Archive for March, 2012

The World Economic Forum, the premier gathering of world leaders would be held in Addis in May,2012.  Under the theme “Shaping Africa’s Transformation” , the meeting will explore these issues under three thematic pillars: strengthening Africa’s leadership, accelerating investment in frontier markets, and scaling innovation for shared opportunities.

Besides image building and be able to showcase a beautiful country and people, the Ethiopian business community will have networking and joint venture opportunities.

Professor Mekonen Haddis

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Africa: Standard Bank – China to Become Africa’s Biggest Export Market in 2012

Already Africa’s single biggest trading partner, China is set to become the continent’s largest export destination in 2012 according to South African based Standard Bank.

The milestone would mark a significant turnaround since 2008, the bank says, when exports to China stood at half of those to the US.

In a research note, Standard Bank’s Beijing based economist Jeremy Stevens writes that “despite becoming marginally more expensive, China has managed to grow exports to Africa rapidly.”

The estimate is the latest sign of deepening ties between the two regions, and Mr Stevens goes on to say that “Chinese and African businesses are now more comfortable transacting with one another. Looking forward, China is well-positioned to participate in Africa’s next phase of development.”

China has been at the forefront of reshaping the continents external relations in recent years, and Mr Stevens notes that its “foresighted engagement with Africa back at the start of the past decade was a master stroke, allowing Beijing to steal a march on Africa’s other partnerships.”

Bilateral trade volumes now exceed $160bn per year, or almost a fifth of the continent’s overall trade – a 28 percent increase from 2011. Imports from China stood at $73bn in 2011, up more than 23 percent on 2010, while Africa’s importance to overall Chinese trade is also increasing. The region now accounts for 3.8 percent of exports, up from 2 percent in 2002. The rapid growth in trade between the two regions is putting pressure on more established partners such as the EU and the US to strengthen their commercial ties with Africa.

Rapidly growing economic activity has gone hand in hand with political engagement. High profile visits by Chinese officials have become common place in Africa since 2000, including President Hu Jintao and Chinese Premier Wen Jiabao.

China has also begun making its mark as an emerging donor. In January a new $200m African Union headquarters was commissioned in Addis Ababa, Ethiopia. Funded entirely by China, the opening ceremony was attended by Jia Qinling, the country’s most senior political adviser, who told those in attendance that “the towering complex speaks volumes about our friendship to the African people, and testifies to our strong resolve to support African development.”

The relationship has however not been without controversy, and China regularly finds itself the subject of allegations that it undermines human rights and governance in its dealings with African governments.

China’s focus on securing access to natural resources has also been the source of debate, with critics arguing that its interests do not represent a long term strategy and differ little from exploitative relationships that have done little to support development on the continent in the past. Fuels, ores and metals account for almost 90 percent of all Chinese imports from Africa.

In some resource exporting countries, notably Zambia, China’s role has become a contentious issue in recent years. Having invested heavily in Zambia’s copper industry relations have been strained amid allegations of mistreatment of Zambian workers by Chinese foremen; tension that has resulted in several deaths in recent years.

Despite such cases, China’s role in Africa is likely to deepen significantly in the coming years. It is estimated that more than one million Chinese citizens now live on the continent, and a change of leadership in China later this year is not expected to result in a change of policy.

Standard Bank’s Mr Stevens argues that “China’s commodity demand is structural and will be longstanding. In addition, Africa’s demand for infrastructure and China’s differential approach to financing creates markets for Chinese exports; commercial opportunities for its [state owned enterprises] and employment opportunities for Chinese people.

By Lanre Akinola, 22 March 2012


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The Money Delusion

The Money Delusion

The headlines are full of crises because Government is apparently short of money. From the City of Stockton’s impending bankruptcy to the Federal budget deficit, we hear government is “broke.”

But this “shortage” is as delusional as the belief that the sun revolves around the earth. Deficits cannot possibly overwhelm any government with a sovereign currency.

When government is not constrained by a treaty–as the euro is–or a fixed exchange rate and when dollars are not backed by commodities like gold or silver, then our government can issue money at will.

And the U.S. central bank–”The Fed”–knows this perfectly well. Its recent, first-ever audit, sponsored by the congressional odd couple, democratic socialist Bernie Sanders and libertarian Ron Paul, disclosed that the Fed issued $16 – $29 trillion to bail out the Finance / Insurance / Real Estate (FIRE) sector of the economy in the wake of Lehman’s failure in 2007.

