Business Journal

contents 4 From the Editor

December 2013

24 Food price Watch, November 2013

5 Unlocking the economic potential of the Caribbean

26 Smart governance: solutions

diaspora 7 ECLAC predistc regional

for today’s global economy 33 Light tight oil does not

growth

diminish the importance of Middle East supply - World

10 The Caribbean in the ACP:

Energy Outlook 2013

Facing the Challenges?

16 Latin America: Entrepreneurs’ lack of innovation curbs creation of quality jobs 18 Citizen insecurity thwarts Latin America’s development - UNDP 22 Global partnership to tackle food security

We need to be creative if want to make progress. need smart governance if want solutions that work today’s global economy.

26

Editor: Linda Hutchinson-Jafar Consulting Editor: Donna Ramsammy

Design and layout: Karibgraphics Ltd. Business Journal is published by: Caribbean PR Agency #268 Harold Fraser Circular, Valsayn, Trinidad and Tobago, W.I. T/F: (868) 645-0368 hutchlin@gmail.com www.bizjournalonline.com © 2013. No part of this publication may be reproduced without the written permission of the Publisher.

we We we for

Maybe 2014 will see some positive strides for

From the Editor’s Desk

the Caribbean.

ECLAC

is

predicting

recovery

for

the

Caribbean in the new year after a 1.3 percent growth for 2013.

In it new report titled ‘Preliminary Overview of the Economies of Latin America and the

It was another rough year for many Caribbean

Caribbean 2013,’ ECLAC said that less buoyant

economies which remain battered and bruised

external

in 2013 and seemingly unable to emerge from

financial volatility and falling consumption

the devastating 2008 global financial crisis.

were the factors determining the more modest

Jamaica and many of the eastern Caribbean countries,

facing

massive

external

demand,

greater

international

economic performance of countries in 2013.

debt,

The UN body said the world economic

huge employment and a stagnant tourism

situation in 2014 provides opportunities and

sector have had to approach international

threats for Latin America and the Caribbean

financial institutions for bail out, some which

while increasing investment in the region

were accompanied by austerity adjustment

remains a challenge.

measures.

The devastating Christmas floods which led to

You can read more about ECLAC’s forecast in this issue of Business Journal.

a loss of lives and millions of dollars in damage

The US economy which is inextricably tied to

in St. Lucia and St. Vincent and the Grenadines

the performance of economies in the Caribbean

will no doubt impede their economic recovery.

could experience its fastest growth in a decade,

Leaders of these two countries have painted

according to Moody’s Analytics chief economist

a very grim outlook for the islands which will

Mark Zandi.

need outside assistance to get back on their feet.

The IMF is also forecasting a strong 2014 for the United States.

Barbados whose tourism sector continues to

China’s growth is expected to remain on track

take a major beating is the latest country in the

particularly with the new reforms announced

Caribbean seeking help from the International

by the regime.

Monetary Fund.

The island which always prided itself as a solid economy with a stable exchange rate is now facing employment cuts in the public

Europe,

another

major

region

for

the

Caribbean is also projected to return to growth in 2014 after two years of decline.

Let’s hope 2014 will usher in long overdue

service and cuts in major areas of financing.

good news for the Caribbean particularly those

Notably, the countries in our region making

in the Eastern Caribbean.

strides are Trinidad and Tobago although revising down their growth projections for 2013, Guyana, Suriname and Belize.

4

DECEMBER 2013 | BUSINESS JOURNAL

Linda Hutchinson-Jafar

Editor

Unlocking the economic potential of the Caribbean diaspora

• Ninety

percent

of

Caribbean

diaspora

wants to engage deeper with the region, representing a significant untapped potential for economic development.

• Key

barriers

to

increased

engagement

include low visibility and awareness of deal flow for local and diaspora angels, and a complex regulatory environment.

• Interventions to overcome these challenges should be designed for the Caribbean as a whole.

There is nearly one person living abroad in the Diaspora to every person still resident within the Caribbean, making the Diaspora an untapped potential resource for economic development. World Bank.

The Caribbean diaspora is a sizeable, welleducated, and affluent demographic whose

to organizations in their home countries. Half

large majority is interested in investing in its

of those surveyed send remittances and a full

countries of origin. Due to the common heritage

85 percent give back to the Caribbean either

and strong connections across the region, they

through financial help, or other support in

overwhelmingly take a regional approach to

kind. Moreover, nine out of ten would like to be

the Caribbean, rather than a nationalistic one

even more engaged in the future, potentially

Supported by the right incentives and policies,

as investors. With nearly one diaspora member

diaspora members could play an even larger

living in North America or Europe for every

role in contributing to the region’s development.

resident still in the region, this ability to engage

These are some of the findings of a new

represents a significant untapped potential.

study, “Diaspora Investing: The Business

There is also a growing community of

and Investment Interests of the Caribbean

angel investors among the diaspora that are

abroad”, by infoDev, a global innovation

already actively involved both where they

program in the World Bank. The assessment

live and back home. About 23 percent of

brings together knowledge and data gathered

respondents has already invested in a start-up

from over 850 self-identified members of the

company of some sort in the Caribbean region.

Caribbean diaspora, and sheds light on their

Looking forward, investors have expressed

characteristics and investment interests.

strong interest in financing sectors with high

The

Caribbean

diaspora

is

already

development potential for the region, such as

significantly engaged in the region, with some

green energy, mobile applications, education,

70 percent being formal or informally affiliated

and agribusiness.

DECEMBER 2013 | BUSINESS JOURNAL

5

But challenges remain. The gap between real

for social networking and investing, and the

engagement and expressed interest remains

nascent but growing crowdfunding sector.

significant. For instance, while 85% of diaspora

This low-cost and scalable platform would

members would be interested in investing in a

provide equal access to everybody, regardless of

business back home, only 13% of respondents

their country of origin. Other recommendations

do so today.

include targeted capacity building for both

“The biggest barrier we found was visibility,”

entrepreneurs and angel investors, and the

explains Qahir Dahanani, author of the report.

strengthening

“The money is out there, but there is a lack

networks.

of

existing

angel

investing

of awareness of investment opportunities,

“This report underscores the important role

including what deals are there, what deals

that the diaspora can play in the Caribbean’s

are high quality, and which entrepreneurs are

economic development,” said Sophie Sirtaine,

receptive to angel investing.”

Country Director for the Caribbean in the World

Bureaucracy associated with making such

Bank Group.

investments, and weak legal enforcement were also highlighted as key barriers. The patchwork

“Increased engagement and

of regulations among different countries makes

investment by the diaspora will be a

it difficult to unlock the latent demand for

boost for entrepreneurs in the region,

regionally-focused

eventually leading to new, high-

investments

among

the

skilled jobs.”

diaspora.

“There

should

policymakers a

uniform

and

be

a

serious

multinationals

regulatory

effort to

environment,”

by

create says

Dahanani.

The report provides other recommendations

The

report,

which

was

funded

by

the

government of Canada, was developed as part of the Entrepreneurship Program for Innovation in the Caribbean (EPIC).

for interventions that are designed for the

program

Caribbean as a whole. Chief among these is the

competitiveness, growth and job creation in

creation of an online marketplace that connects

the Caribbean region through the development

diaspora investors with opportunities back

of

home. Such an approach would capitalize on

entrepreneurship ecosystem, with particular

the geographically dispersed nature of diaspora

emphasis on supporting high-potential growth-

populations, the increasing use of the Internet

oriented early-stage companies.

6

DECEMBER 2013 | BUSINESS JOURNAL

a

aims

robust

to

The seven-year

and

contribute

vibrant

to

increased

innovation

and

ECLAC Predicts that the Region’s Countries Will Grow by an Average of 3.2% in 2014 In the Preliminary Overview of the Economies of Latin America and the Caribbean, the Commission forecasts a more favourable external environment - albeit one characterized by ongoing financial volatility and macroeconomic

Executive Secretary of ECLAC, Alicia Bárcena, during the launch of the Preliminary Overview of the Economies of Latin America and the Caribbean 2013.

Photo: Carlos Vera/ECLAC

policy challenges.

The economies of Latin America and the

According

to Ms.

Bárcena “Opportunities

Caribbean will expand by 3.2% in 2014, which

include increased international trade and the

is higher than the 2.6% from the end of 2013,

possibility of harnessing currency depreciations

according to a new ECLAC report launched

to ensure sustained changes in relative prices.

today at a press conference in Santiago, Chile.

