tag:theconversation.com,2011:/id/topics/emerging-markets-2419/articlesEmerging markets – The Conversation2023-07-18T21:11:35Ztag:theconversation.com,2011:article/2054402023-07-18T21:11:35Z2023-07-18T21:11:35ZOur perception of wine has more to do with its commercial history than we think<figure><img src="https://images.theconversation.com/files/525691/original/file-20230511-19-w9pz4k.jpg?ixlib=rb-1.1.0&rect=5%2C2%2C1905%2C1276&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some of our cultural conceptions of wine, including its authenticity, stem from the commercial nature of the product. </span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Consumers tend to think of wine as a product of culture and authenticity. Because of this, they see it as distinct from other manufactured commercial goods. </p>
<p>As an agricultural product, we think about wine as linked to a place and sometimes to an individual producer. After that it is considered a historical product rooted in the traditions of a region. And finally, wine is treated as an aesthetic product, in a similar way to the arts, with its key consumers, terminology, prominent producers and specific media attention. </p>
<p>But is wine really distinctive?</p>
<p>In 2021, the <a href="https://www.globenewswire.com/news-release/2020/09/08/2089700/0/en/Global-Wine-Industry.html">value of the global wine market</a> was over $53 billion, with global production around 260 million hectolitres, the equivalent of 34 billion bottles. Of this, about half is exported and therefore consumed outside its place of origin. The <a href="https://worldpopulationreview.com/country-rankings/wine-producing-countries">main producing countries</a> by volume are Italy, France, Spain, the United States and Australia.</p>
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<img alt="" src="https://images.theconversation.com/files/523623/original/file-20230501-14-4s1z98.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523623/original/file-20230501-14-4s1z98.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523623/original/file-20230501-14-4s1z98.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523623/original/file-20230501-14-4s1z98.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523623/original/file-20230501-14-4s1z98.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523623/original/file-20230501-14-4s1z98.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523623/original/file-20230501-14-4s1z98.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Vineyards in Cafayate, Argentina. The South American country has joined the top five wine-producing countries.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Yet wine has been a commercial product for 3,000 years. And paradoxically, many of the cultural ideas which shape how we perceive wine today actually stem from its history as a commercial product. </p>
<p>As an anthropologist and professor in the department of social and public communication at Université du Québec à Montréal (UQAM), I see wine as a cultural object. That is to say, wine carries meanings that are socially constructed and through which both producers and consumers think about it in unconscious ways. </p>
<p>I carried out my first anthropological research fieldwork on wine in Calabria, in southern Italy, in 2000-2001, and have returned there three times. I conducted a second anthropological investigation in British Columbia, in the Okanagan Valley, in 2017-2018. I will present some of the results of this research later in <em>The Conversation</em>. </p>
<p>I am also a wine lover and have been running the website <a href="https://www.sommeliervirtuel.com">sommeliervirtuel.com</a> with my brother Mathieu for over 10 years. Through this activity we have become recognized as wine influencers in Quebec, and I have been able to deepen my knowledge of the wine market and its consumer culture. </p>
<p>In this first article, I demonstrate how some of our cultural conceptions of wine actually arose from the commercial nature of the product. </p>
<h2>The importance of place</h2>
<p>A central element of wine is that it is attached to place. We can talk about a Bordeaux, a Burgundy or a Chianti without having to add that we are talking about wine. Yet as far back as ancient Greece, and later in the Middle Ages, it was different elites that created a market for <a href="https://www.taylorfrancis.com/books/mono/10.4324/9780203013267/wine-vine-tim-unwin">wines from recognized, distant regions</a>. </p>
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<img alt="" src="https://images.theconversation.com/files/523621/original/file-20230501-344-oupm3u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523621/original/file-20230501-344-oupm3u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523621/original/file-20230501-344-oupm3u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523621/original/file-20230501-344-oupm3u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523621/original/file-20230501-344-oupm3u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523621/original/file-20230501-344-oupm3u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523621/original/file-20230501-344-oupm3u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tasting a Chianti, in the Chianti region of Tuscany. The name of the region is associated with its flagship product.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>At the same time, the wine that was produced and consumed locally had no specific identity and <a href="https://www.persee.fr/doc/ahess_0395-2649_1996_num_51_6_410925_t1_1383_0000_000">was considered a common agricultural product among others</a>. </p>
<p>It was through trade, especially over long distances, that the place of origin of wines became important and significant.</p>
<h2>The utopia of terroir versus the realities of trade</h2>