But why does FIRE, whose frauds caused the current economic meltdown, get trillions at the drop of a hat, and social safety net programs and revenue sharing with states, whose needs are far more modest, get the “one-finger salute”? Because dismantling these social programs, not “fiscal responsibility,”  is the point of this deficit frenzy. The really newsworthy fact is that destroying social programs is not the result of some natural shortage. It’s the product of political scheming and nothing else.

The observation that governments can issue infinite amounts of sovereign fiat money seems at once obvious and suspicious. No matter how much we know it’s true, it doesn’t seem trustworthy, based on our experience. We want government to be like something familiar–a household that has to tighten its belt in tough economic times, for example. But government is not like that. Unlike households, Government is an issuer, not a consumer of money.

But won’t creating lots of dollars be inflationary? It can be, but the scary historical examples of hyperinflation–Zimbabwe and Weimar Germany–originated with constrained production, not out-of-control mints. Despite the trillions given FIRE, the U.S. economy’s current economic problem is idle productive capacity and deflation, not inflation. The bond market confirms this by continuing to support record low interest rates. It’s worth mentioning that deflation also promotes the current Banana-Republic income divide between rich and poor, favoring creditors over debtors.

In any case, losses stemming from unused capacity–in both factories and human capital–are much greater than any hypothetical inflation’s cost. So don’t buy the B.S. about deficits.

Finally, for all the gold-bug monetarists who remain skeptical, this is not a theory, or a plea to print infinite money. It’s an observation about what has already occurred and a request that we put money to work for ordinary people suffering in the bankster-caused downturn, instead of bailing out the banksters themselves.

Despite this disclaimer, and the lower cost than these bailouts to help social programs,  some will still insist that inflation is the inevitable product of issuing sovereign, fiat money. Say such skeptics: “Governments manipulate data so core inflation appears lower than it really is. Look at the price of gas [and not the price of homes]!”


Such people can look at shadowstats.com for a serious attempt to eliminate any such politically-motivated manipulation. Shadowstats offers alternatives to government statistics, but it still reports no massive shift in inflation because of the multi-trillions issued by the Fed. The Fed’s intervention exceeds an entire year’s GDP so why isn’t inflation higher than official figures or even Shadowstat’s modest report? Answer: Because people are paying off debt and hoarding dollars — all symptoms of deflation.

Of course, this will not convince the unconvince-able. To them I say: if you really believe all the value has actually been inflated out of those dollars, and creditors cannot count on being repaid if they accept dollars, please mail those useless dollars to me in care of this publication. I look forward to hearing from you.

Mark Dempsey


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Friday 9 March 2012

We don’t lose points on gender if we admit that class, race and ethnicity also have a role in creating inequality

Right now, it’s probably possible to go to a different meeting about what might come after the millennium development goals somewhere in the world every week.

Much of the talk at these events is about inequality. It’s widely recognised that the MDGs, by focusing on targets that are about average attainment, have done little to tackle all kinds of social inequalities. If your aim is just to halve the percentage of the population who live on less than $1 a day, for example, you can do that and exclude whole communities who face discrimination based on ethnicity, race or gender. It’s even possible to reach the target if significant proportions of the population are getting worse off.

Amid all the chatter about inequality and post-2015, gender voices have been strangely silent so far. Partly, this might be because, as usual with high-level policy debates, there aren’t many women in the conversation – a recent UN meeting I went to on the topic featured panels composed entirely of men.

But before anyone goes to the barricades demanding that gender be mentioned in every paragraph, let’s look at the data (pdf). What’s interesting is that women and girls are not doing systematically worse on every MDG than men and boys. In fact, gender inequalities vary considerably between goals. While young women in Africa are between two and four times more likely than their male contemporaries to be infected with HIV, globally girls are no more likely than boys to be underweight. In Bangladesh, it’s the poorest boys who are less likely to go to school than the poorest girls.

Gender is just one of a multiplicity of inequalities that combine to form the patterns of poverty and exclusion that we see in the world today. Other inequalities (pdf) are also hugely significant. In Vietnam, for example, only 7% of ethnic minority households have access to improved sanitation, while the figure for the majority Kinh and Chinese groups is 43%.

Women from excluded groups often face a double whammy of injustice. In Peru, the national average years of schooling for young adults is just under 10 years. For indigenous people the figure is seven years, while for poor, indigenous women the figure is five years.

