Author Archives: Oscar Abello

Is 2011 Ghana’s 1978? New National Pension Fund Scheme Could Repeat History


Traders work on the floor of the Ghana Stock Exchange in Accra, Ghana, June 15, 2006. (Photo by World Bank/Jonathan Ernst)

Editors’ note: this post originally appeared on

1978. How many readers weren’t even born yet that year? That was the year, for example, when Garfield the Cat made his comic-strip debut. Two Popes died that year. The Chinese government lifted its ban on works by Aristotle, Shakespeare, and Charles Dickens. Israel and Egypt made peace. Atlantic City, N.J. opened its first casino. 1978 also happens to mark the birth of today’s U.S. venture capital industry. 2011 could be that year for Ghana.

In 1978, the U.S. Department of Labor relaxed key provisions in the Employee Retirement Income Security Act, allowing pension funds to invest in private equity (PE) firms, including venture capital groups. The change caused a tsunami of capital to new and growing firms, as capital under PE firm management went from $39 million in 1977 to $570 million in 1978. Startup and growth capital in the U.S. has never been the same.

This year, key changes from Ghana’s 2008 pension law come into effect that might lead to a similar explosion in private equity and venture capital. The pension scheme is now mandatory for all public and private formal sector workers in Ghana; 13.5 percent of formal sector salaries will be deducted and placed under the management of Ghana’s Social Security and National Insurance Trust. An additional 5 percent of each formal sector worker’s salary will be deducted and placed under management of private institutional investors.

That 5 percent could be as much as $400 million annually for institutional investors, as Bloomberg News recently reported. About 25 percent of that will go into equities, implying $1.9 million in capital per week moving into a stock market with a current weekly turnover of only $1.8 million, according to the Bloomberg report. The rest of the estimated $400 million will go into local currency debt investments.

“The entry of new institutional investors is therefore expected to have a marked effect on the local equity market,” a local economist told Bloomberg. “The new fund managers are also expected to make markets more liquid, efficient and transparent, offer alternative sources of financing from local commercial banks and stimulate financial innovation.”

More competitive institutional investors and more liquid stock markets would be a boon for impact investors, who need buyers and liquid capital markets to make exits more frequent and more lucrative.

The new pension law also calls for a privately-managed voluntary pension scheme catering to the 80-plus percent of Ghanaians who work in the informal sector – i.e. Ghana’s BoP markets. Just imagine: retirement savings from Ghana’s BoP helping to finance Ghana’s new and growing businesses. Time will tell if the scheme will gain traction, but it’s tantalizingly close to reality.

Additionally, as workers never lose ownership of pension fund contributions, Ghana’s new pension scheme allows both formal and informal sector workers to use the value of contributions under private management as collateral to obtain a bank loan. The effect that has on bank lending to Ghana’s BoP still depends upon a range of other factors, but liquid collateral is a major step in the right direction.

There’s no guarantee that Ghana’s new pension law will produce the same results as the 1978 changes did in the U.S. Things could go smoothly for a few years until Ghana’s economy hits a rough turn, and if there were any weaknesses in the transparency or accountability of pension fund manager governance, operations, licensing or oversight, then the whole system could collapse. In a speech at the launch of the new pension scheme, Ghana President John Evans Atta Mills urged pending pension fund managers to take the lessons of the recent global financial crisis to heart.

Plenty of blog posts have provided glimpses of the development power of savings, including long-term savings for retirement, weddings, or funerals. Ghana’s new pension scheme builds on the power of savings, mobilizing capital domestically rather than channeling capital from abroad, and using local savings for much more than just microcredit or buying central bank bonds.

Doing more than business

Not every private sector development expert in the world participates in the World Bank Doing Business Indicators Survey, but those that do will be filling out those surveys this month and next. With those indicators heavy on the minds of many who have worked to improve them since a year ago, these two months are a good time to point out the difference between good governance and democratic governance.

The DB indicators’ nine core areas – Starting a Business, Dealing with Construction Permits, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, Closing a Business – measure institutional performance of key government functions for private sector activity. A growing number of governments care about their performance on these measures and they see it as a competition. Yet the indicators have important limits outlined in each core areas’ methodology that analysts and media often overlook.

