The impact of the global economic crises and trajectories for transformation in the afro arab world...
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Understanding the Global Financial Logjam: Stemming Crises of Livelihoods in the Afro-Arab Region BT Costantinos, PhD Professor of Public Policy, School of Graduate Studies, Addis Ababa University [email protected]Secretariat of the House of Federation Afro-Arab Parliamentarian Summit September 24, 2011, Sheraton Addis, Addis Ababa Centre for Human Environment
The impact of the global economic crises and trajectories for transformation in the afro arab world [autosaved1]
The study aims to answer the following questions. What are the trajectories of the recent financial, economic and livelihood crises? What is their impact on the global welfare? What options are there to stem the tide? The study objective is hence to identify the impact of the recent financial, economic and livelihood crises and options to stem the tide on the Afro-Arab continent...
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1. Understanding the Global Financial Logjam: Stemming Crises
of Livelihoods in the Afro-Arab Region Centre for Human Environment
Secretariat of the House of FederationAfro-Arab Parliamentarian
Summit September 24, 2011, Sheraton Addis, Addis Ababa BT
Costantinos, PhD Professor of Public Policy, School of Graduate
Studies, Addis Ababa University [email protected]
2. Part IThe Impact of the Global Crises on The Afro-Arab
Region How did it come and how bad is the crisis? Marxs critique of
Capitalism The world of derivatives Financial Shenanigans, Greed
and Capitalism Stemming the tide of the Impact of the Economic
Crises Capitalism is not beyond improvement! With the US markets in
crisis, the financial markets hit anew low. The rescues,
bankruptcies and dizzying write-downssignal a reckoning for Wall
Street wizards who engineered the credit crisis. The liquidity
capacity of these markets wasoverwhelmed with the pattern of
ever-lowering interest rates that arose from the tech stock bubble
of the late 1990sJanuary 7, 2012 BT Costantinos, PhD Slide 2
3. A Century of crises and Marx The U.S. Sub-Prime Mortgage
Crisis (2007-2009) US Dotcom bubble (2000) The Asian Financial
Crisis (1997-1998) The Collapse of the Japanese Asset Price Bubble
(1990s) The Latin American Debt Crisis (1980s) The 1973 Oil Crisis
(1973-1975) The Great Depression (1929-1939) - Wall Street Crash in
October 1929Marx argued that this alienation of human work (when
labour itselfbecame a commodity) and surplus value are precisely
the definingfeature of capitalism. Marx believed that this cycle of
growth,collapse, and growth would be punctuated by increasingly
severecrises. This can easily be applied to the current global
situation,because alienation is still a challenge.But, some suggest
that self-interest and the need to acquire capital isan inherent
component of human behaviour, and is not caused bythe adoption of
capitalism January 7, 2012 BT Costantinos, PhD Slide 3
4. The world of derivativesEconomists believe derivatives will
allow more precise pricing offinancial risk and better risk
management, while they concede thatwhen derivatives are misused,
the leverage that is often an integralpart of them can have
devastating consequences.The world of derivatives is peppered with
brain-teaser lingo: a forward contract commits the user to buying
or selling an asset at a specific price on a specific future; a
future is a forward contract traded on an exchange; a swap is a
contract by which two parties exchange the cash flow linked to a
liability or an asset; an option is a contract that gives the buyer
the right, but not the obligation, to sell or buy a particular
asset at a particular price, on or before a specified date; an
over-the-counter is a derivative that is not traded on an exchange
but is purchased from, say, an investment bank; Exotics are
derivatives that are complex, available in emerging economies
Plain-vanilla derivatives, are typically exchange-traded, relate to
developed economies and are comparatively uncomplicated.January 7,
2012 BT Costantinos, PhD Slide 4
5. The crises shook world-wideconfidence in the system
resulting in declining global wealth
6. Global impact of the financial crisesStock market wealth
declined by 40-60% in Dollar termsWorld bank, Morgan Stanley
capital International Indexes, IFC/S&P
8. Does the Crunch affect the Afro-Arab World? Businessmen have
always moaned about the excessive regulations and conservatism of
Afro-Arab Region banks. Controls on foreign exchange often prevent
them raising more money by investing in exciting financial
instruments. Foreign ownership of banks is limited. Now, however,
