Author Archives: Guest

Carrying Crude Oil to Newcastle: The Resource Curse Strikes Again in Nigeria

Source: Newswire NGR

Source: Newswire NGR

By Otito Greg-Obi

On May 20th, 2015 the lights went out in Nigeria, Africa’s biggest oil producer. Nigeria suffers from a phenomenon known as the curse of oil which is a subset of a larger issue known as the resource curse. The idea behind the curse of oil is that countries with large oil reserves cannot seem to manage revenues in a way that benefits the majority of the population economically and socially. Some of the symptoms of the curse of oil include lack of economic diversification, revenue volatility, inability to provide public goods and services, corruption, government inefficiency and the Dutch Disease.

As soon as the massive fuel shortage in Nigeria struck, numerous businesses and banks shut down. Power outages also affected common households because neighborhoods are typically powered by individually owned generators due to inconsistent provision of public utilities. As soon as licensed gas stations closed down, black market vendors looking to make a quick Naira (Nigeria’s currency) began selling low quality oil at exorbitant prices. The shortage exemplifies the curse of oil by revealing an inability to provide a crucial public good. Furthermore, the shortage unveils the existence of corruption in black market practices.

Oil importers shut down operations claiming that the government owed them $2 billion. Nigeria’s Minister of Finance Okonjo-Iweala countered that importers misrepresented the debt in an attempt to recover lost revenue from the recent decrease in value of the Naira due to global declining oil prices. The global decrease of oil prices is a perfect example of the volatility that comes with the curse of oil and how it can complicate economic transactions between the governments and oil corporations.

Fortunately, oil suppliers and distributors eventually met with the government for negotiations that put an end to the crisis. The specifics of the negotiations have not been revealed but it appears that the crisis has been averted for now. But as global oil prices continue to decline, economic shocks are imminent. What will the government do to thwart the curse of oil?

Read More…

Enhancing Youth’s Political Participation in Pakistan

pakistani-youth-reclaim-national-anthem-world-record-1508x70

By Fayyaz Bhidal, Research Manager at Sustainable Development Policy Institute

Internationally, the average age of eligibility for election to national parliament starts at 25 years old. According to a UNDP 2012 Global Parliamentary Report, approximately 1.65 percent of parliamentarians globally are in their 20s, while 11.87 percent are in their 30s. However, the global average age of parliamentarians is 53 years old.

In Pakistan, youth represent 60 percent of the total population, but their voice is largely unrepresented in the political system. The youth population is not only a dynamic source of innovation and creativity, but has contributed to and even catalyzed important changes in political systems, power-sharing dynamics, and economic opportunities since Pakistan was created. One leading force for these changes is the Youth Parliament of Pakistan which was created in 2007 to engage youth in dialogue on important issues affecting Pakistan. Within local government, youth are also taking an active role in achieving implementation of work. In the recently held local government polls of Khyber Pakhtunkwa Province of Pakistan, 3,339 seats were devoted for the youth.

Read More…

A Trinity of Trade: Africa soon to Launch TFTA

Map of TFTA

By Otito Greg-Obi

Recently, African heads of state gathered together in Egypt to sign the Tripartite Free Trade Area agreement (TFTA) which will join the forces of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC).

Free trade is crucial to global economies because it reduces tariff barriers which in turn results in trade creation. The benefits of trade for developing nations in general are numerous. To name a few: first and foremost, trade allows for specialization meaning countries can build a comparative advantage by focusing on producing goods with low opportunity costs. Secondly, trade encourages healthy competition which incentivizes businesses to increase efficiency and cut costs. Lastly, trade can reduce dependence on existing markets and stabilize countries affected by seasonal changes in markets.

The TFTA agreement has been long awaited – negotiations began in 2005 and were expected to conclude in December 2013. Major components of the trade agreement include the promotion of socioeconomic development and the free movement of goods and services. A customs union is also in the works to be implemented at a future date. But, the TFTA addresses more than just trade, it promotes the upward mobility of business people and advances the cause of social justice.

Although the creation of the TFTA is an exciting development in the world of business, there are still hurdles to overcome during its implementation. Economic integration can be a slow, demanding process, especially since many African countries in this new trading bloc are at varying stages in economic development and trade activity. Furthermore, transportation costs pose a major impediment to the integration of TFTA. Connecting these 26 countries will be a difficult task because the land is vast and requires large infrastructure projects. It will be difficult to ensure that domestic African businesses reap substantial benefits from the new trade area. And lastly, some countries such as Swaziland, Uganda, Tanzania and Zambia are concerned about the loss of revenue that will come from customs unions.

The promotion of the free market is a major stimulant for economic development. However, in order for the free market to run smoothly, it is important for African countries to continue working on other important issue areas such as corporate governance, transparency, and public-private dialogue. CIPE has engaged with TFTA countries such as Ethiopia and Kenya on these issues. These issues must remain at the forefront so that the new TFTA can operate effectively and remain beneficial to all parties involved.