For example, under the Closing a Business area, among other specifics the assumed case study company is a hotel with 201 employees and its only asset and source of income is the hotel property. The value of the hotel is 100 times the income per capita of the economy. The hotel is defaulting on a 10-year loan collateralized by the hotel property and/or a universal business charge where applicable. How many businesses in a given country fit that exact mold?

While assumptions are necessary for the purpose of gathering data, they are important caveats that analysts and reformers often overlook when evaluating the future success of DB-type reforms. How do analysts or reformers know which DB core areas are most relevant to a given country context? If a country improves its score on a core area, how meaningful is that improvement to that country’s private sector?

Just because DB indicators don’t answer those questions doesn’t mean the indicators are useless. Rather than being a way of making governments compete to achieve top-down indicator-specific reforms, the DB indicators can be a useful subject for constructive dialogue between government reformers and private sector stakeholders. The quality of that dialogue is what matters for democratic governance.

No matter how divided politically or ethnically, time and time again economic issues have united disparate factions and helped governance improve democratically as well as functionally. Kenya’s 2007-8 post-election violence and resolution is a powerful recent example of such dialogue that has paved the way for many governance and business-environment improvements, including a vastly improved constitution.

When your reform process itself includes tax-paying citizens and businesses as a driving force, then you do more than improve your DB score and ranking. You’ve embedded those reforms in your country’s ongoing historical process of institutional change. You’ve made those reforms meaningful and applicable to your specific country context. Perhaps you’ve even contributed to a healing process for decades’ or centuries’ old conflicts. In short, you’ve improved democratic governance.

Egypt’s 800 billion pound gorilla

Depositors line up to withdraw funds from Banque du Caire, a state-owned bank in Egypt. Where has their money been? (Photo: Reuters/Amr Abdallah Dalsh)

With an estimated 800 billion Egyptian Pounds ($136 billion) in domestic deposits, you’d think Egyptian banks would have plenty of loans and credit available for Egyptian small- and medium- sized enterprises (SMEs). Not quite, when Egyptian government debt held domestically is nearly the same amount.

Egypt’s banks have taken a few important steps toward greater access to capital for SMEs. In the past decade, one state-owned bank in Egypt has been privatized, and the other three have undergone aggressive restructuring. Banks in Egypt have also implemented governance and risk management measures in compliance with the international Basel accords for banking supervision, with a focus on financing for SMEs. Transparency and competition are two forces that can drive banks toward disciplined and responsible small business lending, but Egyptian government debt remains a major constraint.

In part a legacy of writing blank checks for the Egyptian government during decades of authoritarian rule, Egyptian banks still have an insatiable thirst for financing government debt instead of lending to the private sector. In the summer of 2010, Egyptian banks maintained an anemic loan-to-deposit ratio of about 52 percent, compared with 100 percent ratios typical in Persian Gulf countries. Even in the midst of the U.S. credit crunch, U.S. banks maintained loan-to-deposit ratios closer to 80 percent. Healthy loan-to-deposit ratios tend to hover between 95 and 105 percent.

On top of that, Egypt’s onerous bankruptcy procedures discourage entrepreneurs and banks from doing more business with each other. So why extend more loans or credit to entrepreneurs when there are plenty of government bonds to buy that are safer, more available, and pay more than enough interest for banks to remain profitable? The insatiable thirst for government bonds isn’t entirely the banks’ fault.

It’s a classic case of what economists call crowding-out and it’s partly why Egyptian SMEs haven’t emerged to provide goods, services, and jobs that Egypt needs.

The rest of the Egyptian financial sector as it stood before January 25 held some hope with young firms offering factoring services or leasing equipment to SMEs. A few equity funds in Egypt even had limited interest in start-ups. In 2010, trading began on the Egypt-based NILEX, the Middle East and North Africa’s first small- and mid-cap stock exchange, and there is certainly room for impact investing and microcredit to step in and take on some of the lending that Egypt’s commercial banks aren’t taking on for themselves. But no matter how you slice it, commercial banks play an important role in allocating capital efficiently and responsibly. The total market capitalization of Egypt’s main stock exchange was only about half the value of the country’s bank deposits as of January 2011.

Even the cheaper Egyptian Pound, due to vast amounts of foreign capital and trade fleeing or avoiding Egypt, isn’t going to help exporters as much as it could without greater access to loans and cheaper credit. Egyptian exporters have duty free access to the EU as well as current and pending free access to 26 countries in Africa, but without capital to ramp up production and distribution quickly, there are plenty of lost opportunities.