Even maternal mortality, the goal that is most off track, presents a more complex picture than simple lack of care for women in health systems. In India, more than 90% of rich urban women have a skilled attendant (pdf) with them when they give birth, but for poor rural women the figure is less than 20%.

Given this picture, what can be said about gender and a post-2015 agreement? It needs new thinking and new action.

First, it’s time for a wider debate. Too often policy ideas about inequality are dominated either by a focus on income inequalities, which tends to assume that everyone is the same apart from some randomly distributed differences in income (missing out the ethnicity, geography or gender that are the source of income differences), or by lobbies for different groups: disabled people, ethnic minorities, women-headed households, etc. The post-2015 debate is a chance to join forces, change the conversation, and make it all about inequality and exclusion as the source of poverty and the problem to be tackled.

Second, and contradictorily, it’s time to prise apart some cherished categories. There are certain things that all women have in common, of course. But poor and excluded women probably have more in common with the poor and excluded men they live with than with the wealthy middle-class women who run things. There’s no shame in admitting this – we don’t lose points on gender if we admit that class, race and ethnicity also have a role – sometimes the primary role – in creating inequalities and exclusion. The new conversation has to be honest about what divides as well as what unites people.

What type of agreement might follow from this thinking? In the past, advocacy and policy on inequality has tended to focus on identifying and working on behalf of a specific group who suffer a particular discrimination. But for something as broad as a post-2015 agreement, that just won’t work. It’s not about making an agreement that works “for women” or “for ethnic minorities”, but about creating incentives for governments to identify and tackle a range of inequalities.

That’s ambitious, but it’s worth the effort of rising to the challenge. This is a big opportunity to institutionalise a more accurate and mature understanding of inequalities into development policy and, let’s hope, to change people’s lives for the better.

Claire Melamed


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Public Sector Banks

Those countries who have created the balance between private and public will succeed. Those who call for the government out of the economy are paying for it in a dramatic fashion. Neo- liberal economic policy is so trifling.

Professor Mekonen Haddis

Public Sector Banks: From Black Sheep to Global Leaders

Once the black sheep of high finance, government owned banks can reassure depositors about the safety of their savings and can help maintain a focus on productive investment in a world in which effective financial regulation remains more of an aspiration than a reality.

— Centre for Economic Policy ResearchVoxEU.org (January 2010)

Public sector banking is a concept that is relatively unknown in the United States.  Only one state—North Dakota—owns its own bank.  North Dakota is also the only state to escape the credit crisis of 2008, sporting a budget surplus every year since; but skeptics write this off to coincidence or other factors.  The common perception is that government bureaucrats are bad businessmen.  To determine whether government-owned banks are assets or liabilities, then, we need to look farther afield.

When we remove our myopic U.S. blinders, it turns out that globally, not only are publicly-owned banks quite common but that countries with strong public banking sectors generally have strong, stable economies.  According to an Inter-American Development Bank paper presented in 2005, the percentage of state ownership in the banking industry globally by the mid-nineties was over 40 percent.[i]  The BRIC countries—Brazil, Russia, India, and China—contain nearly three billion of the world’s seven billion people, or 40% of the global population.  The BRICs all make heavy use of public sector banks, which compose about 75% of the banks in India, 69% or more in China, 45% in Brazil, and 60% in Russia.

The BRICs have been the main locus of world economic growth in the last decade. China Daily reports, “Between 2000 and 2010, BRIC’s GDP grew by an incredible 92.7 percent, compared to a global GDP growth of just 32 percent, with industrialized economies having a very modest 15.5 percent.”

All the leading banks in the BRIC half of the globe are state-owned.  In fact the largest banks globally are state-owned, including:

May 2010 article in The Economist noted that the strong and stable publicly-owned banks of India, China and Brazil helped those countries weather the banking crisis afflicting most of the rest of the world in the last few years.  According to Professor Kurt von Mettenheim of the Sao Paulo Business School of Brazil:

Government banks provided counter cyclical credit and policy options to counter the effects of the recent financial crisis, while realizing competitive advantage over private and foreign banks.  Greater client confidence and official deposits reinforced liability base and lending capacity.  The credit policies of BRIC government banks help explain why these countries experienced shorter and milder economic downturns during 2007-2008.

Surprising Findings

In a 2010 research paper summarized on VoxEU.org, economists Svetlana Andrianova, et al., wrote that the post-2008 nationalization of a number of very large banks, including the Royal Bank of Scotland, “offers an opportune moment to reduce the political power of bankers and to carry out much needed financial reforms.”  But “there are concerns that governments may be unable to run nationalised banks efficiently.”

