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Efficient, resilient, and accountable governance systems are essential to successfully manage natural resources, provide public services, foster trade, attract private investment, and manage aid relationships. Corruption and secrecy are often at odds with such goals. Illicit financial flows, for example, undermine development and governance while secrecy in extractive industries can squander a nation’s wealth and weaken the social contract.
CGD’s work in this area focuses on contact transparency, tax evasion and avoidance, efforts to combat money laundering and terrorism financing, and the negative effects they can have on remittance flows and international security.
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What's keeping private business from flourishing in Africa? On the basis of unique enterprise surveys, Vijaya Ramachandran and her co-authors identify poor roads and unreliable power as major physical challenges; ethnic segmentation and the economic predominance ethnic minorities further constrain the business environment. The author show how investing in infrastructure and improving access to education can help bring about a broad-based business class in Africa.
Tobias Pfutze's paper presents evidence for international migration to have played a significant role in the Mexican democratization process. It argues that the non-taxability of remittances reduces an incumbent government's ability to maintain political patronage systems and, as a result, elections will become more competitive. The empirical results, using data from municipal elections in Mexico, support this theory. Estimating an instrumental variable probit model, I find that remittances significantly increase the probability of a party in opposition to the former state party PRI to win in a municipal election. Moving from the first to the third quartile of the remittances measure increases that probability in previously state party ruled towns by more than 10% when party preferences are controlled for.
A new report issued last week in Davos by former UN Secretary-General Kofi Annan on behalf of the Africa Progress Panel draws in part on CGD research to argue that Africa is both at risk from the global economic crisis and potentially an important part of the solution.
The report says that experiences of past financial crises suggest that aid to Africa may be cut. But it also sees a silver lining to the crisis: measures to help Africa—including trade and investment initiatives, as well as aid—should be an important part of a global stimulus package in response to the global financial crisis.
"Africa can be an important part in a global economic stimulus plan," said Annan, who chairs the Africa Progress Panel, which is composed of leaders from Africa and high-income countries. "The scope for investment in Africa is vast."
Documenting the economic growth and positive political trends of the last few years, the report states that "Africa's medium to long term prospects are better now than at any time since independence."
However, the report also cautions that "the global crisis could arrest and even reverse steady, and in some cases dramatic, gains that have been made over the last decade." Citing research by CGD research fellow David Roodman, the report warns that despite promises to the contrary, evidence from financial crises shows that rich countries have generally reduced the level of aid in the aftermath of a financial crisis.
The panel report says that "it is more important than ever that Africa's partners honor their commitments" in terms of aid. Alluding to a new aid delivery mechanism being proposed by CGD president Nancy Birdsall called Cash on Delivery Aid, the report suggests that "rich countries can also link aid to outcomes in order to reduce the burden on African governments and improve aid effectiveness."
Africa Progress Panel Report, Preserving Progress at a Time of Global Crisis
Session on the State of Africa at Davos
Kofi Annan's Davos Diary
The report also asserts that "a real partnership between Africa and her supporters is the only way for progress to be achieved." This requires that global governance reforms "include means by which Africans are represented in a legitimate and effective manner."
Annan launched the report at Davos at a session focusing on the State of Africa with leaders from across the continent. Speaking at the session, he said:
"Economic recovery in industrialized countries is needed for Africa—for trade, remittance flows, investment, and aid levels. However, Africa is also integral to immediate efforts to reboot global growth. World leaders must grasp the opportunity to support African development as a means of driving their own economic recovery."
Annan also had strong words about the situation in Zimbabwe, stating that the African Union "did not have the courage" to back the conclusions of its own election observers.
"The crisis in Zimbabwe is man-made, unnecessary, and only getting worse," he said. "The recent cholera outbreak that has taken thousands of innocent lives is only the latest sign of the collapse of a once-thriving nation. Responsibility for this calamity falls squarely on the shoulders of Zimbabwe’s leaders, who have shown great callousness toward their own people and nothing but contempt for the exercise of their political voice and freedoms. Zimbabwe’s neighbors, the African Union, and regional bodies such as the Southern African Development Community (SADC) need to act more purposefully to bring about political change and facilitate recovery and reconstruction."
CGD senior fellow Vijaya Ramachandran served as rapporteur for the 2008 report of the Africa Progress Panel and assisted with the Davos report. "It is extremely important for the urgent issues of infrastructure investment, aid effectiveness, trade, and agriculture to remain as priorities during these times of crisis," she said. "While we are preoccupied with corporate irresponsibility and financial bailouts in the rich world, we must not forget our commitment to economic development and political stability in Africa."
