Last week Chinese e-commerce giant Alibaba filed paperwork with the U.S. Securities and Exchange Commission for an initial public offering (IPO). As one of the largest companies in the world’s second largest economy, Alibaba represents an enormous opportunity for investors. They are expected to raise between $15 and $20 billion, making this IPO potentially bigger than Facebook’s.
While Alibaba already handles more sales volume than eBay and Amazon combined, there is added room for growth as internet penetration in China is only around 45 percent. Online shopping is projected to increase at a rate of 27 percent per year as the still-poor country grows richer and more connected.
Regardless of the perceived opportunities, foreign investors are not entirely convinced that Alibaba will be a good buy. The attitude toward Chinese companies in general is one of skepticism and uncertainty – perpetuated most recently by concerns about the transparency in auditing practices. Alibaba’s complex network of businesses and a lack of details surrounding partnerships with domestic logistics companies also raise some questions for potential investors.
In all the buzz surrounding Alibaba’a IPO, however, there is a missing element that could be cause for additional concern. By selling shares in the U.S., Alibaba opens itself to more exposure to the Foreign Corrupt Practices Act (FCPA), a piece of legislation that makes it illegal for companies to bribe officials of foreign governments. A number of multinational companies from around the world have already been ensnared in FCPA investigations as a result of corruption in China and the idea that Alibaba has grown within a market rife with corrupt acts could be cause for increased suspicion. Compounding this risk is the fact that the company has been the subject of investigations by domestic authorities in the past.
“Scientists have discovered an enormous energy source for the world…located in the poorest countries in the world,” announced Center for Strategic and International Studies (CSIS) President John Hamre recently. “If we tap it, this energy source will double or triple GDP growth in those countries.”
The resource Hamre was discussing is not a fossil fuel like coal or oil and is not a new form of renewable energy. His remarks were a reference to the 1.8 billion young people in the world between the ages of 10 and 24. This youth population is the largest the world has ever seen and their contributions to society have drastic implications for the development of emerging markets and fragile states. If youth become productive civic and economic participants in their communities, the benefits are immense. However, when young people are forced to the fringes of society and do not have sufficient opportunities to participate in society the consequences can be devastating.
In order to help policy, society, and business leaders better understand how to ensure that young people are best positioned to be drivers of growth and development, CSIS recently developed the Global Youth Wellbeing Index in partnership with the International Youth Foundation and Hilton Worldwide.
As my colleague Anna Nadgrodkiewicz recently discussed on this blog, corruption is a preeminent threat to developing countries. In Brazil, corruption has been estimated to cost somewhere around $53 billion (approximately 2.3 percent of GDP) in 2013 alone. Because this loss has a corrosive effect on democratic governance and the country’s ability to deliver continued improvement, Brazilians took to the streets in massive protests. As a result the government of Brazil passed the “Clean Companies Act” which began being enforced on January 29.
The new law, like similar legislation in other countries, establishes corporate liability for corrupt practices committed by Brazilian companies as well as foreign companies that have branches or affiliates within the country. Under the act, companies that bribe public officials (foreign or domestic) can be subjected to civil and administrative sanctions including heavy fines, prohibition on receiving state funds, and even dissolution of the firm. The fact that Brazilian president Dilma Rouseff exercised her line-item veto power to make the law more strict than originally drafted seems to signal to the world that Brazil is serious about reining in corruption.
In the wake of the passage of the Clean Companies Act, much talk erupted over the implications for international trade. Since the law closely resembles existing anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act, experts have warned that companies operating in the region can expect Brazilian authorities to cooperate more closely with their counterparts in the US during investigations.
More general discussion has involved the importance of solid compliance programs in multi-national companies (MNCs) if they are to avoid any run-ins with the law. However, such commentary ignores a large audience that should take note of this development: developing countries.
Amid the lingering effects of the global financial crisis, there has been an ongoing debate regarding the strategy behind international aid. The question is whether to continue with traditional projects that seek to alleviate poverty through the provision of basic human needs such as health care, education, and food security, or to refocus efforts on building the capacity of local governance thereby making developing countries capable of addressing these issues on their own. While this debate has been around for at least two decades, current budgetary constraints in donor countries have brought the conversation back into focus.
Speaking in terms of policy, there has long been consensus on the fact that better governance leads to more vigorous economic growth. Regardless of rhetoric, however, donor agencies have continued to channel the majority of their resources toward areas like infrastructure, agricultural development, and education. This must change if the development community wants to meet its goals.
On a panel at the Center for Strategic International Studies, Executive Director of the Center for International Private Enterprise (CIPE) John Sullivan joined three other discussants – including a World Bank VP and U.S. Ambassador – to talk about the nexus between governance and growth. The panelists unanimously agreed that governance, specifically democratic governance, is a crucial element of moving developing countries off of foreign aid. Good governance is an enabler that allows developing countries to better utilize donor funding and develop sustainable, local solutions to challenges.
While delivering the keynote speech at the recent Asia-Pacific Economic Cooperation summit in Bali, Chinese president Xi Jinping stated that the government was drafting a “master plan for reform.” Speaking to a group of leaders who invariably have a stake in China’s continued development, Xi touched upon topics including politics, society, and the environment. Given the recent slowdown in growth, Xi’s remarks mainly aimed to assuage the concerns of economic and business leaders regarding the stability of China’s economy.
Some of the most discussed topics that come to mind when thinking about economic reform in the Middle Kingdom include liberalization of interest rates, freer access to capital for small firms, and correcting market distortions such as real estate prices. These factors are admittedly extremely important to rectify if the economy is to avoid stalling out, but there is also another issue on the minds of many business leaders looking to become or stay involved in China’s economy – corruption.
If knowledge is power, then ensuring access to information is a vital step in empowering civil society to participate in the policy making process. Creating an environment where information, both political and economic, is widely available is also the key to fostering a citizenry that will hold elected officials and economic agents accountable to the public. Without mechanisms that allow for the diffusion of information, individuals cannot effectively participate in democratic processes or be successful actors in any market economy.
A new toolkit from CIPE discusses important elements surrounding access to information and provides a number of examples of how partners have worked to build institutions that allow for greater sharing of knowledge. In addition, the publication identifies core objectives in the field of access to information in an effort to guide the design of information programs. Covering topics such as legal structures like freedom of information laws and alternative sources of information, the toolkit seeks to share key practices and lessons to improve the performance of such programs.
Download the toolkit here.
Frank Stroker is Research Assistant at CIPE.
It has become more and more widely acknowledged that entrepreneurship is an extremely powerful tool for development. Even Bono has been “humbled” by the importance of entrepreneurialism in efforts to reduce poverty. However, building a culture of entrepreneurship in emerging markets takes more than establishing opportunities for financing. There is an entire ecosystem that must be taken into account when trying to foster entrepreneurship.
In the latest Economic Reform Feature Service article Robin Sitoula, executive director of Samriddhi: The Prosperity Foundation, discusses his approach to building an entrepreneurial ecosystem in Nepal. Recognizing that the organization did not have the resources to tackle the whole ecosystem Samriddhi cut across sectors to build partnerships that addressed individual issues. A wide range of partners including business associations, universities, and banks now allow Samriddhi to accomplish much more than originally possible. Organizations such as the Federation of Nepalese Chambers of Commerce and Industry help to advocate for a conducive policy environment, while Mega Bank and Laxmi Bank offer scale up capital for growing ventures. Sitoula argues, “This approach of identifying essential components and specific groups that add value to the ecosystem is a more productive, efficient, and sustainable method of fostering entrepreneurship.”
Read the article here.
Frank Stroker is a Research Assistant at CIPE.