership challenges

Kim’s leadership has endured consistent criticism. Coming to the institution without experience in government management, macroeconomics, or finance, he was held up as an outsider. A physician and anthropologist, he arrived with a qualification his11 forerunners did not – experience in the development field (previous presidents were either senior officials in US presidential administrations or Wall Street bankers).

The 2013-2014 reorganisation severely hobbled Kim’s reputation. It affected 6,000 personnel and replaced or reassigned the majority of the institution’s senior executives, lowering morale and stalling work.

With condemnation coming from current and former staffers (it was called a “crisis of leadership by the World Bank’s staff association in August 2016), an environment of bitter resentment has undermined Kim’s presidency. While he has pushed through reforms, it has all been done to the detriment of his leadership.

It’s important to note, however, that these criticisms are not the first faced by a World Bank president, particularly given that staffers regard themselves as an elite fraternity that remains as presidents come and go. Every previous reorganisation since 1972 has received discontent from staff.

On July 1 2017, Kim will begin his second five-year term. He has received severe criticism for mismanagement and his interaction with staff, but has also received considerable praise for the new direction taken by the world’s leading development institution.

Whether one outweighs the other is entirely up to the reader, but either way the World Bank meets 2017 with a new face. And that face is – for better or worse – worn by president Jim Yong Kim.

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‘Cow economics’ are killing India’s working class

When Prime Minister Narendra Modi addressed the Indian parliament for the first time in June 2014, his inaugural speech focused on integrating and protecting India’s Muslims.

“Even the third generation of Muslim brothers, whom I have seen since my young days, are continuing with their cycle-repairing job,” he said, referring to one of the many menial jobs to which Indian Muslims are often relegated. “Why does such misfortune continue?”

But instead of “bring[ing] about change in their lives,” as Modi promised, his government has made life harder for India’s Muslims by cracking down on the leather and beef industries.

Impact on Muslim and Dalit livelihoods

Muslims and Dalits (the marginalised group once known as “untouchables” in the Hindu caste system) are among the poorest in India, and they have very little access to property. By tradition and due to a lack of other opportunities, many work in the leather sector, which employs 2.5 million people nationwide.

Over the past three years, this trade has increasingly made Muslims and Dalits the targets of so-called cow vigilantism – attacks perpetrated by Hindus on cow traders in the name of religion. And legislation adopted in May, which amends the 1960 Prevention of Cruelty on Animals Act, is set to victimise these populations economically.

Among other changes, the new rules mandate that cows, camels and buffalo may be sold to farmers only for agricultural purposes, not for slaughter.

In the northern state of Uttar Pradesh, India’s most populous state, one out of every 1000 work in cow-related industries, including slaughterhouses and the leather industry. The town of Kanpur recently saw several slaughterhouses close down, putting out of work over “400,000 employees linked to leather industries”, according to a Reuters report.

Even cricket balls are made of leather.
Parivartan Sharma/Reuters

The supply of local hides has declined precipitously, leading to a decrease in Indian sales of leather and leather products. From April 2016 to March 2017, total leather exports dropped 3.23% from the previous year, to US$5.67 billion from US$5.9 billion.

India also does enormous trade in meat. In 2015, the main market for its buffalo meat was Vietnam, which buys up US$1.97 million worth of it, followed by Malaysia, Egypt, Saudi Arabia and Iraq.

Last financial year, annual production was estimated at 6.3 million tonnes and exports totalled US$3.32 billion, according to a report in the Economic Times. That’s down from US$4.15 billion the year before. In Uttar Pradesh alone, attacks on cow related-businesses have already triggered losses of US$601 million on the state’s export business.

Coercive measures

States have also introduced several coercive measures aimed at people in the cow businesses. Uttar Pradesh, whose chief minister is a right-wing Hindu fundamentalist, leads the measures.

Illegal slaughterhouses have been at the core of the debate in recent months following a government crackdown in March 2017, as non-compliant facilities struggle to adapt to complex regulations, including locating shops at specific distances from religious places, getting appropriate documents from several administrations or particular freezers.

On June 6 2017, the state issued a new directive to punish cow slaughter and illegal transport of dairy animals under the National Security Act and Gangsters Act, effectively criminalising traders.

This has encouraged harassment of Muslims and Dalits in Uttar Pradesh. Even in the Muslim-majority village of Madora, residents are encouraged to denounce those who engage in slaughtering cows by the promise of a INR50,000 (US$1000) reward.

On the west coast state of Gujarat, cow slaughter is now a non-bailable offence, punishable with life imprisonment, meaning that people who kill a cow will serve the same time as a murderer.

Central Jharkhand and other states ruled by Modi’s BJP party have begun applying similar laws. The national government is also currently considering a petition to give cows an Indian identity card similar to those issued to its citizens.

The legal status of cow slaughter in India in 2012. Today, all yellow regions have turned red.
Barthateslisa/Wikimedia, CC BY-ND

In the name of the cow

These new rules have reinforced the impunity of criminal groups that burn down Muslim and Dalit businesses, terrorise cow traders and brutally beat or kill people. Rebranding themselves as animal activists, cow vigilantes exploit the sanctity of this animal in Hinduism to commit violence, with the tacit endorsement of state and national governments.

The violence has impacted both legal and illegal traders (bulls and buffalo are not included in new regulations), generating panic among flayers, contractors, truck drivers, traders, daily wage earners, who are now abandoning their posts out of fear. The majority are Dalit or Muslim.