This - along with industrial policies to support

In its annual report Preliminary Overview of

growth, boost regional integration and help

the Economies of Latin America and the

small and medium-sized enterprises - could

Caribbean 2013, ECLAC points out that less

help to increase investment in diversifying

buoyant external demand, greater international

production in tradable goods and to reduce the

financial

region’s structural heterogeneity”.

volatility

and

falling

consumption

were the factors determining the more modest

The threats facing the region include ongoing

economic performance of countries in 2013,

volatility in the global economy and higher

which brought down the 3.0% estimate put

external financing costs, as well as a smaller

forward by the Commission in July.

contribution by consumption to GDP growth

The next year is expected to see a moderately

and a worsening regional current account.

more favourable external environment help

According to the Preliminary Overview by

boost external demand, and in turn the region’s

the Economic Commission for Latin America and

exports. Private consumption will also continue

the Caribbean (ECLAC), regional growth in 2014

to grow, although more slowly than in previous

will be led by Panama (with 7%), followed by

periods. In the meantime, increasing investment

Bolivia (5.5%), Peru (5.5%), Nicaragua (5%),

in the region remains a challenge.

Dominican Republic (5%), and Colombia, Haiti,

As she presented the report, Alicia Bárcena,

Ecuador and Paraguay (all four with 4.5%).

Executive Secretary of ECLAC, stated “The

Growth is predicted to be 2.6% in Argentina

world economic situation in 2014 provides

and Brazil, 4% in Chile and Costa Rica, 3.5%

opportunities and threats for Latin America and

in Guatemala, Mexico and Uruguay, and 1% in

the Caribbean”.

Venezuela.

DECEMBER 2013 | BUSINESS JOURNAL

7

Left to right, ECLAC’s Deputy Executive Secretary, Antonio Prado; Chief of the ECLAC Public Information Unit, María Amparo Lasso; Executive Secretary of ECLAC, Alicia Bárcena; Director of the Economic Development Division, Juan Alberto Fuentes, and Economic Affairs Officers Jurgen Weller and Sandra Manuelito, during the launch of the Preliminary Overview of the Economies of Latin America and the Caribbean 2013.

Photo: Carlos Vera/ECLAC

Next year, the Caribbean will experience a

In terms of the labour market, the unemployment

recovery and post a figure of 2.1% (following

rate remained more or less stable, going from

just 1.3% growth in 2013).

6.4% in 2012 to 6.3% in 2013. This dip was

The report states that the main challenge facing

Latin

American

and

Caribbean

governments is to drive through social covenants

caused by a lower overall labour participation rate. Inflation remained below 5% in most of the region’s countries.

for investment to boost productivity and growth

A widespread worsening of the terms of

with equality. These social covenants must

trade - on the back of continued commodity

have an institutional framework that provides

price reductions - contributed to the balance-

certainty and clear rules, short-term policies

of-payments current account deficit widening

to provide nominal and real stability and long-

from 1.8% of GDP in 2012 to 2.5% in 2013

term policies that encourage more diverse

(mainly as the result of a higher increase in

investment in tradable goods sectors.

merchandise imports relative to exports).

Given this context of lower inflation, slower

Overview of 2013

economic

According to ECLAC, in 2013 consumption

many

made a smaller contribution to regional growth

countercyclical policies aimed at shoring up

owing to a slowdown in the wage bill and credit.

internal demand and tackling international

The slightly higher contribution by investment

financial volatility. Some countries reduced

and the smaller negative impact of net exports

their benchmark interest rates (except Brazil),

failed to offset reduced consumer buoyancy.

while others encouraged the stable growth of

growth

countries

and

financial

implemented

instability, moderately

monetary aggregates (or total money circulating This year, regional growth was led by Paraguay

in an economy).

(13%), followed by Panama (7.5%), Bolivia

Furthermore, the financial instability led to a

(6.4%), Peru (5.2%), Nicaragua (4.6%),

smaller accumulation of international reserves,

Uruguay (4.5%), Argentina (4.5%) and Chile

and some countries introduced macroprudential

(4.2%).

measures

to

fluctuations.

8

DECEMBER 2013 | BUSINESS JOURNAL

avoid

greater

exchange-rate

Latin America and the Caribbean Total GDP, 2011-2014 (rates of variation) (based in USD in constant 2005 prices)

Country

2011

2012

Argentina Bolivia (Plurinational State of) Brazil Chile Colombia Costa Rica Cuba Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bolivarian Republic of) Subtotal Central America, Haiti and Dominican Republic Subtotal Latin America Antigua and Barbuda Bahamas Barbados Belize Dominica Grenada Guyana Jamaica Saint Kitts and Nevis Saint Vincent and the Grenadines Saint Lucia Suriname Trinidad and Tobago Subtotal Caribbean Latin America and the Caribbean

8.9 5.2 2.7 5.9 6.6 4.4 2.8 7.8 2.2 4.2 5.6 3.8 3.8 5.4 10.9 4.3 6.9 4.5 6.5 4.2 5.1 4.4 -2.0 1.7 0.8 2.1 0.2 0.8 5.4 1.4 1.7 -0.4 1.4 4.7 -1.6 0.5 4.3

1.9 5.2 1.0 5.6 4.2 5.1 3.0 5.1 1.9 3.0 2.8 3.9 3.9 5.2 10.8 -1.2 6.3 3.9 3.9 5.6 4.7 3.1 3.3 1.8 0.0 4.0 -1.1 -1.8 4.8 -0.5 -1.2 1.6 1.3 4.4 1.5 1.2 3.1

2013

a

4.5 6.4 2.4 4.2 4.0 3.2 3.0 3.8 1.7 3.4 4.0 2.6 1.3 4.6 7.5 13.0 5.2 3.0 4.5 1.2 3.7 2.6 1.5 1.6 -0.7 1.6 -0.5 1.5 4.8 0.1 1.6 2.1 1.1 3.9 1.6 1.3 2.6

2014

b

2.6 5.5 2.6 4.0 4.5 4.0 3.0 4.5 2.6 3.5 4.5 3.0 3.5 5.0 7.0 4.5 5.5 5.0 3.5 1.0 4.5 3.2 1.5 2.5 1.0 2.8 1.2 1.3 4.6 1.2 2.9 1.4 2.3 4.7 2.1 2.1 3.2

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a Estimates. b

Projections.

Source: ECLAC Public Information Unit - E-mail: prensa@cepal.org - Tel.: (56-2) 2210-2040

DECEMBER 2013 | BUSINESS JOURNAL

9

Column The Caribbean in the African, Caribbean & Pacific (ACP) Group: Facing the Challenges?

By Ambassador P.I Gomes

The Caribbean in the African,

pursued at a time vastly different

Caribbean

(ACP)

from the era of the Cold War and

Group: Facing the Challenges?

the vibrant Non-aligned Movement

Now in its fourth decade since the

(NAM) that gave birth to the “ACP”

1975

of 46 countries spanning a tri-

&

Pacific

Georgetown

Agreement,

establishing the ACP Group of

continental space.

States, there are mixed signals at

Today, the ACP is shaping a future

the highest political levels of the

beyond its decades of “privileged

Caribbean Community (CARICOM)

partnership” with the European

on what role, if any, they wish to

Union in “trade, aid and political

play in that unique organisation of 80 developing

dialogue” from Lome Agreement in 1975 to

countries.

Cotonou, Benin, expected to end in 2020. The

This lack of strong engagement by most

current conjuncture of global political, economic

CARICOM Heads of Government was evident a

and social forces presents a multi-polar world

year ago, at the 7th Summit of Heads of State

in which small Caribbean economies face

and Government of the ACP Group in Malabo,

an onslaught of trade liberalisation, growing

Equatorial Guinea. The exceptional presence

indebtedness and environmental degradation

and fitting tribute paid by the then- CARICOM

at unprecedented levels.

Chairperson, Prime Minister Dr. Kenny Anthony

These structural realities warrant serious

of Saint Lucia, was a redeeming feature.

rethinking of policies and it is precisely those

Contributions of Ministers and officials gave

situations that are being confronted in the

added-value of high quality but far less than

context of the wider grouping of the ACP’s near

one would expect from the Caribbean, the

one billion population and growing economies,

“founding home” of the ACP Group.

endowed with natural resources, mining and

Most encouraging has been the interest

mineral industries, forests and marine resources.

demonstrated at a recent ACP Caribbean

The Grenada Consultation was an occasion for

Stakeholders’ Consultation on November 1-2,

sober analysis to face the challenges the ACP

2013, hosted by Grenada, the current Chair of

Group wishes to overcome.

the Council of Ministers of the Caribbean Forum (CARIFORUM) of the ACP Group. The event is part of a current critical appraisal process being 10

DECEMBER 2013 | BUSINESS JOURNAL

Only a few highlights and implications of the Consultation are offered on this occasion.