Challenges aside, there is still plenty for businesses and governments in the new African free trade area to look forward to. This trade powerhouse totals $1 trillion in GDP. This is big news for African businesses because it will enhance enterprise ecosystems in the region immensely. With the implementation of this new agreement, trade is expected to increase from 12 percent to 30 percent, meaning economic activity will reach more than 600 million people. This could be a major step towards a Continental Free Trade Area, which the African Union aims to complete by 2017.

Otito Greg-Obi is a CIPE intern for Knowledge Management. She is a rising junior at University of Pennsylvania. 

Are Remittances Really Remiss?

Remittances in Somalia

By Otito Greg-Obi

It is a popular opinion in the international development community that remittances – money transferred by a foreign worker back to someone in his or her home country – can have a negative effect on economic growth because recipients tend to spend cash flows on day-to-day subsistence. However, research shows that the opposite is true. A study on the effect of remittances on growth in Africa reveals that remittances seem to have an overall positive effect on Gross Domestic Product (GDP). When compared to foreign aid and Foreign Direct Investment (FDI), a 10 percent increase in remittances leads to a 0.3 percent increase in the GDP per capita income.

The Migration Policy Institute (MDI) points out that remittances are less volatile than international aid and FDI. For example, when the global economic crisis of 2009 hit, remittances in developing countries declined by only 5.27 percent whereas FDI declined by 32.94 percent. MPI also asserts that remittances allow for investment in human capital. For example, research shows that children in remittance households in Sri Lanka and Mexico have higher birthweights and lower rates of infant mortality. In Burkina Faso, Ghana, Uganda, Kenya, Senegal, and Nigeria, households that receive remittances are more likely to have a higher number of individuals with a secondary education. But, remittances are not just about human capital. In the Philippines and Mexico, there is a positive correlation between remittances and high levels of small business investment, as well as high levels of self-employment.

Remittances are a pressing issue in light of the current crisis in Somalia. Somalia boasts a population of 10.4 million people with forty percent of the population relying on remittances to meet basic needs. The country’s current GDP stands at around $2.37 billion. According to Oxfam, Somalia gets $1.3 billion dollars from its diaspora population each year, amounting to 56.5 percent of Somalia’s GDP. Somalia has no formal banking system. Instead, citizens depend upon Hawala, an informal currency transfer system run by money brokers. Increasingly strict money laundering policies threaten to topple the Hawala system and make life more difficult for many Somali citizens. These stricter laws result from a recent global effort to combat the risk of funding terrorism and the drug trade.

The anti-money laundering system is clearly connected to the remittance crisis in Somalia. The question is whether or not the system itself needs to be overhauled to solve the crisis. I had the opportunity to attend a talk given by Peter Reuter at the Center for Global Development. Reuter asserts that meaningful comprehensive reform is necessary and can begin by adopting a “do no harm” model.

Left to right: Jean Pesme of the World Bank, Peter Reuter of RAND, and Justin Sandefur CGD research Fellow

Left to right: Jean Pesme of the World Bank, Peter Reuter of RAND, and Justin Sandefur CGD research Fellow

He suggests conducting research-based cost benefit analyses so that countries can assess the extent to which avoiding risks is cost effective. If findings suggest that costs outweigh benefits, de-risking could be a viable option. He also suggests the controversial Tobin Tax as a possible method for dissuading money speculators.

I cannot say for sure if and how the anti-money laundering system should be reformed. However, I do have recommendations for the remittance crisis in Somalia itself.

In the short term:

  • Promote an increase in transparency between foreign banks, Somali money transfer operators, and citizens.
    • There needs to be a system in place that maintains a sense of trust between banks and citizens who are just trying to help their families survive.
  • Shift perspective on the issue of national security in Somalia.
    • Countries should strive to view remittances as a security stabilizer rather than a destabilizer. It is entirely possible for the sudden removal of remittances to incentivize citizens to join terrorist groups as an alternate source of goods/income.

In the long term:

  • Rebuild a formal banking system in Somalia that can slowly replace Hawala.
    • Bearing in mind the political instability of Somalia, is it necessary to gradually create a more formal economic landscape that offers an alternative to the Hawala money transfer system.
  •  Promote economic growth through capital other than remittances.
    •  Somalia should seek forms of alternative foreign capital (such as FDI) in order to create a larger role for diverse foreign capital for the sake of sustainable growth.

It is imperative that we continue to actively seek solutions to the remittance crisis in Somalia. Almost half of Somalia’s population will be negatively impacted by it. Two major preconditions for economic development are resources and stability. If remittances are protected, they can help to provide these preconditions and in turn contribute to the economic growth of Somalia as a country.

