Archive for December, 2008

Climate Change in Bangladesh – BBC Photos

7 December, 2008

Bangladesh is one of the countries that will be worst affected by climate change. Rising sea and coastal water levels and more frequent storms threaten this low-lying country. Adapting Bangladesh to climate change is urgent – especially to prevent the reversal of recent progress in poverty reduction there.

An excellent set of pictures on the theme of climate change in Bangladesh can be seen at the BBC here.

BWPI will be undertaking with BRAC a new research programme on climate change and its implications for poverty in Bangladesh. Watch this space over the coming months. In the meantime check out the BWPI and CPRC working paper series for more on Bangladesh.

Advertisements

Around the World with Joseph Stiglitz

1 December, 2008

BWPI Chair and Nobel Laureate Joe Stiglitz has a new documentary just out. ‘Around the World with Joseph Stiglitz’ is a hard-hitting look at globalization. Joe takes two journeys. His own journey began in Gary, Indiana. The documentary returns to his hometown to see what shaped his thinking. It then heads across the world, taking in Botswana, Ecuador, India and China. It weaves together the social and economic effects of globalization, recommending ways to manage it for the good of all.

If you are in New York you can catch it at the Lincoln center this Wednesday (3 December).

In the meantime, check out Joe’s interview with Alex Jones on YouTube on his book The Three Trillion Dollar War: the True Cost of the Iraq War, with Linda Bilmes. And Joe on the sub prime crisis on CNBC.

Talk the talk – but not walk the walk

1 December, 2008

That’s the way Larry Elliott in The Guardian sums up the donors lack of urgency in meeting the MDGs. Commenting on the just released UNESCO Education for All report, he writes:

“… donor countries can talk the talk but not walk the walk. According to the Unesco study, the aid required for even the most basic primary education provision in poor countries is US$11 bn (£7.2bn) a year. In 2006, spending amounted to around $4bn, leaving a funding gap of $7bn. To put that figure into context, it is around 10% of what Britain spent this autumn recapitalising the banking system”.

Maybe they will walk the walk at the UN Financing for Development summit now underway in Doha. But I wouldn’t hold your breath. “When financial systems fail, the consequences are highly visible and governments act,” concluded UNESCO’s Director-General Koïchiro Matsuura. He added “When education systems fail the consequences are less visible, but no less real”.

I would add that education is the only investment you can be sure of getting at least some return on – provided it’s of good quality and children complete a minimum of 4 years primary education. Well-educated people earn more in the labour market, and find it easier to absorb new technologies and methods when they run micro-enterprises and farms. Education is a means to break the inter-generational transmission of chronic poverty (see this CPRC study for Bangladesh).

And even if it didn’t raise income much – which might be the case in economies that are growing only slowly – it certainly improves health status, especially of children, when mothers are educated. Educated mothers are 50% more likely to immunize their children than mothers with no schooling (go here). Gender inequality in education has high costs for both the family and society (see this IFPRI study).

So the chronic underfunding of education reminds me of that old quotation: if you think education is expensive, try ignorance.

Global Finance – Doha: What Chance of Success?

1 December, 2008

World economic turmoil sets the scene for the UN Conference on Financing for Development in Doha (29 November to 2 December), the most important conference on this topic since the UN’s conference in Monterrey back in 2002. Go here for UN updates.

The last quarter of 2008 has seen a lot of talk-talk on development finance. The long-awaited High Level Forum on aid effectiveness was held in Accra in September as well as the UN’s high level event on the MDGs in New York. Calling an event ‘high-level’ lets the international community claim that progress has been made – just by getting senior people together in one place.

What will Doha bring? Can it make headway against the very strong currents now running through the global financial system? Will rich country donors be able to afford aid? On this and other issues see my WIDER Angle article with George Mavrotas – Development Finance: New Opportunities for Doha. We explore the topic further in our new UNU-WIDER book Development Finance in the Global Economy: The Road Ahead (Palgrave).