Hindu nationalist cow vigilantes in Uttar Pradesh.
Cathal McNaughton/Reuters

Hindu slaughterhouse owners, on the other hand, have been largely spared by the wrath of cow vigilantes and onerous regulations. Of the country’s 11 largest meat-exporting companies, eight are Hindu-run.

Flourishing and paradoxical beef trade

None of this will help already-tense Hindu-Muslim relations in India, nor does it seem to bode well for Modi’s “Make in India” initiative to boost the country’s economic production.

According to the campaign website, the government hopes to increase leather exports to US$9 billion by 2020, from its present level of US$5.85 billion, and bring the domestic market to US$18 billion, doubling its current value.

‘Make in India’ may make some citizens very rich, but others, not so much.

To do so, the government says it will focus on maintaining India’s comparative advantages in production and labour costs and ensure the availability of skilled manpower for new or existing production units. But that may be hard when Muslim and Dalit workers are being systematically singled out and harassed.

Can Modi’s government really afford a crackdown on cow economics?

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Yes, microlending reduces extreme poverty

A small boost in microlending to the developing world could lift more than 10.5 million people out of extreme poverty. That’s one conclusion of my study, published last month in The B.E. Journal of Macroeconomics, which found that microfinance not only reduces how many households live in poverty but also how poor they are.

Currently, 836 million people – or 12% of the world’s population – experience extreme poverty, living off less than US$1.25 a day. Using data from 106 developing countries from between 1998 and 2013 to examine the efficacy of microlending as a poverty-reduction tool, I found that just a 10% increase in the gross microfinance loan portfolio per client could cut this number by 1.26%.

While the world has seen some progress over the past 15 years in reaching the UN Millennium Development Goals (MDGs), which placed eradicating hunger and poverty on top of the global agenda, extreme poverty remains a pressing challenge. It continues to be a priority in the 2015-2030 Sustainable Development Goals.

By 2015, the proportion of the world’s population living in extreme poverty had dropped to 14% from 50% in 1990, according to the MDG Monitor. But in Sub-Saharan Africa, more than 40% population continues to live on less than US$1.25 a day. And extreme poverty appears to have increased in Western Asia.

Poverty may have retreated, but it clearly remains a force in people’s lives.

Microfinance and poverty reduction

The practice of giving small loans (as little as US$10 or as much as $US500) to the very poor, alongside other financial services such as savings accounts and financial training, was the brainchild of economist Mohammad Yunus.

Muhammad Yunus with his Nobel Prize.
Scanpix/Reuters

In the 1970s, he began offering credit to poor women in the village of Jobra, Bangladesh, so that they could launch income-generating projects to help support themselves and their families. In 2006, those experiments won Yunus and his microcredit-focused Grameen Bank a Nobel Peace Prize.

Since then, various forms of microlending programs have been introduced in many countries, from India to the United States. According to a 2015 report from advocacy organisation Microcredit Summit Campaign, by 2013, some 3,098 microfinance institutions had reached over 211 million clients worldwide, just under half of whom were living in extreme poverty.

In 2017, the market for microfinance investments in micro, small and medium enterprises, as well as the provision of financial services to those businesses, is projected to grow by an average of 10% to 15%. Even stronger growth is expected in India and the Asia-Pacific region.

Access to credit enables poor people to become entrepreneurs, increasing their earnings and improving their quality of life. Many lenders accompany their small loans and financial services with peer support, networking opportunities and even health care to improve their clients’ odds of building a successful small business.

In doing so, many economists submit, they show that microfinance has a powerful potential to reduce poverty.

Shobha Vakade, here in 2010, used her US$400 loan to start her own business, strings beads into necklaces outside her house in a Mumbai slum.
Danish Siddiqui/Reuters

But evidence that microfinance actually works is mixed. Studies examining its impact in rural Pakistan, urban Kenya and Uganda, among other developing countries, have both confirmed and contradicted the premise of Mohammud Yunus’s innovation.

Evidence from around the world

My study aimed to make sense of this inconclusive evidence, taking a macroeconomic approach that pulls information from many countries together to provide a clearer picture.

Officially, poverty is measured using two World Bank indicators: the poverty headcount ratio (which measures the percentage of the population living below the US$1.25 a day mark) and the poverty gap (which assesses how far below that line people fall, on average, and is expressed as a percentage).

Eritrean microfinance lenders pool their funds.
Ed Harris/Reuters

The key variable of significance in my analysis is participation in microfinance programs. I defined this in two ways for each country studied: the proportion of total clients as a share of national population, and the average size of loan (gross loan portfolio over total clients), using microfinance data from the Microcredit Summit Campaign and MIX Market), a microfinance auditing firm.

What I found was a negative relationship between microfinance participation and poverty, meaning that the more people in a given country received small loans, the less poverty it registered. Thus, in the average developing nation, an increase in the gross loan portfolio per client by just 10% could reduce the extreme poverty rate by 0.0126 percentage points.

I also found that microfinance reduces the depth of poverty, shrinking the gap between a person’s daily budget for living and the current US$1.25 per day definition of extreme poverty (the non-poor have a 0% shortfall).

Policy implications

Microfinance is no panacea. Numerous studies have shown that country-specific and cultural factors are determinants in how microfinance will interact with poverty, and there are occasionally devastating tales of failure in which the inability to repay a very small loan has plunged households further into desperate penury.

Overall, however, my study suggests that more microcredit would benefit poor countries. National governments and international development agencies can continue to promote microfinance as a tool for reducing poverty, while bearing in mind the limitations of any single strategy in tackling an entrenched global problem.