There’s plenty of capital already in Egypt to mobilize as loans or credit to SMEs. Egyptian banks have implemented cumulative sector-wide reforms to help handle the risks and other challenges of small business lending. They need the 800 billion pound gorilla of government debt off their backs, and that’s a choice before the Egyptian people to demand from their future leaders.

Cross-posted on

Democracy, dissent, and digital media in the Arab World

"Τhrough the Western Looking Glass" Revisited by Spiros Derveniotis. (

An expert panel convened on Capitol Hill yesterday all agreed that digital media have been central tools in toppling autocrats in the Middle East and North Africa, but they do not replace the human agency and courage that are the true forces underlying change in the region.

The Center for International Media Assistance (CIMA) and the National Endowment for Democracy (NED) recruited a panel of two conventional media journalists, an information technology expert, and NED’s own program officer for the Middle East and North Africa. Senator Richard Lugar (R-Ind.), Representative Mike Pence (R-Ind.) and Representative Adam Schiff (D-Calif.) were honorary co-hosts for the event. Rep. Schiff delivered a brief statement for the occasion.

“One need only walk the streets of Tunisia to see graffiti on the walls saying ‘Merci Facebook’,” Schiff remarked.

NED President Carl Gershman introduced the panel, noting how social media made it possible for once-distant and isolated bastions of dissatisfaction to connect and mobilize against common problems.

Amira Maaty, NED program officer for the Middle East and North Africa, painted a broad context of youth-led civil society in the region, some of whom are NED grantees. Youth-led organizations aren’t very many, but they are very dynamic, Maaty said. Some are affiliated with older human rights organizations, some are student groups, and there are others. What intrigued Maaty most besides their energy and courage was how they have been using social media as place to find and exchange ideas and best practices for activism through training videos, notes, and messages through Facebook or YouTube.

Maaty also detailed how digital media allows new groups to challenge traditional media as sources of independent and grassroots reporting, and also allows new groups to challenge traditional civil society as outlets for self-expression and sources of personal and organizational support. She stressed the importance of supporting, through NED or other channels, the human backbone of emerging digital media-driven civil society, as digital media are just tools and authoritarian forces can make just as much use of them.

Egyptian Journalist and Blogger Mona Eltahawy emphasized the much overlooked traditions of both dissent and digital media usage in the region. She hearkened back to 2005, when she spoke publicly on a number of occasions about digital media in the region and how Al Qaeda’s ability to make use of it dominated conversations, yet at the same time she repeatedly encountered examples in Bahrain and Tunisia of individuals who had early on tapped the power of digital media tools to share stories of yearning and struggling for human freedom. Though digital communities in 2005 were small – she gave a figure of 280 bloggers in Egypt in 2005 – they learned quickly and grew even faster, as authoritarian governments kept a tight hold on the real world.

“In the virtual world, they could build the world that they wanted,” Eltahawy described. Activists could influence each other and share stories that could not have been shared otherwise. Eltahawy cited an example of LGBT groups forming among Saudi Arabians on digital media that had no origin in the real world. “Facebook and Twitter are tools,” she distinguished. “But they did not invent courage.”

“The human need to rise up against a regime has always been there,” Eltahawy went on. Digital media allows people to see others acting on impulses they have long shared and yet suppressed for sheer lack of real or virtual networks that can support and facilitate human agency. “Digital media didn’t invent courage,” Eltahawy continued, but it allowed people to gain a broader sense of just how many others shared the same concerns and thoughts and to find out where they could join each other in protest.

Georgetown University Visiting Professor of Internet Studies Michael Nelson picked up where Eltahawy left off by comparing the Middle East and North Africa’s current wave of change to the Reformation. Martin Luther’s ideas and dissent spread so much more quickly than ever before thanks to the printing press, which according to Nelson cut the cost of sharing information by 99 percent. “Today digital media has cut the cost of sharing information by 99.9 percent,” Nelson said.

The hunger for information sharing manifests itself in some unexpected but unsurprising ways, Nelson elaborated, such as the desire for online pornography that helped drive the process of creating and sharing ways to circumvent blocks and controls imposed by authoritarian governments. Nelson also told of group organizers using dating site profiles and messages as a means of disguising coded information about meetings and gatherings.