<p>Trade also helps explain why wine production became concentrated in certain regions and not others. </p>
<p>Official speeches (guidebooks, wine books, laws) claim that this is because of the quality of a specific region’s terroir, according to the idea that wine production is concentrated in the places most suitable for quality production. In fact, <a href="http://delbussoediteur.ca/publications/le-vin-comme-performance-culturelle/">trade is what explains how vineyards came to be concentrated in certain regions, but not others</a>. </p>
<p>The <a href="https://www.cnrseditions.fr/catalogue/histoire/histoire-de-la-vigne-et-du-vin-en-france/">French geographer and historian Roger Dion</a> has shown how wine production became concentrated in France because of the country’s vanguard position vis-à-vis the markets of northern Europe. He points to how the wine-producing regions were concentrated around rivers, which were essential for the transport of heavy cargoes before the arrival of the train.</p>
<p>So it was actually France’s <a href="https://www.persee.fr/doc/reae_0755-9208_1990_num_17_1_1247">geographical position</a> that explained the <a href="https://www.persee.fr/doc/anami_0003-4398_1989_num_101_187_7467_t1_0335_0000_2">development and historical renown of its wine regions</a>.</p>
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<img alt="" src="https://images.theconversation.com/files/523619/original/file-20230501-20-g47ltu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523619/original/file-20230501-20-g47ltu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523619/original/file-20230501-20-g47ltu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523619/original/file-20230501-20-g47ltu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523619/original/file-20230501-20-g47ltu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523619/original/file-20230501-20-g47ltu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523619/original/file-20230501-20-g47ltu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Vineyards in Saint-Émilion, France. Wine production would be concentrated in France because of the country’s vanguard position vis-à-vis the markets of northern Europe.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Historically, regions that specialized in wine production were able to do so because they had the possibility of selling their production in other markets. That’s because a <a href="http://delbussoediteur.ca/publications/le-vin-comme-performance-culturelle/">peasant family could not subsist on wine</a>. The utopic concept of terroir, however, has been used to conceal these origins, attributing <a href="https://www.jstor.org/stable/3631680">the renown of wines to regions and nature, while, historically, their reputations were actually built through trade</a>.</p>
<h2>From agricultural to luxury product</h2>
<p>With the development of wine consumer markets in what were then non-producing countries, such as England, Northern Europe and America, a specific conception of wine emerged. </p>
<p>In these markets, wine was not considered an agricultural product. Wine was a luxury product, reserved for certain social groups. Even when wine spread throughout society, it remained a rare and occasional product. </p>
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<img alt="" src="https://images.theconversation.com/files/523630/original/file-20230501-22-fr3cui.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523630/original/file-20230501-22-fr3cui.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523630/original/file-20230501-22-fr3cui.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523630/original/file-20230501-22-fr3cui.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523630/original/file-20230501-22-fr3cui.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523630/original/file-20230501-22-fr3cui.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523630/original/file-20230501-22-fr3cui.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A wine tasting in Worns, Germany. In the northern European and US markets, wine is still an exceptional product, to be drunk on special occasions.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>This view of wine remains the dominant one today, even in the wine-producing countries themselves, <a href="https://www.editions-larousse.fr/livre/histoire-sociale-et-culturelle-du-vin-9782035841766">where the habit of daily wine consumption has yielded to one of occasional consumption</a>. </p>
<h2>Bordeaux and the English market</h2>
<p>The case of the Bordeaux region is instructive and has played a key role in the development of several contemporary notions of wine.</p>
<p>The Bordeaux vineyard developed in response to demand from the English and Dutch markets, which, in turn, controlled the region and its trade starting in the 17<sup>th</sup> century. In this context, it was the English market that drove consumers and merchants to pay specific attention to vintages, as well as growths, and the <em>crus</em> of Bordeaux, that is to say the “Châteaux,” such as Ho Bryan (Haut-Brion) or Margose Wine (Margaux) whose first mentions are in English.</p>