Source

Here’s how India can become more integrated in global trade

Global commerce has been changing since the late 20th century. Rather than trade finished products, such as cars, countries now exchange parts and components that, together, produce a finished commodity.

Facilitated by lower transportation and communication costs, the inputs of production can be sourced from the most economical place. Every country that participates in world trade today has its place in this global value chain.

For emerging nations, engaging in global value chains is key to their economic development. According to the United Nations, there appears to be a positive correlation between participation in this system and GDP per capita growth rates.

India gets involved

India, with its low labour costs and huge workforce, knows this well. Since the mid-1990s, it has made efforts to increase both trade volume and value-chain engagement.

India’s participation in global value chains has risen from 57th place in 1995 to 45th place in 2009, according to the the OECD Trade in Value Added (TiVA) Statistics.

Tracking the specific value chains for a country across the globe paints a revelatory picture of its economic integration by sector. In manufacturing, for instance, India is more closely linked to Asia and the southeast Asian region, especially for electrical and optical equipment. Services, on the other hand, show more integration with western countries such as the United States, the United Kingdom, a few European nations and Hong Kong.

A few sectors are standouts, including the “manufacturing not elsewhere classified” and recycling sector, which includes gems and jewellery, where India ranks second.

Computer, software support and other information technology-related services that have been the engine of India’s growth over the last 15 years also compete well globally. In business and other services, India ranks sixth and 13th in the OCED’s report.

Textiles, an employment-intensive sector where Indian exports have traditionally flourished, continues to perform strongly, placing the country at number 13 in textile value-chain participation. India has also seen gains in the electrical and optical equipment and transport equipment sectors, with its trade participation ranking jumping from 50th to 31st and 33rd, respectively.

An employee at a Kolkata undergarment factory.
Rupak De Chowdhuri/Reuters

All this growth is good news, as expanding manufacturing is at the core of India’s efforts to create jobs for large volumes of low-skilled workers. But there is room for improvement.

Upping the free trade ante

To keep it up, India, like other countries, has been negotiating several free trade agreements through the last two decades like the ones with ASEAN, Singapore, Japan and South Korea. These facilitate international commerce by reducing trade barriers. There are several other free trade agreements (FTAs) under negotiation like the ones with Australia, Canada, Thailand and Israel.

But the utilisation rate of these deals ranges from 5% to 15%, meaning that it is doing relatively low commerce for goods eligible for free-trade benefits.

Rules of origin refer to the exporting country’s value-added share of a final product. Normally, an FTA benefit is given to an import from an FTA partner only if that country is responsible for adding a certain percentage of the product’s total final value. Most of India’s FTAs put this requirement at 35% to 40%

In theory, this rule protects India by preventing other countries from gaining free trade benefits by exporting to it through an Indian FTA partner.

But in a world of increasingly fragmented production processes, conditioning preferential access to India on higher single-country value additions is limiting. Instead, rules of origin customs designed with a more regional or sector-specific approach would improve India’s integration with international value chains.

A related issue is local content requirement, which countries impose when they seek to grow local industries (as India does with manufacturing).

India requires foreign investors who want to source inputs from other countries for efficient production to buy Indian instead, which goes against the design of improved production through value chains and makes the country a less appealing investment destination for international manufacturing.

The country would do well to consider these issues as it takes part in ongoing negotiations of the Regional Comprehensive Economic Partnership (RCEP), a proposed trade agreement between the ten ASEAN nations and six other regional partners, including India, China and Australia.

Given India’s increasing integration within Asia, the agreement holds real potential for further inserting its transport, electrical and optical equipment sectors into global value chains. But doing so effectively will require a careful re-examination at rules of origin and local content requirements.

Domestic reforms for greater global integration

Unravelling India’s potential to become an Asian manufacturing hub will be no easy feat.

To go bigger, Indian industry needs improved transportation infrastructure and quicker customs clearances, easing the movement of goods between ports and factories.

Compared to China, with its high-speed transit to and from ports, India lags well behind. Even compared to other Asian countries, India’s tranport time is high.

The Thar Dry Port in Sanand, in the western state of Gujarat in India.
Amit Dave/Reuters

Laws, too, have historically inhibited growth of Indian manufacturing. Expansion and retraction are both subject to numerous government-approval processes, which reduces flexibility.

Some of the concerns have been addressed by the present Indian government which has initiated reforms to facilitate investment through the “Make in India” initiative and otherwise. This is expected to spur manufacturing activity. But the government has made little effort to improve or rationalise labour laws to better align with its national development interests.

Finally, global value chains are most beneficial for countries that contribute in the higher value-added segments of a production chain: it’s more lucrative to make the computer that controls the automated vehicle than its wheels.

This requires a skilled labour force, something that India – despite its many improvements in production and trade – has yet to achieve.

Source

Are robots taking over the world’s finance jobs?

The year is 2030. You’re in a business school lecture hall, where just a handful of students are attending a finance class.

The dismal turnout has nothing to with professorial style, school ranking or subject matter. Students simply aren’t enrolled, because there are no jobs out there for finance majors.

Today, finance, accounting, management and economics are among universities’ most popular subjects worldwide, particularly at graduate level, due to high employability. But that’s changing.

According to consulting firm Opimas, in years to come it will become harder and harder for universities to sell their business-related degrees. Research shows that 230,000 jobs in the sector could disappear by 2025, filled by “artificial intelligence agents”.