Key Themes

Group. He stressed the steadfast principles of

The Grenada event was the second of the six

unity and solidarity that characterized what

(6) regions of the ACP Group, the first being in

was nothing less than another stage in the

Apia, Samoa for the Pacific in which members

movement of colonial liberation.

of an Eminent Persons Group (EPG) exchange

Quite significant was the strength of a common

views with stakeholders to arrive at priorities

vision among the core of eight Commonwealth

for a re-inventing of the ACP Group to become

Caribbean foreign ministers that forged a

a more relevant and effective voice for poverty

larger unity with the 46 African countries,

eradication and equitable development.

both English and French-speaking and Pacific

EPG

is

chaired

President

of

by

former

counterparts

and

resulted

in

Chief

the first comprehensive North-

Olesegun Obasanjo, and includes

South “aid-trade and political

three distinguished Caribbean

agreement”.

personalities

former

binding with mutual obligations

Dominican

based on respect for human

Presidents

Nigeria,

The

–

of

two

the

Republic and Guyana, Leonel

It

was

legally

rights and the rule of law.

Fernandez and Bharrat Jagdeo,

At a deeper level than the legal

respectively

and

Ms

Patricia

transactions and the commercial

Francis

Jamaica,

former

relations

of

Executive Director of the UN’s

member

states

of

International Trade Centre (ITC), Geneva.

individual was

ACP the

ambitious motivating force to be politically

In six sessions with panels of lead speakers

engaged in the multilateralism of the 1970s.

and open debate, the discussions ranged from

This was unmistakable in the Preamble to the

the historical roots by which Foreign Ministers

Georgetown Agreement and expressed as a

of

former

commitment on behalf of all developing countries

francophone colonies, mainly West Africa, forged

to “contribute towards the realization of a

a powerful negotiating alliance to confront the

new, fairer and equitable world order.” As

then European Economic Community (EEC) and

much then as it is today, Sir Shridath challenged

gained preferential, non-reciprocal trade for

the Consultation to embrace and translate that

their mainly agricultural products.

Of course

global commitment into the concrete demands

sugar, bananas, cocoa, coffee and rum featured

of today –no doubt an exceptionally complex

prominently. At the heart of the early formation

era of many more “regional groupings” and

of the ACP Group were our two exceptional and

battered by a dominant market-driven ideology

highly acclaimed visionary leaders, the then-

of competitiveness, at the expense of others

Trade Minister of Jamaica, P.J. Patterson and

with competing offensive interests.

Commonwealth

Countries

and

Guyana’s Foreign Minister, Shridath Ramphal.

Throughout the Consultation this thread to

The Consultation was able to benefit from

translate the foundation principles of unity and

the rich personal engagement that Sir Shridath

solidarity in a larger global task preoccupied

had provided in the founding period of the ACP

the discourse.

DECEMBER 2013 | BUSINESS JOURNAL

11

The challenge was to realize those principles

the smaller entities of the grouping, Africa-

by confronting the multi-polarity of the 21st

Caribbean-Pacific

century,

and

strength and greater diplomatic weight of larger

overcome growing inequality, explosive youth

member states. However, today’s «diversity

unemployment, intolerable gender inequalities,

and economic weight of developing countries

citizen

generally » has become « increasingly complex,

with

a

insecurity

undermining

new

and

faltering

multilateralism

fragmentary regional

forces

integration

(ACP),

drawing

on

the

and therefore challenging ».

efforts.

Lewis pointed to « a degree of regionalization

Other sessions and commentators addressed

… a growing realignment and diversity among

these issues-sharing lessons learned on trade,

the developing countries’ economies », as in

development assistance, political dialogues and

the formation of a Brazil, Russia, India, China,

non-state actors in ACP-EU relations from 1975

South Africa (BRICS) entity.

to the present Economic Partnership Agreement

Given such « reformulations of regional

(EPA). Questions were raised on where does

groupings between the EU and former colonial

the ACP Group fit, if at all, in the Foreign Policy

entities », Lewis suggested that « the bases

of CARIFORUM (CF) Member States and how

of negotiations will be more particular to the

does the CF’s Post-2015 Development Agenda

specific regions and sub-regions, and an holistic

address issues pertinent to a Group of 79

– that is, multi-regional or multi-continental

developing countries so heterogeneous with

diplomacy more difficult to organize ». It was

SIDS, Land Locked, LDCs and Middle Income

obvious in the EPA negotiations with a « break-

Countries (MICs), now increasingly “graduated”

away » CARIFORUM strategy.

from Official Development Assistance (ODA).

For Lewis, CARICOM/CF needs to sustain

The Consultation endorsed the need to craft

the interest of the increasingly substantial

“new” partnerships by the ACP and to explore

developing states in the specific problems of

options that address geo-strategic issues that

our negotiations with Europe, and pursue ways

can enable structural transformation of member

for them to sustain the “collective diplomacy »

states’ economies based on priority goals of the

of old through the ACP relationship.

constituent regional groupings.

Acknowledging a likely « objective diversion

An outline of CF’s priorities for development

of interests within the ACP grouping » there is

through trade and innovative investments was

need for « a further (new?) effort on our part

the major theme of a concluding session that

to identify issues in wider global relations with

benefitted from a thought-provoking paper by

the desired positive outcomes common to both

Professor Vaughan Lewis on an overarching

parties” through a diplomacy with « a global

framework by which the Caribbean’s ACP-EU

perspective ».

and wider engagement could be pursued.

Along with this orientation, the persistent

The paper, sub-titled: “ Small States Exploring

forming of, and participation in, coalitions with

the Multi[polar World of the 21st Century”

like-minded states within the larger international

contrasted the earlier years in which Caricom’s

organizations can facilitate beneficial objectives

diplomatic objectives could be realised by

for small states like ours.

12

DECEMBER 2013 | BUSINESS JOURNAL

Moreover, the relations of Caricom/Cariforum

Consultation offered priorities among which

with « emerging states » and those of the Latin

were the following.

American region are seen as benefitting from « strengthening of the diplomatic cohesion

Priorities for the ACP’s Agenda

between the countries of the African continent

1.

and those of the Cariforum».

unanimously desired but urgent reforms and

In this dynamic context of regional realignments,

re-energising the Group are essential. In this

Lewis spoke of « inter-regional cooperation »

process, political commitment and ownership is

as “federal” in its operation, with identified

a sine qua non as it has to be led and energized

objectives of the separate regions, or in relation

at the political level. If the political will is not

to similarity of objectives, thereby arriving at

provided unambiguously then the ACP will not

jointly agreed platforms of policy objectives

move forward. Caribbean leadership was at the

and strategies ».

forefront of the ACP’s formation, buttressed by

A vibrant future for the ACP Group was

Basically, the Consultation was in agreement

the energy and growing momentum behind the

with the need for “a sustained multipolar

regional integration movement in the Caribbean

diplomacy – Cariforum-Africa-Latin America

(CARIFTA/ CARICOM 1973). Strong Caribbean

-that can provide periodic diplomatic support

unity at the time enabled the region to facilitate

for us towards a European Union engaging and

and support ACP unity and solidarity.

creating trading and investment regimes that can sustain their own global presence over

2.

ACP future perspectives should go beyond

time. »

relations with the EU. The ACP of the future will

For this “multi-polar diplomacy”, « locations,

have to be both a stronger and renewed inter-

or regionally-organised presences, in specific

governmental group based on deeper Intra-ACP

international institutions” and specific countries

cooperation - which it may not have pursued

in the African-Latin American spheres are

systematically or was unwilling to accomplish

essential. This will enable Caricom/Cariforum

since it’s establishment. The current situation

to leverage impact on our relationship with the

necessitates a focus in its relations within the

European Union and wider world. To translating

global community and with realigning regional

this “new” diplomatic thrust into action the

groupings.

DECEMBER 2013 | BUSINESS JOURNAL

13

grounded

be tangible areas for CF to contribute through

in clearly defined strategic areas including

South-South Cooperation. Attention to YOUTH

trade, regional integration and development

ENTREPRENEURSHIP, NON-STATE ACTORS and

cooperation. In terms of trade, the ACP, given its

GENDER EQUALITY should be distinct priorities

historical ties and political relations, represents

for a future ACP.

3.

The

future

ACP

must

be

the best opportunity for forging South-South Cooperation

through

trade

relations. The

6.

CARICOM/ CF should consider (joint)

ACP should explore incrementally on an inter-

diplomatic presence in Africa. If possible, one in

regional basis (or on the basis of Intra-EPA

a Francophone area and another located where

Groupings) steps towards an ACP-wide free

it could serve the Pacific Region.

trade area built on deeper trans-regional

In identifying such possibilities for a « re-

linkages.

invented » ACP the meeting was mindful that the ACP

the Eminent Persons Group (EPG) in its Final

and CELAC as regional groupings by which

Report should distinguish between what is

CARIFORUM can play a positive role to link

« desirable » and what is « attainable »,

Africa and the Pacific with Latin American

giving special attention to defining measures

concerns especially on issues of « graduation

for the financial sustainability of the ACP

and differentiation » but CF should also review

Group.

its role and future in order to be impactful.

The above remarks could not treat adequately

4.

