by Alex Evans | Mar 1, 2008 | Africa, Climate and resource scarcity, Economics and development, Global system
Lots of concerns lately about stagflation, given how commodity prices have continued their inexorable rise even as the US economy falters. Inevitably, some have wondered whether it means it’s the 1970s all over again. But here’s another reason to think about dusting off those flares: what about the risk of a new third world debt crisis?
Consider how rising commodity prices – especially food and energy – are affecting low income countries. I saw a very worried-sounding email this week from UNDP in Yemen, noting that the country is 75% dependent on food imports, that the price of a bag of wheat is now over two and a half times its level a year ago – and that fuel subsidies are already going to absorb 30% of government expenditures this year “against a backdrop of declining revenues due to a combination of reduced production and rising local consumption of oil and its derivatives”. Not good.
On top of that, consider how much aid is being diverted towards coping with these price increases. As I noted back at the start of the year, we already know from the International Energy Agency that oil importing low income countries in Africa have seen all of their aid and debt relief over the past three years offset by increased costs for energy imports. That’s before food prices are even factored into the equation – and as WFP head Josette Sheeran’s alarm bell-sounding interview last week underscores, there are plenty of problems on that front too.
If aid isn’t enough to offset the problem, then it follows that some countries may have to take out loans to cope with the balance of payments problems. One place they might look to is the IMF; the Institute of Development Studies’ Stephany Griffith-Jones made such a proposal in January, when she wrote in a letter to the FT that
When oil prices went up in the 1970s, the International Monetary Fund created low conditionality oil lending facilities. These helped sustain growth and facilitate adjustment in many developing economies. Should not a similar facility be created now in the IMF to ease the burden, especially on the poorest countries? Or should not existing IMF facilities, like the different windows of the Poverty Reduction Growth Facility, be modified to provide rapid, significant, cheap, low conditionality loans to poor countries facing the external shock of a large deterioration of their terms of trade?
The Fund itself subsequently confirmed that this was already happening: “several countries already receiving support under the International Monetary Fund’s poverty reduction and growth facility have recently requested additional lending in response to a terms of trade shock”.
But of course it may not be the Fund that emerges as the key lender in all this. Just as in the 1970s, the world economy is suddenly awash with petrodollars from newly flush oil producers – hence all the fuss about the rapidly evolving role of sovereign wealth funds. China, too, is also starting to invest some of its vast dollar reserves – now around $1,500 trillion – in Africa. So far, these investments have concentrated on commodity producers rather than importers, but this could change if China comes to regard balance of payments lending as an inexpensive means of purchasing influence more generally.
In all cases, the underlying question on balance of payments loans to poor countries is: what happens if – as many commentators believe – the current food and oil price shock isn’t just a cyclical blip, but is instead a longer term structural shift? Are low income countries just supposed to keep borrowing?
One to add to the agenda when food prices come up at the IMF / World Bank spring meetings, perhaps…
by Charlie Edwards | Feb 25, 2008 | Climate and resource scarcity, Conflict and security
The Svalbard Global Seed Vault is situated more than one hundred metres deep inside the mountain permafrost on the Norwegian island of Spitsbergen, some 620 miles south of the North Pole deep inside the Arctic circle.
It’s pretty barren.
No trees grow on the archipelago, which is home to some 2,300 people. It was selected because of its inhospitable climate and remoteness. The average winter temperature on Svalbard is around minus 14C. The vault is protected by high walls of fortified concrete, doors armoured with steel plate and a home guard of free-roaming polar bears.
As the world’s first global seed bank, it has the capacity to hold up to 4.5 million batches of seeds from all the known varieties of the planet’s main food crops and has been designed as a latter-day Noah’s Ark, or insurance policy, for the planet in the event of a catastrophe such as devastating climate change induced by global warming.
The vault aims to make it possible to re-establish crops and plants should they disappear from their natural environment or be wiped out by major disasters. Cary Fowler, of the Global Crop Diversity Trust which set up the project together with Norway’s Nordic Gene Bank yesterday described the vault as the “perfect place” for seed storage.
The vault is made up of three large, airtight, refrigerated cold-storage chambers which are housed in a long trident-shaped tunnel bored through a layer of permafrost in to a mountain of sandstone and limestone on the archipelago.