Are robo-advisers the future of finance?

A new generation of AI

Many market analysts believe so.

Investments in automated portfolios rose 210% between 2014 and 2015, according to the research firm Aite Group.

Robots have already taken over Wall Street, as hundreds of financial analysts are being replaced with software or robo-advisors.

In the US, claims a 2013 paper by two Oxford academics, 47% percent of jobs are at “high risk” of being automated within the next 20 years – 54% of lost jobs will be in finance.

This is not just an American phenomenon. Indian banks, too, have reported a 7% decline in head count for two quarters in a row due to the introduction of robots in the workplace.

Perhaps this is unsurprising. After all, the banking and finance industry is principally built on processing information, and some of its key operations, like passbook updating or cash deposit, are already highly digitised.

A man leaves an Axis Bank automated teller machine (ATM) in New Delhi, India.
Adnan Abidi/Reuters

Now, banks and financial institutions are rapidly adopting a new generation of Artificial Intelligence-enabled technology (AI) to automate financial tasks usually carried out by humans, like operations, wealth management, algorithmic trading and risk management.

For instance, JP Morgan’s Contract Intelligence, or COIN, program, which runs on a machine learning system, helped the bank shorten the time it takes to review loan documents and decrease the number of loan-servicing mistakes.

Such is the growing dominance of AI in the banking sector that, Accenture predicts, within the next three years it will become the primary way banks interact with their customers. AI would enable more simple user interfaces, their 2017 report notes, which would help banks create a more human-like customer experience.

Customers at Royal Bank of Scotland and NatWest, for instance, may soon be interacting with customers with the help of a virtual chatbot named Luvo.

Luvo, which was designed using IBM Watson technology, can understand and learn from human interactions, ultimately making the flesh-and-blood workforce redundant.

Meanwhile, HDFC, one of India’s largest private-sector banks, has launched Eva. India’s first AI-based banking chatbot can assimilate knowledge from thousands of sources and provide answers in simple language in less than 0.4 seconds. At HFDC Eva joins Ira, the bank’s first humanoid branch assistant.

A ‘NAO’ humanoid robot, manufactured by SoftBank Group Corp., is displayed at the Viva Technology conference in Paris, France, June 15, 2017. REUTERS/Benoit Tessier.
Benoit Tessier/Reuters

AI has also made inroads in the investment industry, where, many financial analysts say, a sophisticated trading machine capable of learning and thinking will eventually make today’s most advanced and complex investment algorithms look primitive.

Advisory bots are allowing companies to evaluate deals, investments, and strategy in a fraction of the time it takes today’s quantitative analysts to do so using traditional statistical tools.

Former Barclays head Antony Jenkins, who called the disruptive automation of banking sector an “Uber moment”, predicts that technology will make fully half of all bank branches and financial-services employees across the globe redundant within ten years.

Goodbye, human fund managers.

The fintech grads of the future

Universities are now revising their educational blueprint to adapt to this technological disruption in the finance job market.

Both Standford University and Georgetown University business schools are planning to offer so-called “fintech” in their MBA programmes, hoping to teach students how to become masters of financial technology.

And the Wales-based Wrexham Glyndwr University has announced the launch of the UK’s first undergraduate degree in fintech.

But fintech is so new and diverse that academics are having difficulty to construct a syllabus for Financial Technology 101, let alone more advanced topics on AI. The lack of academic textbooks and expert professors are additional challenges.

Robots gone wild

Still, it is not clear that AI and automation will actually prove advantageous for banks.

Too much reliance on AI could backfire if financial institutions lose the human touch most customers favour.

There are other risks, too. Robo-advisers are cheap and save time when creating a simple investment portfolio, but they may struggle to take the correct precautionary measures when markets become volatile, especially when thousands, maybe millions, of machines are all trying to do the same thing while operating at great speed.

In August 2012, robo stock traders at Knight Capital Group went on a spending spree and lost $440 million in just 45 minutes.

Are traders soon to be replaced by robo-traders?
Brendan McDermid/Reuters

High expectations for the performance of these well-programmed robo-traders could also cause chaos in the key trading centres around the world.

There is no single algorithm that can combine multiple volatile variables with a multidimensional economic forecasting model that works for all investors. Expecting that could prove a potentially fatal error for financial markets.

And how will investors be protected when robots make the wrong decision? According to the rulings of the US Securities and Exchange Commission (SEC), robo-advisers require registration in the same way human investment advisers do. They are also subject to the rules of the Investment Advisers Act.

But it is difficult to apply to robots the financial regulations designed to govern human behaviour.

The SEC’s rules, created to protect the investors, require that advisers adhere to a fiduciary standard by which they unconditionally put the client’s best interests ahead of their own. Concerned US regulators have asked whether it is practical for robots to follow rules when their decisions and recommendations are generated not by ratiocination but by algorithms.

This conundrum demonstrates one fact clearly: it is hard to completely replace humans. There will always be demand for a real live person to act as check when and if our robots go rogue.

Source

In India, a legislative reform is needed to push corporate social responsibility

The corporate social responsibility (CSR) movement began as a response to advocacy for corporations to play a role in ameliorating social problems due to their economic power and overarching presence in daily life.

Now, the movement is transitioning from its reliance on purely voluntary activity to the greater use of laws. The push for legalisation came because voluntary CSR presented problems such as free-riding (companies taking advantage of benefits without actually spending), greenwashing posing as CSR, and false disclosures.

Governments are now modifying their laissez faire approach and considering legal rules.