The Caribbean needs both

the extremely stimulating proposals from CARIFORUM could promote the following

the Consultation but unambiguously all

areas and provide the necessary leadership

present wanted to see a dynamic Caribbean

by deriving lessons from experiments such

engagement in the transformation of the

as ALBA and PETROCARIBE, also in TRADE

ACP Group.

5.

by which Rules of Origin in the EPA alllow cumulation for a manufacturing base to be established for specific commodities. Similarly

Dr. P.I Gomes is

FUNCTIONAL COOPERATION in health, research

Guyana’s Ambassador to Brussels.

and innovation and cultural cooperation would

14

DECEMBER 2013 | BUSINESS JOURNAL

nn nn nn nn nn nn

Latin America: Entrepreneurs’ lack of innovation curbs creation of quality jobs business creation is high in the region, the resulting companies grow at a much slower rate than similar enterprises in other middleincome regions and companies.

“The landscape of the economy in Latin America is such that firms tend to start small and stay small,” explained De la Torre at the report’s launch event. “There’s nothing bad about being small, per se, but staying small forever is a problem.”

And the reason behind this stunted growth: a chronic shortage of innovation within the region.

2006 proved to be an important year for start-

This should ring warning bells. Over the past ten

ups. The launch of Twitter, Facebook open to

years, Latin America has benefited significantly

anyone over 13 and the realization of a lifelong

from favorable economic tailwinds, enabling

dream for two young Argentinians.

the region to reduce extreme poverty, increase

Tomás Pando and Francisco Murray may

equality and boost 50 million people into the

not be household names like Zuckerberg or

middle class. However, as these tailwinds die,

Dorsey, but they are the face of the region’s

growth has to come from within, and innovation

undeniable

and dynamism are the key if the region is to

entrepreneurial

spirit.

Seven

years on, their modern-day reinvention of the

build upon the social gains of recent years.

gauchos’ traditional footwear - alpargatas sold a quarter of a million pairs in 2012 and has

Lack of innovation

stores in 23 countries worldwide, from Angola

Latin American firms develop new products

to Venezuela.

less frequently than their counterparts in

Yet, tales of innovation like that of Paez are

other developing regions. In fact, in Ecuador,

rare, according to a new World Bank flagship

Jamaica, Mexico and Venezuela this rate of

report published today.

product development is less than half than

A massive 60% of Latin America employees work

fewer

this lack of innovation harms competitivity

employees. Often considered to be a driver of

and slows growth and rebounds on quality job

development, entrepreneurship creates jobs

creation - a significant development challenge,

and promotes economic growth. But while

especially in Central America.

16

for

businesses

with

DECEMBER 2013 | BUSINESS JOURNAL

five

or

that of Thailand or Macedonia. Consequently,

Quality job creation

Possible reasons are four-fold: and

Launching the report in Miami, De la Torre

technology graduates and engineers

proposed that size isn’t always the best marker

are at a premium in Latin America and

for growth potential and quality job creation.

it’s a scarcity that has a direct effect

In fact, ‘multinational’ firms based in Latin

on innovation. In fact, Scup co-founder

America far less dynamic than their offices

Daniel Heise admitted he has been

outside of Latin America and the region’s

trying to fill ten positions for around

‘multilatina’ companies are also suffering from

a year, but with little success. Closely

an innovation deficit.

· Human

capital:

Science

related to the quality of education, the

Instead, it is more helpful to consider

report recognizes this will be a major

businesses, whether they be small, medium

challenge for the region.

or large, in terms of their age. In all cases,

· Intellectual property: With separate

younger firms far outshone more established

every

ones in terms of job creation. The key,

country, ensuring intellectual property

therefore, is to identify early on which startups

rights can be a significant bureaucratic

have the most potential and the support their

undertaking

region’s

growth through start up programs, subsidies,

complicated

business expansion support programs or policy

laws

governing

copyright

for

the

entrepreneurs.

The

panorama

less

lends

in

protection

to

as necessary.

the product creators, deterring much

Entrepreneurs are key actors in turning

needed investment for new product

low productivity around to create quality

research and development.

jobs and lasting economic benefit for the

· Risk taking: No-one likes to fail, but

region. Consequently the report recommends

in Latin America a deep cultural shame

establishing an economic environment which

of failure is hindering innovation by

enables them to innovate and compete, thereby

dissuading entrepreneurs from taking

reducing the grip of monopolies, increasing

risks. This is evident as much in

productivity

individual reticence at a business level

environment.

and

diversifying

the

business

as in the low levels of investment in research and development, especially from the private sector. · Logistics: Modernizing ports, transport,

and customs can add a competitive edge to products from the region. Currently, poor public services, communication links and transport infrastructure are adding to the obstacles to boosting

The report concludes.

“It is about building an innovative entrepreneurial class in which top-notch firms—firms that export goods, services, and even capital— no longer look tepid in contrast to entrepreneurial superstars elsewhere.”

production capacity in the region.

DECEMBER 2013 | BUSINESS JOURNAL

17

Citizen insecurity thwarts Latin America’s development, says UNDP Regional Human Development Report recommends prevention, institutional reforms and long-term national agreement to tackle violence

New York - Insecurity is a shared challenge

that

obstructs

social

and

economic development in every country in Latin America, says a new UN Development Programme (UNDP) report launched here today. But crime control measures alone are insufficient; the most effective way to reduce citizen insecurity is by improving people’s lives, boosting inclusive economic growth and enhancing security and justice institutions, according to the Regional Human Development Report (HDR) 20132014.

The

is still high: in 11 of the 18 assessed countries the rate is higher than 10 murders per 100,000 inhabitants, reaching epidemic levels. Moreover, the perception of security has worsened, with robberies hiking threefold in the last 25 years, says the regional HDR. “Citizen security is a sensitive issue which preoccupies many political decision-makers and reverberates in the heat of electoral campaigns,” said UNDP Administrator Helen

HDR

“Citizen

Security

with

a

Human Face: evidence and proposals for Latin America” reveals a paradox: in the past decade, the region experienced both economic growth and increased crime rates. Despite social improvements, Latin America remains the most unequal and most insecure region in the world. While homicide rates reduced in other regions, they increased in Latin America, which recorded over 100,000 murders per year, totaling more than a million from 20002010. While homicide rates stabilized and

18

even declined in some parts of Latin America, it

DECEMBER 2013 | BUSINESS JOURNAL

Clark. “It is a crucial issue for several regions, including Latin America and the Caribbean, because without peace there can be no development, and without development there can be no lasting peace.”

“There is no magic solution to insecurity, but this serious problem can be remediated— with vision and long-term political will,” said UN Assistant Secretary-General and UNDP Director for Latin America and the Caribbean Heraldo Muñoz. “Each country needs to secure a National Citizen Security Agreement between the government, political parties and civil society so it truly becomes a state policy.”

The HDR focuses on six main overlapping threats that negatively impact the region: street crime; violence and crime committed by and against the youth; gender-based violence; corruption (the misappropriation of public property, whose provision is the responsibility of the state); violence committed by state actors and organized crime.

family structure and school system deficiencies

“While some threats—such as organized

have also influenced crime in the region.

crime, especially drug trafficking—are often

Moreover, firearms, substance abuse and drug

used to explain insecurity, the regional, national

trafficking also drive violence, even though they

and local dynamics are much more diverse,”

are not direct causes of crime, according to the

explains the HDR coordinator Rafael Fernandez

HDR which states that “the capacity of Latin

de Castro.

American states has not risen the challenge of

One of the main lessons drawn from Latin

insecurity: corruption and impunity and lack of

America is that the “iron fist” policies do not

proportionality in sanctions have undermined

work: strong police and criminal repression

its effectiveness and legitimacy.”

in the region have often coincided with high

UNDP-conducted

surveys

in

prisons

in

crime rates, the report says. The assessed

Argentina, Brazil, Chile, El Salvador, Mexico and

experiences confirm that protecting the rights

Peru highlight persistent social challenges. One

to life, to dignity and to physical integrity is

in every three inmates left home before age

essential to citizen security, which, as a public

15 (in Chile, one in every two), and between

good, is a responsibility of the state, highlights

13 percent (Argentina) and 27 percent (El

the regional HDR.

Salvador) never met their father or mother. The survey also revealed that 40 percent of inmates

MAPPING INSECURITY - While poverty and

in Chile did not finish primary education. In all

inequality decreased in most of Latin America

assessed countries, more than 80 percent of

from 2004-2010, in more than half of the

inmates did not complete 12 years of schooling.

assessed countries homicide rates rose, even

The report also reveals a direct correlation

in countries with lower levels of poverty. In

between

addition, one in every three Latin Americans

countries with an urban population growth

reported being a victim of a violent crime in

above

2012, says report.

population growth) also reported increases in

2

urban

growth

percent

per

and year

crime: (the

most natural

The region’s rising consumer expectations

homicide rates, with the exception of Colombia

and relative lack of social mobility drive

and Paraguay. “The problem is not the size

“aspirational

The

of the city, but the institutional capacity to

and

include groups in marginal conditions,” says

crimes,”

transformations

says

sparked

the by

HDR. rapid

disorganized urban growth, as well as changes in

the regional HDR.