Of course, Nelson warned, autocrats can certainly find ways to stop or worse hunt down those they suspect of using digital media to subvert their grip on power and might even elicit the passive support of corporations that could supply them with tools to block content or track dissidents.

“Ninety percent of the people won’t be able to find what they want,” Nelson summarized. “But all it takes is for that 10 percent to find what they’re looking for and to share it with their own social networks,” and suddenly what had been just conversation fodder becomes fuel for change. They could be looking for pornography, for stories from other countries about LGBT experiences, for reformer training materials, for WikiLeaks cables, or for news about their childhood friends who have moved abroad and started their own businesses.

AlJazeera’s Washington Bureau Chief Abderrahim Foukara spoke last, emphasizing that, “We still don’t know why it happened when it happened in the region.”

He spoke about a recent trip to Iraq, where he was compelled to ask Iraqis whether social media would have made a difference in the 1990s when Saddam Hussein crushed multiple rebellions in horrific and violent ways. Foukara said he could not get a consensus on anything other than that Saddam was certainly a more deranged leader than even Libya’s Muammar Ghaddafi, who has hired mercenaries to slaughter his fellow Libyans.

Foukara also reiterated the role of digital media in allowing people – especially youth – in the region to see more and more of what life is like outside of their countries where so many have only ever experienced repressive autocracies. Such connections created ‘dots,’ according to Foukara, and in turn conventional media could play the role of connecting dots, where such outlets have been open to new media. Conventional media, Foukara said, can provide a broad context around individual stories, photos, and images shared via Facebook or Twitter.

Foukara also emphatically predicted that if democracy emerges successfully in the region, a debate is certain to emerge over the underlying forces that allowed so many to live under such harsh leadership for so long.

In responding to audience questions en masse, panel members agreed on the quality and durability of digital media-driven commitment to following through on democratic reforms. In a region where autocrats had long maintained a near-perfect monopoly on public political discourse, the virtual world has captured and reflected back so many thoughts, conversations, and desires for change.

“It’s now a process of cleansing and a process of accountability,” Eltahawy concluded, referring to the ability of Middle East and North Africa residents to obtain information from a diversity of digital media sources tracking what is happening in each country and what they can learn from watching each other. “But saying WikiLeaks or Facebook or Twitter caused revolutions takes away agency from the real human beings who have long been demanding freedom.”

A call to action for business in developing economies

In attempting to get to the heart of what makes an economy tick, economists notoriously overlook the political and social ramifications of market-oriented growth and development.

Why would anyone oppose jobs and prosperity? Who could possibly be against the freedom to choose how to make one’s living? While there are plenty of contradictory voices screaming back, both advocates and adversaries of market-oriented growth and development tend to downplay the full spectrum of political and social ramifications associated with a thriving private sector. Cultures may change, families may be uprooted, and communities may be overrun – yet all the same can happen to authoritarianism, political marginalization, and gender-based hierarchy.

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Greed not good enough anymore

The private equity firms that provided inspiration for the cutthroat fictional investor Gordon Gekko from the film Wall Street have since grown a heart. The Carlyle Group, born the same year (1987) Gekko first appeared on screen to declare “Greed is good,” recently released its inaugural Corporate Citizenship Report, the first of its kind from a large private equity firm. The report is just one component of Carlyle’s larger initiative to incorporate environmental, social, and governance (ESG) metrics into its core business strategy. For Carlyle, currently the world’s second largest private equity firm, greed is not good enough.

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What’s your Haiti?

A street market in Port-au-Prince, Haiti. (Photo: Flickr user luvjnx)

There are so many versions of Haiti right now.

Shattered Haiti still lingers. This week marks one year since the earthquake that reduced much of the Haitian capital Port-au-Prince to dust, and by all accounts rebuilding efforts have been disappointing at most. Generations without effective democratic governance deprived construction firms and workers any guidance or codes to which they could adhere for earthquake-proofing or just general solid construction. Meanwhile without effective property rights administration, as is common throughout the developing world, migrants from rural areas settled into shantytowns without any formally-recognized documentation of residency or ownership that might have entitled them to insurance or maybe public compensation for lost property.

Hopeful Haiti has captivated many imaginations.

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