The US Securities and Exchange Commission, for instance, has moved beyond its mandate as a market regulator to issue rules on conflict minerals, resource extraction payments, and gender diversity. And, in 2014, the European Union issued a directive on disclosure of non-financial and diversity information.

Similarly, Australian companies are required to disclose how they will manage their environmental and social sustainability risks.

India at the forefront

India has gone further than any other country. In 2013, it enacted Section 135 of the Indian Companies Act prescribing a mandatory “CSR spend of 2% of average net profits … during the three immediately preceding financial years” for all companies meeting specified financial thresholds. In other words, companies “having net worth of rupees five billion or more, or turnover of rupees ten billion or more or a net profit of rupees fifty million or more during any financial year” have to ensure that they spend 2% of average net profits made during the three preceding years on CSR activities.

In order to assess the effectiveness of this unique experiment in mandating CSR spending and disclosure, we studied the reporting practices of the four largest banks by market capitalisation in India compared with banks from Australia, China, and Japan where there is no such law. In order to do so, we assessed annual and CSR reports of our sample of companies from 2012, one year before the law was passed.

Indian banks did not have CSR reports before 2012. The CSR committees formed by the banks function in the spirit of the law within defined targets, monitoring CSR spend, and reporting reasons for shortfalls in spending.

Of the Indian banks evaluated, only the State Bank of India (SBI) disclosed its CSR spend prior to the promulgation of the new Companies Act; all banks disclosed this spend from 2013.

People queue outside an ATM of State Bank of India (SBI) in Kolkata, India. REUTERS/Rupak De Chowdhuri.
Rupak De Chowdhuri/Reuters

Despite the new law mandating a CSR spend of 2% of pre-tax profit for corporations of this size, only ICICI Bank met the target in 2014. But it fell to 1.9% in 2016.Kotak Mahindra Bank reported a CSR spend of less than 0.69% of pre-tax profits in 2016.

In spite of not meeting the targeted CSR spend, none of the banks reported any fines or proceedings for breaching the law.

During this period (2012-2016), Australian banks had the highest disclosures, followed by Japan, China and India.

There’s a marginal difference in Indian bank disclosures after the new law was passed in 2013. But these differences may well be due to the different cultures and other non-market factors at play.

Different programs

Indian banks spend on educational and health promotional CSR activities, as prescribed by the new law. Additionally, all Indian banks use in-house foundations and centres, and promote staff volunteering at high-profile events. All these activities are designed to obtain maximum positive media coverage.

Less popular CSR activities, such as programs for eradicating malaria or combating other major communicable diseases – also defined in the Act as designated CSR activity – do not get any attention.

Another popular CSR activity is contributing to natural disaster relief funds, which is probably aimed at scoring brownie points with the political party in power. Then there’s lip service to environmental sustainability by the development of “ideal” bank branches with small environmental footprints. But the vast majority of offices languish with old energy-hungry, environmentally dated structures and activities.

Indian banks involved in the corporate social responsibility movement contribute to natural disaster relief funds.
Jitendra Prakash/Reuters

In contrast – and despite the absence of a legislative mandate – Australian banks have been disclosing their CSR expenditure since at least 2010. CBA and Westpac spend more on CSR as a percentage of pre-tax profits than the other two major Australian banks.

Chinese and Japanese banks report on targets and achievements to meet their respective environmental laws, albeit not in as much detail as Australian banks. As there’s no legal requirement to report on their actual CSR spends, Japanese banks did not disclose this in their reporting media till 2015.

In 2016, Japanese banks Nomura and Mizuho started reporting their CSR spend. Similarly, Chinese banks started voluntarily reporting their CSR spend in 2016.

But all fall below 0.25% of post-tax profits.

Time for reform

Our analysis shows that the law in its current form is failing to promote CSR activity. Its poor design and lack of clear obligations, set in a milieu of poor law enforcement, is also not generating an ethical obligation to obey the law in spirit.

Our findings are of value to policy makers and suggest it’s time to reform laws – to socialise corporations and CEOs in terms of their legal obligations and the benefits of CSR activity, to design enforcement mechanisms, and to generate ethical behaviour.

India’s legal provisions contain vague language and permit a high degree of self-interpretation that undermines legislative intent. For example, it allows banks to list “staff training in fire safety” as part of CSR even though this should be a strictly mandatory workplace safety activity.

Indian banks’ annual and CSR reports do not show a major shift in the nature of disclosures after 2013. The law is perhaps purely expressive as the provision stipulates minimal penalties for non-compliance and relies on a comply-or-explain philosophy. This exacerbates the lack of ethical obligation to obey laws in India where there’s a level of high corruption, low levels of public confidence, weak institutions, low levels of development, and education, among other such issues.

The provisions also appear to be formulated based on a traditional understanding that top management is solely responsible for ethical behaviour and CSR activity, without making the connection between the company and its stakeholders. There is no explanation for how the CSR provision fits within the wider ambit of a corporation’s role and purpose, the duties expected of its directors, or the information it is expected to disclose.

Until such time that the law is made more precise and backed up by effective enforcement and penalties for non-compliance, it will not promote CSR or make companies engage more with stakeholders. Section 135 is merely a stealth tax and will impose unnecessary compliance burdens.

Source

After ISIS killings in Pakistan, China blames the victims

When two young Chinese nationals were abducted in broad daylight and brutally killed earlier in June in Pakistan, the Islamic State claimed responsibility.