DECEMBER 2013 | BUSINESS JOURNAL

19

Young Latin-Americans, especially males, are

COSTS OF INSECURITY - Insecurity impacts

the most affected by crime and violence and yet

individuals, societies and democratic institutions.

are the most common perpetrators, according

It also affects the region’s economic potential:

to the report. El Salvador (92.3) , Colombia

without the excess mortality due to homicides

(73.4) , Venezuela (64.2) , Guatemala (55.4)

the region’s Gross Domestic Product (GDP)

and Brazil (51.6) have the five highest youth

would have been 0.5 percent higher, equivalent

homicide rates in the world (per 100,000

to a potential gain of more than US$24 billion in

inhabitants), according to 2011 World Health

2009. In addition, Latin America lost 331 million

Organization data .

years of life in 2009, considering the loss in life

The HDR highlights gender violence as a persistent threat and an obstacle to human

expectancy and the region’s population, based on the homicide rates for 15 countries.

development, public health and human rights in

Honduras incurs the highest costs of crime

the region. Records of domestic violence, rape

and violence as a percentage of their 2010

and female murders (femicide) have increased

GDP

in almost all assessed countries. Among the

billion), followed by Paraguay (8.7 percent,

UNDP-surveyed inmates who had committed

or $1,7 billion), Chile (3.32 percent, or $7.2

sexual offenses, between 75 percent and 90

billion)

percent reported knowing their victims before

billion) and Costa Rica (2.52 percent, or

the crime and between 20 percent and 40

$915 million), according to a UNDP-Inter-

percent were family members.

American Development Bank (IDB) study for

(10.54

percent,

Uruguay

(3

equivalent

percent,

to

around

$1,7

$1.2

the report, which analyzed the costs of crime PERCEPTION

OF

INSECURITY -

In

all

and victimization levels in those five countries.

assessed countries the perception of insecurity

Public expenditure as a result of crime (police

is greater than the direct victimization, says the

officers, judges, prison system, among others)

report. Five out of 10 Latin Americans perceive

is higher in all countries except Uruguay, where

that security in their country has deteriorated.

the costs incurred before crimes are committed

But in Honduras, for example, which has the highest murder rate in the world (86.5 per

(such as security, insurance, prevention) is higher.

100,000), eight out of 10 citizens feel safe in their neighborhoods—in line with the regional

STATE RESPONSE - Reforming basic justice

average. In contrast, in Chile—which has

and

the lowest murder rates in the region (2 per

public prosecutors and prisons—is essential

100,000) and low levels of victimization for

to respond to citizen insecurity, says the HDR,

theft—the perception of safety is worse than in

which emphasizes the need to restructure the

Honduras: seven out of 10 citizens feel secure

hiring, management and professionalization

in their neighborhood.

of staff. The report analyzed the proportion

security

institutions—police,

judges,

of police and judges in different countries and conducted surveys that revealed very low levels

20

DECEMBER 2013 | BUSINESS JOURNAL

of public confidence in the criminal justice

phenomenon further increases inequality, as

systems. Except Nicaragua and Panama, more

social groups have different capacities to deal

than half of Latin Americans expressed little or

with crime, says the HDR.

no confidence in their courts’ response in case RECOMMENDATIONS – The report emphasizes

they were victims of theft or assault.

The UNDP report states that the prison system

that efforts to improve citizen security must take

is in crisis in almost all countries in the region.

into account the specific needs and demands of

Some factors such as institutional weakness of

women and young Latin Americans, highlighting

the police and courts, overpopulation and abuse

10 political recommendations based on lessons

of preventive detention are key challenges. In

learned from the region: 1. Align national

addition, the rehabilitative function of prison

efforts to reduce crime and violence, including

systems has not been prioritized in the region,

through a Citizen Security National Agreement

according to the report, turning them into

as a state policy; 2. Generate public policies

“spaces that promote violence, human rights

to protect those most affected by violence and

abuse,

recidivism.”

crime; 3. Prevent crime and violence through

Also, the perception of Latin American citizens

inclusive growth; 4. Decrease impunity by

of incarceration as a solution to the security

strengthening security and justice institutions

problems has hindered the attempts to reduce

while respecting human rights, 5. Promote

the

alternative

the active participation of society, especially

measures and encourage social reintegration,

local communities in the construction of citizen

stresses the HDR.

security

criminal

prison

networks

population,

and

boost

6.

Increase

human

development

opportunities for young people 7. Tackle and BEYOND THE STATE - The report highlights

prevent gender-based violence in the domestic/

the

actors’“

private and in public spheres; 8, Safeguard

response, including civil society organizations

victims’ rights; 9. Regulate and reduce “crime

and

triggers”, such as alcohol, drugs, arms and

importance international

of

“non-state

cooperation.

However,

it

emphasizes that due to the growing sense of

weapons

through

a

comprehensive

insecurity, the expansion of the middle classes

health perspective 10. Strengthen international

and the “thinning” of the state, private security

cooperation

guards are increasingly being hired in Latin

mechanisms.

America at an average annual growth rate of 10

The regional HDR assesses citizen insecurity in

percent. The region now has almost 50 percent

18 countries: Argentina, Bolivia, Brazil, Chile,

more private security guards (3,811,302) than

Colombia, Costa Rica, Ecuador, El Salvador,

police officers (2,616,753) and Latin American

Guatemala,

private security agents are the most armed

Panama, Paraguay, Peru, Dominican Republic,

in the world, with rates of gun possession per

Uruguay and Venezuela.

coordination

Honduras,

and

Mexico,

public

evaluation

Nicaragua,

employee ten times larger than Europe. This

DECEMBER 2013 | BUSINESS JOURNAL

21

Global Partnership to Tackle Food Safety

More than 70 countries, private companies,

organization acting alone can have the impact

international organizations, trade associations,

we all want.

academic institutions, and non-governmental

knowledge, and motivation to fully address food

groups are meeting in Singapore at the Global

safety risks, this unique partnership can help to

Food Safety Partnership (GFSP) 2nd Annual

decrease food-borne hazards, reduce poverty,

Conference to evaluate its first-

By building the understanding,

and improve food security.”

year achievements and discuss

Uniquely, the GFSP actions are

future plans to scale up and shape

supported by a World Bank multi-

the world’s response to food safety

donor trust fund that can accept

challenges.

funding

There is an ongoing world food safety

problem

both

public

and

private contributors. The GFSP’s

threatens

mission is to create a new paradigm

every economy and food company,

of public-private collaboration for

challenging

food safety capacity building. It

regulatory millions

that

from

governmental authorities,

of

people

sickening

each

aims to reduce risks to consumers

year,

and businesses and increase the

introducing barriers to trade, and hurting

benefits to both public health and the economy

corporate bottom lines. As a result, the

by strengthening food safety protections and

international

supporting effective and efficient global supply

community

faces

the

critical

task of strengthening food safety capacity in

chains.

developing and middle income countries in order

The GFSP builds on APEC’s Food Safety

to safeguard public health, while promoting

Cooperation Forum, which was established to

food security and economic development.

address the twin challenges of facilitating trade

“Safe food should not be a luxury for so

of food and food products and improving public

many at our global table,” said Juergen Voegele,

health within the region, and that has already

World

improved the availability, accessibility, and use

Bank

Director

for

Agriculture

and

Environmental Services. “Everyone involved

of food safety best practices and protocols.

in the global food chain has an obligation to

“We live in a world where confidence is a

ensure food safety. At the same time, meeting

key pillar of the global food system -- and

international or industry standards creates both

consumer expectations for food safety are

challenges and opportunities for poor farmers

high,” said Mary Lou Valdez the U.S. Food and

and agri-businesses competing in these growing

Drug Administration’s associate commissioner

markets. Our partners recognize that no single

for international programs.

22

DECEMBER 2013 | BUSINESS JOURNAL

“The FDA is pleased to participate in the

through an open source knowledge and learning

Partnership, which we firmly believe can create

platform that will allow for the scaling up of

an effective space where all parties in the global

food safety capacity around the world.

supply chain can work together to help ensure that food products are safe for consumption.”

Since its launch in December 2012, the

The GFSP has also built an active network of some 30 contributing and implementing partners,

including

governments,

private

GFSP has attracted significant contributions

companies, international organizations, trade

from the governments of Canada, Denmark,

associations, academic institutions, and non-

the Netherlands and the United States, private

governmental groups.

companies such as Mars Incorporated and Waters Corporation; and the World Bank.