Scientists involved in the project point out that some of the world’s biodiversity had already been lost as a result of war or natural disaster with gene vaults disappearing in Iraq and Afghanistan following the conflicts there and while seed banks in the Philippines and Honduras have been wiped out from natural disasters. The vault is the world’s last line of defence against extinction.
‘Every nation has been invited by the Norwegian government to place its seeds in this vault. It’s the last line of defence against extinction for all the crops we have, and the most long-lasting, most futuristic and most positive contribution to humanity being made by the international community today.’
Each country’s seeds will be stored inside heat-sealed, four-ply aluminium envelopes originally designed for use by the military, placed inside sealed boxes, stored on metal shelving and secured inside an air-locked chamber. Each packet will hold one representative crop sample, and about 500 seeds depending on their size. They will remain the property of the country that donated them. This last part is very important as according to researchers at the World Vegetable Centre (I kid you not) in Taiwan, up to 27 “orphan” crops with a value of US$100 billion are grown on 250 million hectares (618 million acres) in developing countries. Orphan crops like cowpea and groundnut are not minor or insignificant crops but are crucial to regional food security.
by Alex Evans | Feb 18, 2008 | Climate and resource scarcity
Javier Blas at the FT has the details:
Prices for top-quality spring wheat have jumped by 90 per cent in the past month and a half, boosted by a scramble by corporate consumers to secure scarce grain and speculative buying by investors. A surge on Friday in prices for wheat used in bread to an all-time high of $19.88 a bushel – the highest yet paid for any wheat contract and a three-fold increase from a year ago – prompted the US baking industry to call for wheat exports to be curtailed.
The American Bakers Association stopped short of asking for an export moratorium but pressed for curbs on foreign sales. Lee Sanders, ABA vice-president for government relations, said there was usually a surplus in the US wheat market equivalent to three months of US consumption. “It is currently at a very low one-month level, which is extremely concerning,” she said…
The US is the world’s largest wheat exporter. Faced with strong overseas demand after extreme weather damaged other countries’ crops, its wheat stocks are set to fall to a 60-year low this year. The shortage of top-quality spring wheat is forcing US millers to consider buying Canadian supplies… William Lapp, president of Advanced Economic Solutions, a Nebraska-based food consultancy, said that one of the key themes of this year conference would be the realisation that the price surge was not a temporary hump but rather a structural change. “We are not facing a short-term price blip…but a sustained move to a new and higher plateau for prices,” he added.
Meanwhile, Gillian Tett is seeing the other side of the equation:
A WFP official, for example, recently showed me the red plastic cup that is used to dole out daily rations to starving Africans – and then explained, in graphically moving terms, that this vessel is typically now only being filled by two-thirds each day, because food prices are rising faster than the WFP budget.
by David Steven | Feb 11, 2008 | South Asia
On Saturday, I wrote about the black mood that’s gripping Pakistan, with many here asking whether the country faces a descent into chaos.
So, how serious is the threat?
Very, if you believe the 2007 Failed States Index, which places Pakistan twelfth, only a couple of points behind its neighbour, Afghanistan. The country was 36th in 2005.
Pakistan’s decline is unsurprising. It sits on the modern world’s key geopolitical, religious and ethnic fault lines. Any country that borders Afghanistan, India, China and Iran is in for a hard time. Add in disastrous domestic politics and a dose of counter-productive international meddling and you’re left with a toxic brew.
But three less obvious drivers have caught my eye during a visit here. Each of these ‘hidden drivers’ (I use the term loosely) suggests ongoing trouble for the country, even if its geopolitical problems begin to ease.
First, there’s the country’s rotten demography – or more accurately the interaction between its demographics and rotten policy. Last week, I met Durre Nayab, a demographer at Pakistan’s Institute of Development Economics whose work draws heavily on the research of my sometime co-author, the economist David Bloom.
Bloom’s work (summarised here) demonstrates the demographic dividend countries can collect while they have young populations. This dividend, he has shown, accounts for around a third of the East Asian economic miracle. But it is only on offer if countries can educate their workers, employ them productively, and give them opportunities to save. At present, Pakistan does none of these things.