The two 20-somethings were first reported to be language teachers working in Pakistan. But then The Global Times, a popular tabloid of the Chinese Communist Party’s mouthpiece, People’s Daily, offered this explanation for the murders: “They were involved in illegal preaching led by South Korean missionaries”.

In a tepid and bizarre response to the killings, China’s foreign ministry said that it was investigating the incident and it urged “all Chinese nationals travelling overseas to observe local laws and regulations [and] respect local customs and practices”. It has yet to confirm the deaths.

Blaming the victims

The story must have been disappointing for ISIS in Pakistan, too. The group carried out the terrorist attack and claimed full responsibility, only to find that South Korean missionaries were the ones taking the heat for exerting undue influence over young Chinese nationals in atheist China.

The Islamic State has claimed credit for the killing of two Chinese nationals in Pakistan.

The only mention that the Islamic extremists got from Beijing was this standard rhetoric: “China firmly opposes all kinds of terrorism and extreme violence against civilians, and supports Pakistan’s efforts to combat terrorism and safeguard domestic security.”

The government has been characteristically tight-lipped on all fronts of this case, with no discussion or reports allowed on state-controlled media. Neither criticism nor awkward details have yet entered the mainstream, though on Weibo, China’s version of Twitter, outrage over Beijing’s victim-blaming and attempts to change the subject quickly began percolating.

The Chinese public still does not even know the names of the dead; in the official narrative, they remain anonymous citizens who were abducted, their whereabouts unknown.

English-speaking readers are more in the know. On June 12, Reuters reported that the abducted Chinese nationals were 24-year-old Lee Zing Yang and 26-year-old Meng Li Si. These slightly errant facts were later corrected by the Hong Kong newspaper, Ming Pao, which confirmed the names of the dead as as Li Xinheng (李欣恒) and Meng Lisi (孟丽斯).

When Ming Pao’s reporters visited the family of Li Xinheng, Li’s parents said they were not allowed to speak to media.

iFeng.com, a popular online news portal owned by Hong Kong-based Phoenix TV, was the first in China to release photos of the two victims and circulate, on June 9, ISIS’ claims of responsibility.

This video is no longer available on iFeng. Days after its posting, and perhaps unrelated to it (but likely not), China’s press watchdog ordered the website to shut down its streaming service, saying it carries “many politically-related programs that do not conform with state rules and social commentary programs that propagate negative remarks and opinions”.

Unstoppable CPEC

Pakistan, known as China’s “all-weather friend”, has echoed Beijing in identifying the victims as illegal preachers, and defended itself by saying it “offered security to the pairs but was rejected”.

China, in turn, praised Pakistan for its “all-out efforts” to ensure the security of Chinese nationals and institutions in Pakistan, and pledged the friendship and that the China-Pakistan Economic Corridor (CPEC) would not be undermined.

The CPEC is a flagship initiative for China’s ambitious economic and geopolitical blueprint One Belt One Road, widely regarded as a game changer for Asia and beyond.

The US$54 billion CPEC, which includes massive infrastructure projects in transportation, energy, and trade, would be the biggest independent foreign investment Pakistan has ever received.

The initiative aims to link China’s restive Muslim-majority region of Xinjiang with the strategic Pakistani port of Gwadar, passing through the controversial Kashmir area, which both Pakistan and India claim.

The China-Pakistan Economic Corridor.
Javedpk05/Wikimedia, CC BY

Since it kicked off in 2015, Chinese nationals have been swarming into Pakistan, with around 15,000 Chinese directly working on the projects and many others eyeing related business opportunities.

In theory, this makes the safety of Chinese nationals living and working overseas a real concern for Beijing.

Zhao Gancheng, a Chinese expert on Asia-Pacific studies, noted that as China’s global presence and influence is growing, extremists may target Chinese nationals “for ransom or for sensational media impact”.

‘Going global comes with risks’

China’s clear desire was to leave its ambitious project with Pakistan unscathed by this international incident. But the economical and geopolitical bet taken by China with Pakistan is a risky one.

The World Economic Forum ranks extremism-plagued Pakistan as the world’s fourth least safe country in the world, and this isn’t the first case of Chinese being abducted or attacked.

Beyond the terrorist threat presented by the Taliban, ISIS and other separatist insurgencies, the CPEC project has faced fierce opposition within Pakistan. Many commentators have expressed concern that the economic corridor is heavily skewed in China’s favour.

Chinese Ambassador to Pakistan Sun Weidong, centre, at the China-financed port in Gwadar, Pakistan, 2016.
Caren Firouz/Reuters

Beijing is particularly unrest-averse right now. It doesn’t want to be drawn into direct engagement with overseas counter-terror efforts, nor does it want any social upheaval at home in the lead-up to the 19th National Congress in September 2017, when the Communist Party will pick its new leader.

From this perspective, the victim-blaming, media censorship, together with the comment from China’s Foreign Ministry are less surprising . “Going global comes with risks,” was the explanation its spokeswoman Hua Chunying gave when asked about the link between the murder and CPEC.

This response suggests that the slain Chinese is the price China has to pay to achieve its grand vision of rejiggering the world order. Should it be?

Source

Inside Venezuela’s economic collapse

Leer en español.

These days, Venezuela is in the international headlines almost daily: food shortages, spreading hunger, people dying for lack of medicine, and soaring homicide rates.

Citizens demonstrate their discontent in the streets every day with blood, sweat and tears, as Nicolás Maduro’s increasingly unconstitutional regime clings to power.