“We are off to a great start, and the time is

“This truly is a new way of working,” said Dr. Leon Bruner, Chief Scientist and Vice President

at

the

Grocery

Manufacturers

right to pool our resources toward this essential

Association.“Safety is the number one priority

global public good,” said Frederik Vossenaar of

for our industry. When it comes to developing

the Netherlands. “As a founding donor, we can

and manufacturing safe products, our industry

be part of a unique public-private partnership

knows what works. To truly have a prevention

between important government and private

based food safety system, we need a paradigm

sector leaders. Through this, we have been

of collaboration whereby suppliers wishing to be

able to demonstrate our commitment to the

a part of global supply chains have the capacity

world’s response to food safety challenges

to provide food that meets the expectations of

including addressing trade issues, protecting

global customers.” said Dr. Bruner.

public health and enhancing food security” said Mr. Vossenaar.

“Food safety and food security are major priorities for governments and food companies

Financial contributions to the GFSP have

in Asia - for both the protection of consumers

funded a range of innovative capacity building

and to advance trade in our region,” said

activities, including training modules addressing

Dr. Bev Postma, Executive Director of Food

Hazard Analysis and Critical Control Points

Industry Asia (FIA).“The vast majority of food

(HACCP) at food processing industries in China,

in Asia is produced by small and medium sized

Vietnam and Malaysia, and Good Aquaculture

family businesses, and the Global Food Safety

Practices (GAqP) in Indonesia. Other activities

Partnership is the ideal platform to support

underway include development of training

training and capacity building for manufacturers,

modules

assessment,

suppliers and farmers, and for supporting the

laboratory capacity, and regulatory systems,

public sector that supervises and regulates the

and a capacity building needs assessment

global and domestic food industry. We are very

toolkit that is being piloted in Zambia. All

honored to be part of this unique public-private

training materials will be made widely available

partnership.”

for

chemical

risk

DECEMBER 2013 | BUSINESS JOURNAL

23

Food Price Watch, November 2013: Prices Decline but Remain High as Weather Concerns Increase International prices of food continued to decline between June and October 2013, but remain high. The World Bank’s Food Price Index decreased by 6% between June and October 2013. Despite steady declines in the past few quarters, prices remain high: the Bank’s Food Price Index was only 12% lower than a year ago and 16% below the all-time peak in August 2012.

The overall decline is mainly driven by the prices of grains, which were 19% lower in October than in June. However, within the prices of grains, there is some variation. The price of internationally traded maize fell by 32%, with sustained drops in each of the last three months. Prices of rice (Thai 5%) also fell markedly—but less—between June and October, by 16%.

In contrast, the international price of wheat increased during this period. The increase

between June and October was 4%, with a sharp increase of 6% in October alone. Despite an increase of 6% in the Bank’s average price of crude oil during this period, fertilizer prices have not increased.

Weather has played a role, alongside improved production prospects, in sustained price declines. Favorable outlooks for the supply of cereals predict record harvests for wheat, maize, and rice.

However, deteriorating weather conditions and other uncertainties might further affect price trends. Bad weather in South America, Black Sea countries, China and India particularly warrants concern.

This issue of the Food Price Watch also explores the role that extra-large scale farming, popularly known as “super farms” may play in boosting agricultural productivity and poverty reduction.

MOVING UP! On December 6th, 2013, Steve Maximay joined

Over the last decade he has been actively

a very select group of international Consultants

involved in the transitioning of businesses to

who can claim they developed a National

carbon footprint reduction mode.

Intellectual

Property

Strategy

that

meets

the World Intellectual Property Organisation standards. Maximay was also member of a Cabinet-appointed team that wrote the IP Policy in Trinidad and Tobago a decade earlier.

Steve Maximay is the Managing Director at Science-Based Initiatives. As a Consultant, he has worked in all 15 CARICOM States primarily in the areas of Food, Agriculture, Tourism, Environment, and Intellectual Property. He was a member of the Technical Committee that wrote the region’s first “Risk Management Manual for Climate Change in the Caribbean” and was the agriculture representative on the “Caribbean Planning for Adaptation to Climate Change” project.

24

DECEMBER 2013 | BUSINESS JOURNAL

Steve Maximay (left) shakes hands with Minister of Legal Affairs, Mr. Prakash Ramadhar. Also in the photo are Controller of the IP Office, Ms. Mazina Kadir (left) and Permanent Secretary in the Ministry of Legal Affairs, Mr. Bernard Sylvester.

always on top of issues #268 Harold Fraser Circular, Valsayn, Trinidad and Tobago Tel: (868) 645-0368 . Email: caribbeanpragency@gmail.com; hutchlin2@gmail.com

Communications . Public Relations . Publications Development

Smart Governance: Solutions for Today’s Global Economy

By Nemat Shafik Deputy Managing Director, International Monetary Fund Oxford, United Kingdom, December 5, 2013 As prepared for delivery

Good afternoon! I am so pleased to be here

cooperation. But how to achieve this goal? In

with you today, where I spent very happy years

a recent article, the FT’s Martin Wolf discussed

earning my DPhil in economics. This is a magical

the importance of global public goods and how

place, full of beauty and clever people. My only

to provide them. “The states on which humanity

regret is that I left too soon.

depends to provide these goods, from security

Fortunately, my good friends Ngaire Woods

to management of climate, are unpopular,

and Max Watson have invited me to return to

overstretched and at odds. We need to think

give the Annual Global Economic Governance

about how to manage such a world. It is going

Lecture. Let me outline the main points I plan

to take extraordinary creativity.”

to make today.

Martin is right. We need to be creative if we want to make progress. We need smart

Making the case for smart governance

governance if we want solutions that work for

Global

today’s global economy.

economic

discussions

of

crises global

tend

to

reignite

governance

and

I would like to focus today on three related

international cooperation. The recent crisis has

topics. First, I will briefly touch upon the

been no different. This is because crises lay

historical relationship between crises on the

bare the shortcomings of existing international

one hand, and governance reforms and policy

rules and institutions.

coordination on the other hand. Second, I will

We have seen how weaknesses and failures

discuss the response in terms of governance

in banks and capital markets can spread

reforms and policy coordination that we have

through the international financial system.

seen in the aftermath of the financial crisis of

The same is true for other challenges faced by

2008. Finally, I will close my talk by sharing with

the world today, whether we are talking about

you some reflections on how global economic

climate change, nuclear weapons proliferation,

governance might evolve going forward—how

or health pandemics. What happens anywhere

“smart governance” may provide the right

affects everybody—and increasingly so.

balance between flexibility and effectiveness

So it is pretty clear that the world needs more, not less, international coordination and 26

DECEMBER 2013 | BUSINESS JOURNAL

that the world needs to manage globalization.

A world in transition

observers

The global economy is in transition. Global

governance was a concept of the past, and

economic power is shifting from west, to east

institutions such as the IMF, World Bank and

and south. Emerging and developing economies

WTO superfluous.

even

wondered

whether

global

already make up more than 50 percent of global

Only in 2008, when a disruption in a relatively

GDP (on a PPP basis)—ten years from now this

small segment of the U.S. financial system

number is expected to increase to 64 percent.

spilled into distant markets and countries, and

At the same time, trade and financial linkages

morphed into a full-fledged global financial

have risen spectacularly. Cross-border bank

crisis, it became clear that there had been an

claims grew from $6 to over $30 trillion between

undersupply of global governance in the years

1990 and 2008, and global merchandise exports

leading up to the crisis.

of goods and services increased from $4 trillion to $20 trillion. While these numbers contracted

Crises as opportunity

somewhat in subsequent years due to the

Five years after the onslaught of the global

global crisis, the growth rates for the past 20 or

financial crisis, economic governance remains

30 years are still impressive.

at the center of the policy debate. I would argue

On

the

production

side,

global

supply

that this is no surprise, given that, historically,

chains have become the norm rather than the

there has been a symbiotic relationship between

exception. A typical manufacturing company

crises and the evolution of governance.

today relies on inputs from more than 35

Granted, governance is often seen as evolving

different contractors from around the world—

slowly and in an incremental manner and at

for some companies, such as car and airplane

a stately pace, while crises are intrinsically

manufacturers, this number can range in the

disruptive

tens of thousands.

history has repeatedly shown, crisis often bring

and

revolutionary.

However,

as

With the sharp increase in interconnectedness

out the shortcomings of existing governance

and the growing diffusion of economic power,

arrangements, while the fear of recurrence can

it would have been reasonable to expect a

galvanize support for reform.

simultaneous transformation and expansion of

For instance, in the wake of World War

global governance. In theory, demand for global

I, the League of Nations was created to

governance should have increased with rising

promote

levels of global integration in order to manage

achieve international peace and security, while

the rules of the game and reduce negative

experiences of hyperinflation in the 1920s

spillover effects.

motivated efforts to restore the gold standard.

international

cooperation

and

But as we all know, global governance issues

Similarly, the Great Depression and World War

were on the backburner in the run-up to the

II triggered much of our current architecture

financial crisis. Indeed, against the background

of global governance, with the creation of

of high growth and low output volatility—what

the United Nations, IMF, World Bank, and the

has been called “the Great Moderation”—

General Agreement on Tariffs and Trade, now the World Trade Organization.