The “Dutch Disease” Effects of Aid in Uganda

1 December, 2008

In my recent post on Sorious Samura’s programme for Panorama on BBC One – an expose of aid to Africa, in particular to Sierra Leone and Uganda – I said we would come back on whether Uganda is experiencing a negative impact from the aid flows.

Remember the issue is whether foreign aid to Uganda is deterring export production via a “Dutch Disease” effect. If so, then aid is having perverse effects, hindering rather than helping economic growth.

How does this work?

Short explanation: A capital inflow like foreign aid raises domestic demand. This pushes up domestic prices and, if the exchange rate is not fixed by the government, the currency tends to appreciate as well (a shilling buys more dollars). Hence: exporting is less profitable and imports are cheaper (putting pressure on domestic producers of import-substitutes – for example domestic food crops suffer competition from cheaper food imports). Result: economic growth falls.

(Long explanation: The money is spent on two types of goods and services. First, non-tradables, that is items whose prices are mainly determined by domestic supply and demand. The price of a haircut in Kampala for example. Haircuts aren’t internationally traded. Second, tradables. These are goods and services whose prices are driven by international markets. The price of Uganda’s coffee, for example (Uganda is a ‘price-taker’ in commodity markets: some countries are big enough exporters to affect world prices – Saudi Arabia and oil, for example). A demand expansion caused by a capital inflow tends to push up the prices of non-tradables more than tradables, because the former are less-responsive (more inelastic, as economists say) in supply. The ratio of non-tradable prices relative to tradables prices rises, making it more profitable to produce the former. If the exchange rate is flexible – i.e. the central bank doesn’t fix it as a matter of policy – then it tends to appreciate as well. This adds to the appreciation of the real exchange rate that is caused by the rise in domestic prices as non-tradables prices outpace tradables prices. Result: people give up producing tradables such as coffee and move into the non-tradables sector, and growth falls).

Aid is not the only capital inflow that might cause this. The term Dutch Disease was first coined (and is most often used) to describe the impact of a natural resource windfall (natural gas in the case of 1970s Netherlands). Nigeria and other oil exporters suffered catastrophically from Dutch Disease in the 1970s when oil prices boomed (resulting in a severe contraction in Nigeria’s agriculture, a highly tradable sector).

However, much depends on what aid (or oil revenue) is used for. If it finances infrastructure construction, and if this is the right kind of infrastructure, then aid will have a supply-expanding effect. This could be of sufficient scale to offset any Dutch Disease effect (or the latter might be evident for a while until the infrastructure is built and then productivity effect kicks in: see Chris Adam and David Bevan).

So much for the theory. What about Uganda? The country has certainly had a large injection of aid, which has a big budgetary impact (see Martin Brownbridge and Emmanuel Tumusiime-Mutebile). An IMF study, by Mwanza Nkusu argues that Dutch Disease does not necessarily occur – especially when the economy has unused capacity (which is typical of countries like Uganda recovering from civil war). So the academic jury is still out.

What does recent data tell us? Economic growth was just under 10 per cent over 2007-08 according to a recent IMF staff mission to Uganda. Exports grew by 50 per cent over the same period. The Fund expects both to fall – the result of the global financial crisis that is weakening commodity prices (go here). Uganda is dealing with high inflation (core inflation is 14.5 per cent) – but this is more the result of the run-up (until recently) in global energy and food prices. The shilling has depreciated, not appreciated, recently. So, no indication of aid having Dutch Disease effects: the shilling is down, not up, and exports are up, not down.

But certainly the economy faces a tricky adjustment as it responds to the global economic shock of the last 6 months (true of all low-income, primary-commodity dependent, economies).

Whatever the other effects of aid on Uganda (whether it is being well spent, whether it targets the poor effectively etc.) there does not seem to be a Dutch Disease effect – at least recently. Perhaps more worrying is the potential Dutch Disease effect of the oil revenues that come on stream next year. If Uganda can manage oil well then it will be the first country in Africa to do so. Now that would be an achievement.

Tony Addison is Executive Director of the Brooks World Poverty Institute, University of Manchester.