Durre Nayab:
The demographic dividend is inherently transitory in nature. Due to lack of prior planning, Pakistan has wasted the first 15 years of the opportunity demography has offered it…Time is running out to put appropriate policies in place, the absence of which may result in large-scale unemployment, [and] immense pressure on health and education systems.
In short, a socio-economic crisis may take place making the demographic dividend more of a demographic threat.
Then add the second hidden driver – the growing impact of scarcity on the Pakistani working and middle classes.
Pakistan’s newspapers, at the moment, are full of complaints about rocketing food and energy prices. The price of flour has more than doubled in recent times, a situation the government is trying (and failing) to control. Electricity is also in short supply, due to a failure to build new power stations in line with rising demand. A World Bank report published a few days sums up the situation.
Pakistan is one of the most water stressed countries in the world, and water resources are depleting rapidly. With its water infrastructure in poor condition… Pakistan has to invest around Rs60 billion (US$1 billion) per year in reservoirs and related infrastructure over the next five years. In the energy sector, the country will face severe power shortages of around 6,000 megawatts by 2010. Similarly, inefficiencies in the transport sector cost the economy between 4-5 percent of GDP each year.
The report is extremely pessimistic about Pakistan’s ability to correct these deficits.
Three factors are causing this problem. First, there are global factors in play, as my colleague Alex Evans has extensively documented. Energy prices are high; food and oil prices are now linked; and water scarcity is certain to increase. Climate change adds another layer of threat, both globally and within Pakistan (recent electricity shortages have been partly been down to a lack of water for hydropower).
Second, there is the Pakistan government’s total failure to develop infrastructure. More people, rising living standards, and falling prices for energy-hungry appliances have all increased demand for energy, but rulers have failed to respond to clear warnings of trouble ahead. Instead, the government is engaged in what will surely prove to be a futile attempt to keep prices low through subsidies and controls. The country is already struggling to pay its fuel bills, with the government budgeting for an oil price at less than 70 dollars per barrel, and suffering as it heads ever higher.
And finally, there is the impact of unrest, instability and out-and-out sabotage. John Robb highlights the potential damage that this type of tax can do to a fragile economy in his book, Brave New War (drawing on this analysis by James Harrigan and Philippe Martin). “Singular terrorist events (black swans), such as 9/11, do not affect city viability,” Robb writes. “The costs of a singular event dissipate quickly. In contrast, frequent attacks (even small ones) on a specific city can create a terrorism tax of a level necessary to shift to a [lower] equilibrium.” In other words, the city will be out of kilter – literally not worth living in – until it shrinks.
This effect may be underway in Pakistan’s urban centres, and possibly in the country as a whole, as insurgent attacks combine with political instability and sheer unrest to erode the country’s infrastructure. According to the Daily Times:
Violence has grown in the cities most hit by load-shedding and outages. Karachi and Hyderabad are the two cases in point. After the assassination of Ms Bhutto on December 27, there was anger and fury which vented itself on public property. Not all of the protesters were the workers of the PPP. Some were common criminals looting banks, but a large number were ordinary citizens habituated to violence through Karachi’s most cruel period of power outage in the summer of 2007.
And finally, a third hidden driver: the worrying role being played by the Pakistan army, once a source of national stability and pride. It is no secret that the army has hollowed out many, if not all, of the country’s political institutions, but less well understood is its growing economic dominance, a phenomenon excellently explored in Ayesha Siddiqa ground-breaking recent book, Military Inc – Inside Pakistan’s Military Economy (allegedly banned in Pakistan, but I found a copy on sale in a Lahore hotel).
The army, Siddiqa reports, controls bakeries and banks, fertilizer plants and television channels, shopping malls and motorway toll booths. It is also a massive land owner, co-opting state land and acquiring private land, sometimes by coercion. And of course, it can use its political and military might to protect its investments, while using its wealth to gain permanent autonomy from civilian control.
The growth of the military’s economic empire… was parallel to the increase in the organization’s political power and influence in national decision-making. As the military consolidated itself into a class, it gained greater confidence to exploit national resources and acquire greater opportunities, which benefited it as an institution and also filled the pockets of the senior generals…
The crystallization of these economic interests is a major determinant to the future of democracy in the country.