Otito Greg-Obi is a Knowledge Management Intern at CIPE. She is a rising junior at the University of Pennsylvania. 

Working Together for the Future of Serbia’s Youth

serbian-youth

 By Milos Djuricanin, Program Manager at Serbian Association of Managers. Duracanin was a 2014 ChamberLINKS participant.

“It is clear that youth unemployment is one of the biggest problems of our society. If we want to successfully solve the problem of unemployment, we have to listen more to the voice of the economy and private sector. This is the absolute priority of the Government of Serbia. That’s why we initiated conversations with businessmen, in order to get first-hand information on their personnel needs and to create a common set of measures which will enable increase of youth employment”– Vanja Udovicic, Minister of Youth and Sports.

The status and position of young people in the labor market in Serbia falls into the category of challenges with no quick fix. Year after year, we are faced with statistics that continue to confirm that every second, a young person is left without a job. According to data presented at the National Youth Strategy for 2015-2025, youth unemployment in August 2014 in the Republic of Serbia is 41.7 percent for people aged 15-24, and 33.27 percent for people aged 15-30 years. Young people are inactive in the labor market: last year the inactivity rate of young people aged 15-30 years was over 50 percent and in 2013, it was noted that 20 percent of young people ages 15-24 belonged to the category of young people NEET (not employed, in education or training).

One of the key issues affecting the high youth unemployment is a mismatch between the skills that young people acquire through formal education, and the knowledge and skills that employers expect them to have. According to research conducted by the Union of Employers of Serbia, young people throughout the formal education system receive and adopt only theoretical knowledge and only 4.12 percent of young people are considered to possess the knowledge and skills for real business. Eighty-six percent of young people reported that they felt they did not possess any practical knowledge.

Among the barriers for business development in Serbia, the lack of adequate staff is increasingly climbing on the list: from an 8th place ranking in 2006 to third place ranking in 2013. This is a clear indication of how difficult it is to find high quality staff.

Given this information, the Serbian Association of Managers (SAM) with the support of the Center for International Private Enterprise (CIPE) organized an event titled “Support for the youth – future for the country,” during which a Memorandum of Cooperation was signed between the Ministry of Youth and Sport and SAM aiming to increase opportunities for top university students in the country to intern for SAM’s member companies.

Read More…

Press Freedom Still on the Decline

freedom-of-press2015

By Dahye Kim

On May 3, the United Nations General Assembly honors the fundamental principles of press freedom with World Press Freedom Day. On this day Freedom House also released Freedom of the Press 2015, the latest edition of its annual report published since 1980 to evaluate press freedom around the world.

Unfortunately, the dominant global trend in 2014 was negative. Global average score of press freedom declined to the lowest point in more than 10 years, with the largest one-year drop in a decade. There were significant declines in press freedom in 18 countries (Greece, Bahrain, Mali, Hong Kong, Azerbaijan, etc.), while just eight had significant gains (Tunisia, Myanmar, Libya, etc.)

Of 199 countries and territories, 32 percent were rated “Free”, 36 percent were rated “Partly Free”, and 32 percent were rated “Not Free.” This marks a shift toward the Partly Free category compared with the previous year.

Read More…

Maximum Wage in Egypt: Who Pays the Bill?

cbe-iimage

Photo: Muhammad Mansour

Hiba Safi is a CIPE-Atlas Corps Think Tank LINKS Fellow at the Tahrir Institute for Middle East Policy.

This post originally appeared on the Tahrir Institute for Middle East Policy blog

Over the course of the past several months, a revolt has taken place in Egypt’s banking sector. Seeking better opportunities and higher salaries in private sector banking jobs, hundreds of banking officials have resigned in protest since July 2014 legislation placed a cap on salaries for employees in Egypt’s public sector. While most public servants had little cause for concern, the law also applies to those working in state-owned companies. Suddenly executives at Egypt’s many state-owned banks would earn a maximum monthly wage of 42,000 Egyptian pounds (roughly US$6,000)—a mere fraction of their earning potential.

Former Minister of Finance Samir Radwan has spoken out against the implementation of a maximum wage, stressing that such an approach deprives public servants of their rights and does not meet demands for social justice. On February 17, a Cairo administrative court sided with workers from the Housing and Development Bank and the Export Development Bank of Egypt, ruling the maximum wage law to be unconstitutional. Tasked with fulfilling revolutionary calls for social justice and repairing an Egyptian economy on the ropes since the January 2011 uprising, President Abdel-Fattah El Sisi’s decision to cap a maximum wage at “no more than the president earns” aims to promote equality and social justice, halt the growth of income inequality, and bolster the middle class. But the actual impact of a maximum wage merits more consideration: Should there be a maximum wage in Egypt? Would the economy really be better off after capping earnings, particularly given the landscape of public and private ownership of many key sectors in the Egyptian economy?

Read More…