The report urges three steps to mitigate the worst effects of the crisis on Africa, and to enable the continent to become a driver of global economic recovery and stability:
Rich-country governments and institutions must lend strong support to address the problems of climate change by investing in adaptation and in the prevention of deforestation and by increasing funding for renewable energy in Africa.
Africa's own potential for a green revolution in food production must be realized. Technical and financial support is required as well as additional investments in rural infrastructure to ensure farmers’ access to inputs and market outlets.
There has been no progress on multilateral trade negotiations. While pressing for the impasse post-Doha to be broken, an early harvesting of gains in trade liberalization for Africa is needed.
Braving freezing temperatures and gusty winds, hundreds of development experts and members of the policy community packed a Washington hotel ballroom for a panel discussion on the outlook for global development policy in the new Obama administration, just four days before the inauguration of the new U.S. president.
On the panel were David Gergen, senior political analyst for CNN, editor-at-large at U.S. News and World Report, and advisor to four presidents; CGD president Nancy Birdsall; and CGD senior fellows Steve Radelet, Vijaya Ramachandran, and David Wheeler. CGD’s Lawrence MacDonald was panel moderator.
Gergen, a member of CGD’s board of directors, saw both opportunities and risks for greater attention to development under the new administration. On the one hand, new president Barack Obama has first-hand experience of poverty in developing countries, having lived as a child in Indonesia. On the other hand, Gergen said, Obama faces a crowded policy agenda and the immense fiscal demands of responding to a global financial crisis.
“We have an incoming president who will embrace development and accept some sacrifices to further the development agenda,” Gergen said. He added, however, that an anticipated flood of countercyclical spending to stimulate the economy would be followed by extremely tight budgets, possibly squeezing out development initiatives.
Birdsall responded that it is precisely in such a situation that sound policy ideas, such as those offered in CGD’s newest book, The White House and the World: A Global Development Agenda for the Next U.S. President, are most valuable
Discussion with David Gergen on Obama's Development Policy (video)
White House and the World (book)
White House and the World (briefs)
“I would ask the president to be a champion for development,” said Birdsall. “It’s not just about foreign aid. It’s about using all the tools that the United States has, including trade as a development policy, how to deal with climate change, how to maximize the development benefits of bringing the private sector to Africa, and how to think across the board about the relevance of development in making Americans more prosperous,” she said.
Panel members suggested ways that the United States could have a big positive impact on the economies of poor countries by making policy changes that also benefit Americans and cost relatively little in budgetary terms.
Ramachandran, author of a forthcoming book on ways to improve the business climate in Africa, outlined how the United States can help to foster private-sector investment to address the continent’s chronic infrastructure shortages, especially roads and power. For example, she said, U.S. companies are leaders in small-scale renewable power that could provide off-grid electricity to rural Africans.
Wheeler, an expert on development and environmental issues, said that his conversations with senior officials in China and India have convinced him that they are prepared to act to reduce their countries’ greenhouse gas emissions—provided that the United States first moves aggressively to reduce its own emissions, which on a per-capita basis are many times higher.
Radelet, who served as a senior official in the U.S. Treasury under both Democratic and Republican administrations, and is co-chair of the Modernizing Foreign Assistance Network or MFAN, urged the administration to create a National Strategy for Global Development. This would provide the basis, he said, for a grand bargain between the legislative and executive branches on modernizing U.S. foreign assistance, including new legislation to replace the burdensome and outdated Foreign Assistance Act of 1961.
Gergen said that these and other ideas in The White House and the World were “critically important for the future of the world and for redesigning American international policy.”
During a lively audience Q&A session, topics included trade, migration, corruption, and the U.S. response to humanitarian crises.
Summing up, Gergen said “Obama is incredibly strategic. This is a man who thinks long-term.”
Birdsall interjected: “That is why Obama can be a champion for development.”
“That’s exactly right,” Gergen responded.
In this paper, witha foreword by senior fellow Vijaya Ramachandran, Benjamin Eifert of UC-Berkeley investigates the effects of regulatory reform by drawing on years of data across 90 countries. He discusses the characteristics of countries that choose to reform and the results of these reforms. The paper it contains valuable insights for policymakers and institutions focused on regulatory reform in weak states.