DECEMBER 2013 | BUSINESS JOURNAL

27

The traumatic experience of World War II also

coordination was particularly strong at the

provided impetus for political and economic

initial stage of the crisis. For instance, six major

integration in Europe.

central banks announced, in an unprecedented

In the United States, the financial crisis of

move, a coordinated cut in policy rates in October

1907 paved the way for the creation of the

2008 to ease global economic conditions. The

Federal Reserve, while the bitter experience of

U.S Federal Reserve and 14 different monetary

the Great Depression led to a major overhaul

authorities established temporary U.S. currency

of financial regulation, with the passage of the

swap arrangements to mitigate dollar shortages

Glass-Steagall Act in 1933, which separated

in short-term funding markets. And the first

commercial

and

ever G20 Leaders’ Summit was convened in

remained in place for more than sixty years.

November 2008 and led to a commitment to

More recently, the regional currency swap

coordinated fiscal stimulus and a pledge to

arrangements among ASEAN members known

refrain from protectionism.

and

investment

banking,

as Chiang Mai Initiative were created in the aftermath of the Asian crisis.

As with similar situations in the past, the global financial crisis of 2008 imposed large costs and hardship on affected countries.

However, from a perspective of economic governance, it has also provided a window of

These massive efforts meant that, instead of

opportunity to advance reforms and strengthen

another Great Depression, we got the Great

policy coordination. Did we manage to not let

Recession,

a good crisis go to waste? (a quote associated

achievement, given the possible counterfactuals.

with Rahm Emanuel, President Obama’s former

However, more recently, the momentum for

Chief of Staff, but like all great quotes was

policy coordination has slowed, as the focus has

said by Churchill first). Let me provide a brief

shifted from preventing a calamity to avoiding

overview of what we have achieved in the

future

past five years before looking at the gaps that

recovery. Some have argued that while the G20

remain.

was good in war, it might not be able to deliver

which

crises

and

actually

is

supporting

a

significant

the

nascent

as much in peace time.

A mixed score card

And the task is far from over.

The efforts in governance reform since the crisis

One challenge faced by the international

can be broadly split into three categories—

community going forward will be to continue

coordinating macroeconomic policies, fixing

the dialogue on unwinding unconventional

global financial regulation, and strengthening

monetary

regional and global safety nets.

spillover effects as well as managing our way

First,

macroeconomic

coordination. Although

28

not

DECEMBER 2013 | BUSINESS JOURNAL

policy perfect,

such

policies

and

managing

potential

out of the debt burdens accumulated during the crisis.

Second, global financial regulation. To address

Mechanism (ESM) and the ECB’s Outright

the origins of the crisis, G20 members committed

Monetary

to a fundamental overhaul of global financial

In other parts of the world, commitments to

regulation, with the intention of promoting a

regional financing arrangements, such as the

more transparent, safe, and resilient global

Chang Mai Initiative and the Eurasian Economic

financial system.

Community Anti-crisis Fund, were reinforced.

Transactions

(OMT)

framework.

Most notably, the Financial Stability Board

However, progress has been uneven in other

(FSB) was created in 2009 with a mandate

areas. For example, in the case of the IMF,

to develop and promote effective financial

the agreement reached in 2010 on important

regulation.

been

quota and governance reforms that would

made in terms of strengthening system-wide

further increase the voice and representation of

oversight,

liquidity

emerging market and developing economies has

buffers, promoting the exchange of financial

not yet been implemented. While two of three

information, and implementing macroprudential

required conditions have been fulfilled, further

policy frameworks. Efforts are also underway to

support is needed to meet the final condition

facilitate cross-border resolution.

that will allow the reform to take effect.

Significant increasing

progress capital

has

and

Yet major challenges remain, such as ending

If we put all this together, the report card

the too-big-to-fail problem, reforming shadow

on global governance reform since the crisis

banking, and making derivatives markets safer.

is somewhat mixed. Policymakers across the

In the euro area, recent policy actions have

globe need to keep the momentum alive and

helped ease market stress, but more still needs

seize the opportunity to advance governance

to be done to reverse financial fragmentation

reform while memories of the crisis and the

and move towards a full banking union.

sense of urgency remain fresh. Indeed, there is a real danger that the window of opportunity for addressing some of the most challenging global issues might soon be closing. How can this trend be reversed and important reforms finalized? To answer this question, it is helpful to look at the different types of solutions that have evolved as means to deliver global public

Third, strengthening regional and global safety

goods.

nets. To mitigate the impact of the crisis, countries came together to strengthen the

Soft versus hard policy coordination

global financial safety net, including by trebling

In what direction is the global system of

the size of the IMF’s resources and increasing

economic governance and policy coordination

the allocation of SDRs. In Europe, the financial

evolving? To answer this question, I find it

architecture of the euro area was enhanced

instructive to differentiate between “hard” and

through the creation of the European Stability

“soft” governance and policy coordination.

DECEMBER 2013 | BUSINESS JOURNAL

29

“Hard” policy coordination is typified by quid

“Soft” governance arrangements, such as the

pro quos in policies with a focus on specific and

G20 and BRIC country groupings, the FSB, or

tangible outcomes. Examples include the two

the Financial Action Task Force (FATF) have no

initial G20 Leaders’ Summits that took place

international legal personality or obligations. As

in the immediate aftermath of the crisis, and

a result, they tend to be more flexible and can

resulted in the coordinated fiscal policy response

often be put in place more quickly. They do not,

I mentioned earlier and the creation of the FSB.

however, have treaty-based mandates or legal

In contrast, “softer” forms of coordination are

enforcement powers. As a result, they have a

more process-based without a priori expectation

more limited ability to enforce commitments,

of substantial outcomes or agreements. They

which can pose challenges for their relevance

are designed to facilitate the exchange of

and effectiveness over time.

views and information sharing on an ongoing

Finally, there are, of course, also private

basis, such as the regular discussions among

sector solutions to governance challenges. One

central bankers at the Bank for International

example are Collective Action Clauses (CACs)

Settlements (BIS).

which allow a supermajority of bondholders

Soft

can

to agree to changes in bond payments terms,

complement each other. For instance, soft

with the intention of facilitating smoother debt

arrangements can keep the policy dialogue alive

restructuring. Another example is IFRS, an

during quiet times, and provide a framework

independent nonprofit foundation that promotes

for harder cooperation, and even full-fledged

the

policy coordination, during crises.

standards.

Soft versus hard governance

A mosaic of solutions

A

and

parallel

hard

policy

argument

coordination

can

be

made

for

In

harmonization

sum,

the

global

of

global

accounting

economic

governance

governance. “Hard” governance arrangements

structure of the future may well be a mosaic—or

require the establishment of legal obligations

ecosystem—of “hard” and “soft” elements that

and independent institutions through treaties.

operate in a complementary fashion. In such

The UN, IMF, World Bank and the WTO typify

a system, governance arrangements would

such arrangements.

essentially be issues- and context-driven, with

On the positive side, this kind of hard, treaty-

choices between hard and soft governance

based architecture strengthens the credibility

arrangements depending on what is the most

of member countries’ commitments and grants

efficient and practical solution to regulate and

legal

institutions.

oversee a specific matter at hand. Making such

However, their establishment and adaptation to

a system “smart” depends crucially on using

changing circumstances tends to be a relatively

hard or soft governance at the right time and for

slow-moving process, which can be a problem

the right issues.Let’s consider three examples

when the global environment or the needs of

of how hard and soft governance have been

members change.

combined:

30

enforcement

powers

DECEMBER 2013 | BUSINESS JOURNAL

to

First, take trade. We all prefer multilateral

institutions, such as the IMF, the World Bank,

trade agreements over regional ones. Since the

and the WTO adapt too slowly to changes

gains from trade are well recognized, the WTO

in their environment, governance gaps will

dispute resolution process has real “teeth” with

open up. “Softer” institutions may step in to

an ability to impose sanctions on those who

fill these gaps, but as substitutes rather than

violate global trade rules. Increasingly mega-

playing a complementary role. This would not

regional agreements (like US-EU or TPP) are

be efficient and could leave us with a weaker

less about tariffs but about standards and non-

global governance system.