this very de-linkage from the Western financial system has turned
out to Afro-Arab Regions advantage. Its banks have almost no
exposure to the subprime market causing such havoc elsewhere in the
world. No one doubts that Afro-Arab Region will feel the effects of
the crisis eventually. As world trade contracts, so will the demand
for Afro-Arab Regions oil and minerals, the main commodities behind
its current boom and aid to imperilled Afro-Arab Region. There is a
reasonable chance that Afro- Arab Region may survive the current
world financial crisis less bruised and battered than some other
parts of the world. The very factors that damaged the continent in
the past may now be working in its favour January 7, 2012 BT
Costantinos, PhD Slide 8
9. Impact of the global crises Increase in the number of poor
due to changes in food prices (since December 2005) Global Food
Prices 2008 Food prices in 2009 Lower bound estimate Upper bound
estimate Lower bound estimate Upper bound estimate 24,000,000
26,000,000 21,000,000 22,000,000Source: World Bank, Global Income
Distribution DynamicsNote: Lower bound estimate assumes low-income
farm laborers work for low-income farm owners. Upper boundestimate
assumes low-income farm laborers work for rich farmers. Poverty
line is 1.25 (2005) dollars per day Decline in Tourism Declines
overall ODA Multilateral, bilateral, NGOs Proprietary and open
knowledge investment flows decline Capital outflows Portfolio
investment plummets, bonds and stocks are held, Short term credit
provided by foreign to local banks ceases de-leveraging of banks;
exchange rate falls at unprecedented rate
10. Net capital inflows: developing nations Dramatic Decrease
Increasing trend
12. Pricing, quantity, and Social impact of a Binding Price
Ceiling Non-binding price ceilingThis is the principle that the
market price rises or falls to the level atwhich the quantity of a
good people are willing to supply is equal tothe quantity that
other people want to buy. Nevertheless, sometimesgovernments for
political reasons or for reasons of equity may wishto over-ride
that principle. When they do, the outcome ispredictable. Hence, our
ability to predict what will happen whengovernments try to control
supply and demand shows the power andusefulness of supply and
demand analysis itself. January 7, 2012 BT Costantinos, PhD Slide
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13. Part II Stemming the tide of the Impact of the Economic
Crises in Afro-ArabRegion, Advancing Human Development, and
Protecting Human Security A system needs to be designed where
participants cannot threaten the safety of the economy. The swaps
market, often involvingindividually tailored contracts, has
virtually no regulation. To assess risks building up in the system,
regulators should demand more transparency as oversight of
different types of securities needs to be more consistent. ACCA
Lecture - BT Costantinos, January 7, 2012 PhD Slide 13
14. Chinas hunger for African exports 3500 3000 1 9 9 9 =1 00
China & The 2500 2000 Afro-Arab 1500 1000 500 Region 0 Soy
abean s Cr u del oil Min er als 1 999 2001 2003 2005 2007China has
become the source of billions for Afro- Arab Region and one of the
voices for the poor nations and the Regions most audacious
financier. The China ExIm bank has facilitatedloans to the tune $10
billion to the Region, albeit, on more commercial terms.. January
7, 2012 BT Costantinos, PhD Slide 14
15. Is developmentalism the way forward? Proponents of a strong
developmental state in Afro-Arab Region assert that reforms
neo-liberal market reforms pushed by the Washington Consensus have
failed to generate the kind of growth they sought in Afro-Arab
Region. Hence strong developmental states are the way forward, as
they in any way endanger the reforms of good governance because
only those that were home-grown ever had a chance of success. On
the other hand, there exit current schools of thought that
organisational adaptation to political emergencies is part of
public policy. It is an ad hoc process -- rather than societal
convergence, the emerging system is adapted to the process of
co-evolutionary and separate development that systemic crisis in
Afro-Arab Region has given rise to - developmentalism that is
hooked to the umbilical cord of international charity and thus the
incorporation of aid in national development. January 7, 2012 BT
Costantinos, PhD Slide 15
16. Governance issues in Developmental States Governments
recognises that strengthening State Independent Institutions
capacity will have major knock-on effects for all Legislature other
areas of development and poverty reduction Judiciary agenda.