Not to worry, say the authors:

Follow-on research we have carried out (Andrianova et al, 2009) . . . shows that government ownership of banks has, if anything, been robustly associated with higher long run growth rates.

Using data from a large number of countries for 1995-2007, we find that, other things equal, countries with high degrees of government ownership of banking have grown faster than countries with little government ownership of banks. We show that this finding is robust to a battery of econometric tests.

Expanding on this theme in their research paper, the authors write:

While many countries in continental Europe, including Germany and France, have had a fair amount of experience with government-owned banks, the UK and the USA have found themselves in unfamiliar territory. It is therefore perhaps not surprising that there is deeply ingrained hostility in these countries towards the notion that governments can run banks effectively. . . . Hostility towards government-owned banks reflects the hypothesis . . . that these banks are established by politicians who use them to shore up their power by instructing them to lend to political supporters and government-owned enterprises. In return, politicians receive votes and other favours. This hypothesis also postulates that politically motivated banks make bad lending decisions, resulting in non-performing loans, financial fragility and slower growth.

But that is not what the data of these researchers showed:

[W]e have found that . . . countries with government-owned banks have, on average, grown faster than countries with no or little government ownership of banks. . . . This is, of course, a surprising result, especially in light of the widespread belief—typically supported by anecdotal evidence—that ‘… bureaucrats are generally bad bankers’ . . . .

What accounts for their surprising findings?  The authors provide a novel explanation:

We suggest that politicians may actually prefer banks not to be in the public sector. . . . Conditions of weak corporate governance in banks provide fertile ground for quick enrichment for both bankers and politicians – at the expense ultimately of the taxpayer. In such circumstances politicians can offer bankers a system of weak regulation in exchange for party political contributions, positions on the boards of banks or lucrative consultancies.  Activities that are more likely to provide both sides with quick returns are the more speculative ones, especially if they are sufficiently opaque as not to be well understood by the shareholders such as complex derivatives trading.

Government owned banks, on the other hand, have less freedom to engage in speculative strategies that result in quick enrichment for bank insiders and politicians. Moreover, politicians tend to be held accountable for wrongdoings or bad management in the public sector but are typically only indirectly blamed, if at all, for the misdemeanours of private banks. It is the shareholders who are expected to prevent these but lack of transparency and weak governance stops them from doing so in practice. On the other hand, when it comes to banks that are in the public sector, democratic accountability of politicians is more likely to discourage them from engaging in speculation. In such banks, top managers are more likely to be compelled to focus on the more mundane job of financing real businesses and economic growth.

The BRICs as a Global Power

Focusing on the financing of real businesses and economic growth seems to be the secret of the BRICs, which are leading the world in economic development today.  But the BRIC phenomenon is more than just a growth trend identified by an economist.  It is now an international organization, an alliance of countries representing the common interests and goals of its members.  The first BRIC meeting, held in 2008, was called a triumph for former Russian President Vladimir Putin’s policy of promoting multilateral arrangements that would challenge the United States’ concept of a unipolar world.

The BRIC countries had their first official summit and became a formal organization in Yekaterinburg, Russia, in 2009.  They met in Brazil in 2010 and in China in 2011, and they will meet in India in 2012.  In 2010, at China’s invitation, South Africa joined the group, making it “BRICS” and adding a strategic presence on the African continent.

The BRICS seek more voice in the United Nations, the IMF, and the World Bank.  They are even discussing their own multicultural bank to fund projects within their own nations, in direct competition with the IMF.  They oppose the dollar as global reserve currency.  After the Yekaterinburg summit, they called for a new global reserve currency, one that was diversified, stable and predictable; and they have the clout to get it.  According to Liam Halligan, writing in The U.K. Telegraph:

The BRICs account for . . . around three-quarters of total currency reserves. They have few serious fiscal issues and all are net external creditors.

Western financial interests have long fought to maintain the dollar as global reserve currency, but they are losing that battle, despite economic and military coercion.  Russia, China and India are now nuclear powers.  The BRICS will have to be negotiated with, and the first step to forming a working relationship is to understand how their economies work.   Rather than declaring war on their more successful practices, we may decide to assimilate some of them into our own.

Ellen Brown

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Bye Bye American Pie.