·

tariff barriers. To the extent that they help set global norms that facilitate trade, they bring us closer to more global solutions and potentially reinforce (and in the future possibly become integrated with) the WTO framework. ·

Second, consider the balance between

hard and soft governance in the euro area crisis. Arguably the hard governance came from the IMF and the ECB and soft governance from the Eurogroup. Europe’s complex governance

The case for IMF governance reform

arrangements worked well in peace time, but

This brings me to a final point. In the evolving

decision making processes were not well suited

ecosystem of global governance and policy

to managing crisis.

coordination that I described, it is essential

Finally consider the areas of financial

for the elements of “hard” governance to stay

regulation. As part of its mandatory Financial

relevant by adapting to changes in the world

Sector Assessment Program (FSAP), the IMF

economy.

·

conducts financial stability assessments every

Over the years, the IMF has demonstrated

5 years of jurisdictions that have systemically

a remarkable ability to adjust its work and

important financial sectors. Mandatory FSAPs

operations in response to major changes in the

are a good example of hard surveillance where

global economy, including the fall of the fixed

countries are assessed against compliance with

exchange rate system in the early 1970s, the

clear global standards and stress tested against

debt crisis of the 1980s, and the collapse of the

national and international spillovers. Every two

Soviet Union in 1991.

years after an FSAP, the FSB does a peer review

The key reason why the IMF has remained

(a sort of soft governance) of follow up on FSAP

relevant has been a political governance

recommendations as a complementary way to

structure that, albeit slowly, does adapt to

advance key reforms for financial stability.

changes in the world economy. It also has an

However, a flexible and efficient global governance

structure

may

not

independent staff, and a constitution (in the

emerge

form of our Articles of Agreement) that allows

automatically. For example, when “hard” global

the Fund to adopt a longer-term perspective.

DECEMBER 2013 | BUSINESS JOURNAL

31

Moreover, the IMF has, in some aspects, also

it is much less effective in galvanizing action

managed to internally integrate hard elements

when there is potential for mutual gain—such

of governance such as mandatory surveillance,

as global economic rebalancing.

with

softer

elements,

such

as

voluntary

One possible explanation is that the global

Reports on the Observance of Standards and

community tends to rally in a time of crisis

Codes or facilitation of standards for sovereign

when the time horizon is short and immediate

wealth funds. On the “softer” side, the Fund’s

costs are high. However, in normal times,

consensus-based decision-making has been

gathering momentum for action today may be

effective at ensuring that member countries’

hard because the cost of inaction lies far in the

points of view are being heard.

future.

Going forward, it will be crucial for the IMF’s

Some observers point toward plurilateralism

effectiveness and legitimacy to ensure that

and the rise of soft global governance as a

its governance structure reflects the relative

threat to the traditional pillars of hard global

position of its member countries in the global

governance, including the IMF. I am much

economy. Approval of the 2010 reforms would

less pessimistic. I see these two forms of

be an important step in this direction, although

governance as potential complements rather

further shifts in quota and voting shares to

than imperfect substitutes. Soft governance

dynamic economies will also be needed.

works when innovation is needed but there is

To achieve this, some countries will have to

time to act, when getting a subset of countries

accept relative declines in their quota and voting

to act is sufficient and ad hoc implementation

shares. Understandably, for them this will not

can work. Hard governance is needed in a crisis

be an easy decision, but in return they will help

or when global approaches are needed and

ensure that the Fund can continue to remain

when consistent enforcement is key.

strong and legitimate for the benefit of the entire membership—and the global economy.

So, coming back full circle to Martin Wolf’s call for extraordinary creativity in seeking solutions to the multitude of challenges faced by the

Conclusion

world today, I believe we can tackle the issues

While significant efforts to improve global

by being smart about the governance we need,

economic governance were made in the initial

and by making the most of political opportunity

phase of the crisis, the momentum of reform

when it presents itself. By integrating “soft” and

and policy coordination has slowed recently.

“hard” governance more intelligently, better

Indeed, while the current system is able to deliver governance and policy coordination when there is a lot to lose—such as in a crisis,

32

DECEMBER 2013 | BUSINESS JOURNAL

outcomes can be achieved for everyone, small and large countries alike.

Light tight oil does not diminish the importance of Middle East supply, IEA says in latest World Energy Outlook Report sees large disparities in regional energy prices affecting industrial competitiveness Technology and high prices are opening up new oil resources, but this does not mean the world is on the verge of an era of oil abundance, according to the International Energy Agency’s (IEA) 2013 edition of the World Energy Outlook (WEO-2013). Although rising oil output from North America and Brazil reduces the role of OPEC countries in quenching the world’s thirst for oil over the next decade, the Middle East – the only large source of low-cost oil – takes back its role as a key source of oil

less than half that of non-OECD countries. Low-

supply growth from the mid-2020s.

carbon energy sources meet around 40% of

The

annual

report,

released

today

in

the growth in global energy demand. In some

London, presents a central scenario in which

regions, rapid expansion of wind and solar PV

global energy demand rises by one-third in

raises fundamental questions about the design

the period to 2035. The shift in global energy

of power markets and their ability to ensure

demand to Asia gathers speed, but China

adequate investment and long-term reliability.

moves towards a back seat in the 2020s as

“Major changes are emerging in the energy

India and countries in Southeast Asia take

world in response to shifts in economic growth,

the lead in driving consumption higher. The

efforts at decarbonisation and technological

Middle East also moves to centre stage as

breakthroughs,” said IEA Executive Director

an energy consumer, becoming the world’s

Maria van der Hoeven. “We have the tools to

second-largest gas consumer by 2020 and

deal with such profound market change. Those

third-largest oil consumer by 2030, redefining

that anticipate global energy developments

its role in global energy markets. Brazil, a

successfully can derive an advantage, while

special focus in WEO-2013, maintains one of

those that do not risk taking poor policy and

the least carbon-intensive energy sectors in the

investment decisions.”

world, despite experiencing an 80% increase in

The availability and affordability of energy

energy use to 2035 and moving into the top

is a critical element of economic well-being

ranks of global oil producers. Energy demand

and, in many countries, also of industrial

in OECD countries barely rises and by 2035 is

competitiveness.

DECEMBER 2013 | BUSINESS JOURNAL

33

Natural gas in the United States currently

pricing reforms in the Asia-Pacific region and

trades at one-third of import prices to Europe

LNG exports from North America can spur a

and one-fifth of those to Japan. Average

loosening of the current contractual rigidity of

Japanese or European industrial consumers pay

internationally traded gas and its indexation to

more than twice as much for electricity as their

high oil prices.

counterparts in the United States, and even

Action to reduce the impact of high energy

China’s industry pays almost double the US level.

prices

InWEO-2013, large variations in energy prices

to address climate change. Energy-related

persist through to 2035, affecting company

carbon-dioxide emissions are projected to rise

strategies and investment decisions in energy-

by 20% to 2035, leaving the world on track for

intensive industries. The United States sees

a long-term average temperature increase of

its share of global exports of energy-intensive

3.6 °C, far above the internationally-agreed

goods slightly increase to 2035, providing

2 °C climate target. The report emphasises the

the clearest indication of the link between

importance of carefully designed subsidies to

relatively low energy prices and the industrial

renewables, which totalled $101 billion in 2012

outlook. By contrast, the European Union and

and expand to $220 billion in 2035 to support

Japan see their share of global exports decline

the anticipated level of deployment.

– a combined loss of around one-third of their current share.

does

not

mean

diminishing

efforts

An in-depth focus on oil in WEO-2013 looks at how technology is opening up new types of resources, such as light tight oil and ultra-

“Lower energy prices in the United

deepwater fields, that were until recently

States mean that it is well-placed to

considered too difficult or expensive to access.

reap an economic advantage, while

Despite new resources being unlocked, national

higher

energy-intensive

oil companies and their host governments still

industries in Europe and Japan are set

control 80% of the world’s proven-plus-probable

to be a heavy burden,” said Fatih Birol,

oil reserves. The pace of oil demand growth

IEA Chief Economist.

slows steadily, from an average of 1 mb/d per

costs

for

year to 2020 to just 400 kb/d thereafter, as high Among the options open to policy makers

prices encourage efficiency and fuel switching,

to

and the decline in OECD oil use accelerates. T

mitigate

the

impact

of

high

energy

prices, WEO2013 highlights the importance of

he shift in the balance of oil consumption

energy efficiency: two-thirds of the economic

towards Asia and the Middle East is accompanied

potential for energy efficiency is set to remain

by a continued build-up of refining capacity

untapped in 2035 unless market barriers can

in these regions. However, in many OECD

be overcome. One such barrier is the pervasive

countries, declining demand intensifies pressure

nature of fossil-fuel subsidies, which incentivise

on the refining industry: in the period to 2035,

wasteful consumption at a cost of $544 billion

nearly 10 mb/d of global refinery capacity is

in 2012. Accelerated movement towards a

at risk of low utilisation rates or closure, with

global gas market could also reduce price

Europe particularly vulnerable.

differentials between regions. Gas market and

34

DECEMBER 2013 | BUSINESS JOURNAL

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