How is this possible, economically speaking? How can an economy that was thriving until 2012 lose a third of its GDP in five years and now be dangerously close to defaulting on its foreign debt?

This dizzying descent into insolvency has stirred up an international ruckus, prompting the investment firm Goldman Sachs to – controversially – buy up US$2.8 billion in bonds from Maduro’s cash-strapped government.

Many Venezuelans have resorted to digging through garbage to feed themselves and their families.

The crisis, Part I

Venezuela’s crisis is deep and complex, comparable, perhaps, only to the era of wars in the 19th and 20th centuries, when a series of military dictatorships from 1830 to 1935 caused widespread hunger and political instability, undermining confidence in Venezuela both at home and abroad.

But the current crisis did not begin then, nor did it start during the Chávez regime, as many believe.

The roots of Venezuela’s crisis are deep and tangled.
Carlos Garcia Rawlins/Reuters

Chaos has in fact been brewing here since the early 1970s. Once an exemplar of economic growth, largely thanks to the oil industry, Venezuela saw its per capita gross domestic product (GDP) grow 250% between 1958 and 1977, according to figures from the Venezuelan Central Bank.

Starting after the death of military strongman Juan Vicente Gómez in 1935 and continuing through the administration of president Carlos Andrés Pérez (1974-1979), Venezuela had very low inflation, a strong currency and an urbanisation process that was renowned worldwide.

It was hailed as a beacon of democracy for the Americas.

Most of this was, alas, a mirage. By the mid-1970s, president Pérez’s nationalisation of the Venezuelan oil industry would reveal the fragility of an economy heavily dependent on a single resource – and one rather poorly managed.

Figure 1: Gross domestic product per capita (in Venezuelan bolivares, 1997 value)

Venezuela’s economic crisis did not begin under Chavismo.
Venezuela Central Bank/Econometrica IE, SA, Author provided

By the end of the decade, the “illusion of harmony” had faded, replaced by a long period of economic instability.

Inflation soared, rising from 7.2% in 1978 to 81% in 1989, significantly undermining Venezuelans’ purchasing power and making exports and imports extremely volatile.

A foreign debt crunch was also brewing, and by the early 1980s it had reached crisis proportions.

Between 1983 and 1988, the consecutive administrations first of president Luis Herrera Campins and president Jaime Lusinchi, tried to stabilise the currency by imposing price controls and foreign exchange controls. These efforts proved fruitless.

This economic meltdown was accompanied by a broad-ranging social and political crisis, including, in 1989, the chaotic protests of February 27 and 28 (during which somewhere between 300 and 1,000 people died) and, in 1992, a coup d’etat again president Carlos Andrés Pérez, then in his second term of office.

This move, which was criticised as mere appeasement, came at a terrible time: the president was ousted just when he was introducing significant political and economic reforms. As a result, they were never implemented. And if the economy eventually stabilised, its fundamentals haven’t quite been right since.

“Saudi Venezuela”

In 2003, a general strike halted oil production and most business operations in the country for two-and-a-half months, culminating in the 2004 presidential recall referendum, which Chávez won.

The president’s good fortunes were buoyed by an unparalleled boom in international oil prices. This enabled Chávez to tighten his grip on power by implementing aggressive anti-poverty programs, called Bolivarian Missions, including housing subsidies, adult-education campaigns and discounted food.

The oil boom petered out in 2014, but Chávez remained bullish, eagerly issuing debt papers on international markets and bilaterally, with China, ratcheting foreign debt up from US$25 billion in 2005 to over US$120 billion by 2006.

Most of these funds fuelled a spending spree comparable only to that of the late-1970s “Saudi Venezuela” period.

‘Our Miami’ recalls Venezuela’s good old days.

Unviable nation

While Chávez’s 21st-Century Socialism model seemed to be thriving, the president was quietly and dangerously taking over Venezuela’s democratic institutions. Open supporters of Chavismo were appointed judges, prosecutors and election officials, contravening Venezuela’s 1999 Constitution.

His winning streak ended abruptly and disastrously when Chávez died of cancer just a few months after his reelection in 2012. His legacy: a government that spent more than it made, even when oil prices remained high at US$100 a barrel.

In April 2013, Chávez’s appointed successor Nicolás Maduro eked into the presidency with a 1.5% margin, swearing to accept the position “for Christ the Redeemer, in Him and through Him, for the people of Venezuela and in eternal memory of the Supreme Commander Hugo Chávez”.

Evidently, the system-wide bankruptcy brought on by Chavismo was not yet apparent to about 50% of the electorate. But reality soon set in: in early 2014, Venezuela slipped into recession.

Maduro proved unable to implement the political and economic corrections needed to stabilise the nation. His paralysis proved devastating: per capita supplies of goods and services went down by 40% between late 2013 and 2014.

Figure 2: Per capita supply of goods and services (in Venezuela bolivares, 1997 value)

The orange line shows imports of goods and services; GDP is in blue.
Venezuelan Central Bank/Econometrica IE, SA, Author provided

In 2014, international oil prices began their plunge, dropping from a peak of US$115 per barrel in June 2014 to US$35 by February 2016. Inflation reached 800%.

Venezuela’s democratic institutions, weakened by Chavismo, lacked the capacity to respond to the economic crisis, deepening the country’s woes and leaving it in the unviable situation it faces today. There’s not enough food, money or safety to go around.

After more than four decades of a dizzying economic ups and downs, Venezuelans are finally understanding just how ineffective central planning has been.