Bye Bye American Pie


Bye Bye American Pie: The Challenge of the Productivity Revolution

Here’s the good news. The economic pie is growing again. Growth in the fourth quarter last year hit 3 percent on an annualized rate. That’s respectable – although still way too slow to get us back on track given how far we plunged.

Here’s the bad news. The share of that growth going to American workers is at a record low.

That’s largely because far fewer Americans are working. Although the nation is now producing more goods and services than it did before the slump began in 2007, we’re doing it with six million fewer people.

Why? Credit technology. Computers, software applications, and the Internet are letting us produce more with fewer people.

In theory, this is a huge plus. We can live better and have more time off.

But as Tonto asked the Lone Ranger, “who’s ‘we,’ kemosabe?”

The challenge at the heart of the productivity revolution – and it is a revolution – is how to distribute the gains. So far, we’ve been failing miserably to meet that challenge.

True, some of the gains are widely spread in the form of lower prices and higher value. My 3-year-old granddaughter gets more out of an iPhone in five minutes than my 98-year-old father ever got out of reading the daily paper (putting to one side their relative capacities to process the information).

But many of the gains are distributed narrowly in the form of profits to owners, and fat compensation packages to the “talent.”

The share of the gains going to everyone else in the form of wages and salaries has been shrinking. It’s now the smallest since the government began keeping track in 1947.

If the trend continues, inequality will become ever more extreme.

We’ll also face chronically insufficient demand for all the goods and services the productivity revolution can generate. That’s because the rich save more of their earnings than everyone else, while middle and lower-income families – with fewer jobs or lower wages – no longer have the purchasing power to keep the economy going at full tilt. (Before 2008 they kept up their buying by sinking deep into debt. This proved to be an unsustainable strategy.)

Insufficient demand – as everyone but regressive supply-siders now recognize – is a big reason why the current recovery has been so anemic and the pie isn’t growing faster.

So while the productivity revolution is indubitably good, the task ahead is to figure out how to distribute more of its gains to more of our people.

One possibility: higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.

We also need better schools (from early-childhood through young adulthood, followed by systems of lifelong learning) so everyone has a fair shot at a larger share of the gains.

Finally, the benefits of the productivity revolution should be turned into more abundant public goods – cleaner air and water, better parks and recreation, improved public health, and better public transit.

Regressive right wingers want Americans to believe we’ve been living beyond our means, and can no longer afford it.

The truth is just the reverse. Most Americans’ means haven’t kept up with what the economy could provide – if the fruits of the productivity revolution were more widely shared.

Regressives growl about America’s borrowing and tut-tut about future federal budget deficits. The reality is the world is willing to lend us vast amounts of money because we’re so productive. And the productivity revolution is making us ever more so.

Get it? The pie is growing again but most people aren’t getting much of a slice. That’s bad even for those getting the biggest pieces. They’d do better with smaller slices of a pie that grew much faster.

Robert Reich


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Preparation for World Economic Forum on Africa.

Preparation for World Economic Forum on Africa well in progress: Committee

Addis Ababa, March 2 (WIC) – Organizing committee of the 22nd World Economic Forum on Africa has announced yesterday that preparation is taking place as per the schedule.

The committee has met the business community and the delegation of the World Economic Forum here at Hilton Hotel. It delivered a report on the preparation processes of the conference and discussed the role of the business community at the event.

Tewodros Ashenafi, Chairman and Chief Executive of SouthWest Energy said the business community should grab the opportunity to create partnership with participants of the conference.

“Forum has many powerful, decision makers and influential people especially in terms of deploying capital and investment. The fact that the forum came to Ethiopia is a very big opportunity. We expect the business community to use it for its advantage,” he said.

Tewodros also said the conference would change the perception of the rest of the world about Ethiopia’s economy. “I think we will see a difference on Ethiopia before the conference and after the conference,” he added.

Zemedeneh Negatu, Managing Partner of Earnest & and Young East Africa and on his part said the meeting held with the business community was successful.

“We had a mutual understanding on the idea of promoting the conference for the business community in Ethiopia. The community will have an opportunity to meet some of the movers and shakers of the world economy face to face and make partnerships. For that, it is important to create awareness about the conference and on what it will do for the business community and the countries’ economy in general. Today we agreed that we should work intensively for such an end,” he said.

In the coming May, Ethiopia will host the World Economic Forum on Africa, an event considered as a unique opportunity for the business community and the country’s economy in general.

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