Ombudsman A key distinction, which runs through much of the Human
Rights history of political theory: Developmentalists emphasise
Auditor General the stewardship/ guardianship while neo-classical
Inspector General economists augur its guiding functions
guiding/steering Justice system responsibilities of the state on
the other. GOVERNANCE is the conscious management of regimes
Anti-corruption with the aim of enhancing the effectiveness of
political Attorney General authority and applied realm of politics,
in which CSOs political actors seek mechanisms to convert
Professional political preferences into managing society. It
Associations involves improvements in the technical competence and
Media efficiency of the public sector as well as measures to make
public policy more accountable, transparent, and predictable to
society at large. January 7, 2012 BT Costantinos, PhD Slide 16
17. Requisites for economic governance1. The first requisite of
good economic Finance governance is the spirit of Legislation
tolerance. It requires that political Political Ownership
Governance of structure and policy differences are resolved finance
in a spirit of respect for the views of institutions others, more
specifically, citizens.;2. The spirit of tolerance is enhanced
Policy and if there is a proper recognition of Strategy the right
and responsibility of Structure and Economic citizens and
entrepreneurs - right of Governance Process association and
expression for collective action;3. Diffusion of power is achieved
Purposeful through the establishment of mobilization Social Safety
nets independent institutions for the Social Corporate Social
performance of state functions; Governance Responsibility January
7, 2012 BT Costantinos, PhD Slide 17
18. Consultative Council on Fiscal Affairs (CCFA) CCFA should
be set-up as the highest authority for consideration of
socio-economic policy analysis, formulation, and management in
relation to economic activities reflective of long-term policy
objectives. While ministries and district administrations formulate
their respective plans, the CCFA will undertake real time analysis
of the challenges facing the economy from a global perspective. The
CCFA will be constituted from citizens of all walks of life with a
potential for international advisory services by think tanks and
renowned development practitioners addressing issues of abject
poverty and economic and financial management. Slide 18 January 7,
2012 BT Costantinos, PhD
19. Policy options for Afro-Arab Region Civic and parliamentary
oversight committees, especially in the area of public accounts,
Creating a metric civil service for rebuilding public confidence in
the state and the market Optimizing state involvement in the
economy, streamlining government, limiting discretionary
decision-making to reduce opportunity for corruption, eliminate
state monopolies, economic distortions which facilitate it
Reviewing the quality of training and education Non-inflationary
sources of finance and sound FDI climate (telecom, power,
transport, etc) Conditional cash transfers, investments in labor-
intensive infrastructure Finance management reforms Founding
independent human quality development think tanks - investment in
human qualities. Slide 19 January 7, 2012 BT Costantinos, PhD
20. Sovereign Wealth Funds and potential for investing them in
AfricaCountry Fund Billions $UAE ADIA 712.4 Forex reserves
($Millions)Saudi SAM 439.1Kuwait KIA 202.8 Saudi Arabia
456,200Qatar QIA 85 Libya 107,300 Iraq 45,680Libya LIA 70 Nigeria
43,360Algeria RRF 56.7 Egypt 27,812Iran OSF 23 Morocco
23,638Bahrain MHC 9.1 Kuwait 22,420Oman SGRF 8.2 Qatar 22,410Saudi
Arabia PIF 5.3 Tunisia 7,804Nigeria ECA 0.5 January 7, 2012 BT
Costantinos, PhD Slide 20
21. Assets under management of SWFsincreased to $4.7 trillion
in July 2011, There is an additional $6.8 trillion held in other
sovereign investment vehicles, pension reserve funds, development
funds, state-owned corporations funds $7.7 trillion in other
official foreign exchange reserves. Countries with SWFs funded by
commodities exports, primarily oil and gas exports, totalled $2.7
trillion at the end of 2010. Non-commodity SWFs totalled $1.5
trillion. Part of this huge sums are Afro-Arab resources and more
that are FROZEN in the hands of Western banks could have been
invested in Africa. January 7, 2012 21 BT Costantinos, PhD
Slide
22. Democratic regime change: Rules and institutions Rules
Constitutional rules Legislated Rules Administrative Rules
Institutionalisation of rules Impartial and independent electoral
bodies are vital; The Bill of Rights, entrenched in the
Constitution, must be respected to the letter. An independent
judiciary (in theory and practice) is the last hope against
tyranny. Political parties are vehicles through which democracy is
practised. They must show respsonsibility that goes Slide 22 with
the mandate. BT Costantinos, PhD January 7, 2012
23. Political rules and institutionsDemocratisation requires a
plural set of organisations which promote and protect rules of
peaceful political participation and competition. Together,
democratic institutions (plural organisations plus rules
ofaccountability) ensure control of thestate executive. The
relative strengthof organisations determines the rules of the game
installed. January 7, 2012 BT Costantinos, PhD Slide 23
24. Strategic approaches in mainstreaming a Rights-based
Approach to Recovery Rights-based enquiry and situation analysis
Evaluation Policy & Strategic analysis andManaging strategic
Strategic Framework Information Rules and Institutional Sustained
Arrangements Implementation of Mainstreaming operational Activities
Plans RBA local level decentralised management Strong systematic
campaigns must be launched with a communication strategy developed
to include public relations to enlighten society, social marketing
of new ideas and cultures and enabling negotiations, and advocacy.
January 7, 2012 BT Costantinos, PhD Slide 24
25. Thank You BT Costantinos, PhD Professor of Public Policy,
School of Graduate Studies, Addis Ababa University
[email protected] 7, 2012 BT Costantinos, PhD Slide
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