Rebuilding the nation will require fundamentally rewriting the rules of the game. That means reconstructing both the Venezuelan economy, by shifting it towards a market economy, and Venezuelan institutions, by reweaving the economic and political fabric back together.

Ending the current economic paralysis will take a multi-sectoral pact in which academics, political parties, trade unions, business associations, churches, universities and businessmen, among others, agree, at least minimally, on a plan for the future.

They must also work together to garner public support so that Venezuelans – unified – can dismantle the “patrimonialist state” that has caused, and keeps on causing, so much anguish.

Source

Universal basic income could work in Southeast Asia — but only if it goes to women

The universal basic income debate has been raging for some years, with politicians and people hotly divided over the notion of their government paying every citizen a set amount of money on a regular basis, without requiring work to be completed.

The idea of everybody, including society’s most marginalised, being able to afford their basic needs is popular with mostly libertarian and progressive politicians, and there is some empirical evidence that it can quickly increase a country’s productivity and reduce domestic inequality.

Conservative economists, however, reject the idea, citing its “impossibly expensive” nature.

Economic feasibility is a critical question for any government program, of course, and it is particularly relevant in the developing world, where universal basic income (UBI) has been suggested as a development tool.

One reason that Southeast Asian countries, for example, have struggled to improve gender equality (despite avowals of committment to the idea) is increased economic insecurity, which has widened the gap between men and women and separated women from opportunities.

Might UBI be one way to both empower women and reduce hunger in the region?

Money in the hands of women

My research focuses specifically on women from the region who live below the poverty line, which, for East Asia and the Pacific, the World Bank defines as living on less than US$3.20 a day.

In Cambodia, Laos, the Philippines, Indonesia and Vietnam – among the poorest Southeast Asian nations – between 13% and 47% of the population is living in poverty. The number is significantly lower in better-off Brunei and Singapore.

On the whole, women in these countries fare well enough compared to their peers in other developing regions in terms of literacy, employment, political participation and the right to organise. But this has not translated into greater gender equality.

Here, heteronormativity reigns, dictating that men and women (and only men and women; all other gender identities are discounted) have distinct and complementary roles in life, from economics and education to politics.

A woman carries a basket of bread for sale on her head on a street in Hanoi.
Kham/Reuters

Women are primarily seen as wives and mothers, a gender stereotype reinforced in both everyday experiences and in the theological texts of the main religions in the region.

That perspective also seems to dominate within the Association of the Southeast Asian Nations (ASEAN). Though women feature strongly in ASEAN’s socio-cultural community line of work, there is very little debate about the role of women in the economic or political sphere.

By giving women the financial freedom to act as “agents” of development in the region, universal basic income could be a tool that ultimately paves the way for their future economic and political involvement.

Women as agents of development

This process would start with something simple (and seemingly uncontroversial): women being able to put food on the table.

In poor families in Southeast Asia, up to 80% of household income is spent on food, yet
undernutrition remains a huge problem in Cambodia, Laos, the Philippines, Indonesia and, to a lesser extent, in Vietnam.

If women were provided with sufficient income to feed their families, it would translate into better nutrition, health and general well-being for children and others entrusted in their care, and by extension, their communities.

Children eat free meals distributed by group World Mission Community Care in a slum in Manila.
Romeo Ranoco/Reuters

Creating economic security for women is also key to a country’s development. Southeast Asian women in poorer income brackets generally have access to very few jobs, outside of traditional occupations such as farming and housekeeping. And, today, even these jobs are threatened by climate change and a growing movement to ban the export of foreign domestic workers.

Digitisation may lead to further unemployment among men, particularly in Southeast Asian manufacturing economies, exacerbating hunger and malnutrition.

There is evidence that giving women a specifically calibrated amount of money – regularly, and with no strings attached – could make a big difference in such settings.

After the NGO GiveDirectly first started its UBI program in a Kenyan village in 2016, it offered some residents US$22 a month The entire community quickly saw positive effects, according to a February 2017 assessment of the program in the New York Times. And residents hope that the experiment, which is scheduled to last for 12 years, will gradually lift them out of poverty.

UBI in Southeast Asia

Tacked onto the state’s existing social safety nets, UBI can give much needed specific attention to women’s broader economic empowerment, which is vital to a developing country’s growth.

The first step toward doing so in Southeast Asia would be to identify women living below the poverty line. Next, as in Kenya, each of these woman would be given a sum of money in the form of electronic cash transfers.

Accessible through cheap mobile phones, this money can be used to purchase food and other basic necessities in participating shops, which may be incentivised to participate with credits or subsidies of their own.

Small businesses, like this restaurant in the Philippines, should be encouraged to take part in the UBI scheme.
Romeo Ranoco/Reuters

To prevent abuse of a program intended to empower women and support families, the cash transfers must be either non-transferrable or transferrable only to another female family member, and only women will be able to spend the money (in approved shops).

Evidence from other countries suggests that, in some cases, men waste this “free pay” on alcohol, gambling and other non-essentials.

Programs must also be designed to be cognisant that, when women in traditional societies are empowered, violence against them may increase, as men see women with money as a threat to their role in family and society.

Finally, women must be able to “graduate” from a UBI scheme. The idea is to empower participants, giving women a leg up to become active members of society – not to incapacitate them.

In the Kenyan case, for example, many women (and men, too) used the allocated income to start small businesses. This opportunity could be developed as part of a potential UBI in Southeast Asia, considering both public- and private-sector partnerships.

If a universal basic income program really works, then women may even become contributors to programs in the future, and not just their beneficiaries.

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