So you have an army that is engaged in banditry…hordes of alienated young people…an economy that is vulnerable to scarcity and disruption… in a country that is already prey to many other stresses. It’s a sobering outlook. For a couple of years, I suppose, the country can continue to muddle through. But corrective action is now desperately needed.
After all, you never know which straw is the last one until you hear the camel’s back snap.
by Alex Evans | Feb 5, 2008 | Climate and resource scarcity, Cooperation and coherence, Influence and networks, UK
The Foreign Office launched its new Strategic Framework yesterday. It seems rather a grand title for a leaflet that stretches to two pages of A4, but perhaps that means we can hope for a fuller exposition in due course. Here’s your cut-out-and-keep guide to how it’s different from the old strategic framework:
Stuff that was in before and is still in now: WMD, terrorism, conflict prevention, the EU, a high growth economy including support for UK business, energy security, climate change, human rights & good governance, migration, consular stuff, overseas territories.
Stuff that was in before but has disappeared: Organised crime (“reducing the harm to the UK from international crime, including drug trafficking, people smuggling and money laundering”); sustainable development.
Stuff that has appeared for the first time: More emphasis on conflict resolution (“including through an integrated civil-military approach to peacekeeping, stabilisation and sustained post-conflict peacebuilding”); an explicit reference to the Millennium Development Goals [happy faces over at DFID, no doubt]; and a reference to the international system in its own right [rather than just in the context of conflict prevention, as under Margaret Beckett].
FCO say that they’ve shrunk the list of priorities from ten priorities to four policy goals (counter-terrorism and weapons proliferation; prevent and resolve conflict; low-carbon, high-growth global economy; effective international institutions) and three essential services (support British economy; support British nationals abroad; support managed migration to Britain). But given that there are three distinct sub-points under each policy goal, and that 95% of the content of the old priorites is still in there, I’m politely sceptical.
Still, let’s offer up a small prayer of thanks for David Miliband’s special gift to us all: the defenestration of sustainable development, the world’s leading all-things-to-all-people concept. On the other hand, it’s a bit worrying that resource scarcity has effectively disappeared as a result, especially on the food and water front. A missed trick there (especially since Miliband really pioneered the concept of ‘one planet living’ hard while he was at Defra); it could have fitted in nicely alongside the energy security stuff.
So what happens now? David Miliband’s statement to Parliament on the new framework says a little about what it all means in practice:
We will be increasing substantially the overall level of resources the FCO puts into counter-terrorism and counter-proliferation; climate change; Afghanistan and other conflict regions; and key international institutions. All these areas will receive additional staff and money.
We have also decided that we should adapt the FCO’s overseas network of posts to align it more closely with our own priorities and those of HMG as a whole. So we will be shifting a proportion of our diplomatic staff from Europe and the Americas to Asia, the Middle East and other parts of the world, while continuing to sustain our global flexibility and reach…
In order to put more resources into these new priority areas and to sharpen our strategic focus, it is necessary to reduce the resources the FCO puts into certain other issues, notably where other Whitehall Departments in London are better placed to direct HMG’s international priorities, in particular in the areas of sustainable development, science and innovation, and crime and drugs.
Miliband also said that “we will be taking forward the detailed planning and implementation over the next few months, inside the FCO and with other Government Departments”. As that process gets underway, it would be good to hear more about FCO’s strategy in two particular areas:
1. Its role on policy synthesis. As David and I set out in our paper last April on Fixing the Foreign Office, one of the core problems in UK foreign policy is that with domestic departments all leading internationally on their little bit of foreign policy (Defra on climate, BERR on energy and so on), we have a problem with policy coherence arising from the fact that all of these organisational silos emphatically do not add up to a whole that’s more than the sum of its parts. Traditionally, overcoming this would have been a Cabinet Office job. But today, the Cabinet Office just doesn’t have the resources for such a complex task. So does FCO have a special role in effecting a strategic policy synthesis and in joining up the dots? And if so, how does it work?
2. Its theory of influence. Miliband is already clear that the new empowerment of non-state actors in foreign policy is a Big Deal (c.f. his idea of the ‘civilian surge’). But if diplomats’ work now extends far beyond just talking to other diplomats, does the FCO have a clear approach towards leveraging influence in this new context? (This is the question that David and I will be tackling in our forthcoming Demos pamphlet on The New Public Diplomacy.) And if so, how does it work?