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<img alt="" src="https://images.theconversation.com/files/523631/original/file-20230501-14-ld7s5e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523631/original/file-20230501-14-ld7s5e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=385&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523631/original/file-20230501-14-ld7s5e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=385&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523631/original/file-20230501-14-ld7s5e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=385&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523631/original/file-20230501-14-ld7s5e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=484&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523631/original/file-20230501-14-ld7s5e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=484&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523631/original/file-20230501-14-ld7s5e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=484&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Château and vineyard in Margaux, in the Bordeaux region. The Bordeaux vineyard developed in response to demand from the English and Dutch, who in turn controlled the region and its trade starting in the 17th century.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>The <a href="https://www.thewinecellarinsider.com/bordeaux-wine-producer-profiles/bordeaux/1855-bordeaux-classification/">famous classification of Bordeaux wines of 1855, still in force today</a>, was created at the universal exhibition in Paris on the basis of wine prices that were established by the English market.</p>
<p>The emergence of new consumer markets, particularly in Asia, is now putting upward pressure on the wine market and driving up the prices of specific wines from the most sought-after areas or regions. At the same time, <a href="https://journals.openedition.org/geohist/2287?lang=en">China</a> has started to produce and export its own wine, increasing the already strong competition between <a href="https://journals.openedition.org/geocarrefour/13442">different wine-producing regions of the world</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/523628/original/file-20230501-18-8re5rg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523628/original/file-20230501-18-8re5rg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523628/original/file-20230501-18-8re5rg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523628/original/file-20230501-18-8re5rg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523628/original/file-20230501-18-8re5rg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523628/original/file-20230501-18-8re5rg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523628/original/file-20230501-18-8re5rg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A shelf full of wine bottles in a supermarket in Shanghai, China. The country has started producing and exporting wine.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>In Asian markets, wine remains a prestige product, especially as a gift, for example in <a href="https://journals.sagepub.com/doi/abs/10.1177/146735840000200405?journalCode=thrb">Japan</a>. If the conceptions of wine so far are mainly Western, perhaps the Asian markets will influence the way we think about wine in the medium or long term.</p>
<p>These are just a few examples of how the commercial nature of wine, through its long history, has influenced our perception of the product. Is wine perhaps hiding its true nature behind the rhetoric of its authenticity? Because objectively, wine is only fermented grape juice.</p><img src="https://counter.theconversation.com/content/205440/count.gif" alt="La Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vincent Fournier ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>Wine has been a commercial product for 3,000 years. Paradoxically, many of the cultural ideas we have about wine today actually come from its commercial history.Vincent Fournier, Professeur au Département de communication sociale et publique, Université du Québec à Montréal (UQAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1356012020-04-09T12:07:22Z2020-04-09T12:07:22ZCoronavirus: Developing economies are getting crushed – here’s why their rich neighbors should help them<figure><img src="https://images.theconversation.com/files/326666/original/file-20200408-89615-1w6rsqu.jpg?ixlib=rb-1.1.0&rect=271%2C37%2C4022%2C3141&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Brazil and other developing countries are being hit hard by the pandemic.</span> <span class="attribution"><span class="source">AP Photo/Andre Penner</span></span></figcaption></figure><p>The entire global community is now facing the unprecedented triple crisis of a global health pandemic, economic recession and global financial meltdown – and the fates of rich and poor countries have never been so intertwined. </p>
<p><a href="https://www.economist.com/finance-and-economics/2020/03/05/commodity-economies-face-their-own-reckoning-due-to-covid-19">Commodity prices are collapsing</a>, <a href="https://www.wto.org/english/news_e/pres20_e/pr855_e.htm">international trade is slowing</a> and many developing countries that were <a href="https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/02/05/The-Evolution-of-Public-Debt-Vulnerabilities-In-Lower-Income-Economies-49018">already in distress</a> are on the edge of <a href="https://www.un.org/development/desa/dpad/publication/un-desa-policy-brief-59-corona-crisis-causes-turmoil-in-financial-markets">full-blown sovereign debt crises</a>. </p>
<p>But while rich countries like the U.S. and those in Europe can afford to spend <a href="https://fortune.com/2020/04/08/divided-eu-finance-chiefs-fail-coronavirus-bailout-funding/">hundreds of billions</a> or <a href="https://www.washingtonpost.com/business/2020/04/05/what-2-trillion-coronavirus-bailout-is-really-going-cost/">even trillions of dollars</a> on massive bailouts, developing and emerging nations like <a href="https://www.nature.com/articles/d41586-020-00983-9">El Salvador</a>, <a href="https://www.cnbcafrica.com/videos/2020/04/03/how-the-covid-19-lockdown-is-impacting-ugandas-economy/">Uganda</a> and <a href="https://www.irrawaddy.com/news/burma/myanmar-unveils-70-million-stimulus-package-ease-economic-blow-virus.html">Myanmar</a> are much less able to rescue their own economies. </p>
<p>As an <a href="https://www.american.edu/sis/faculty/rowden.cfm">expert in development economics</a>, I believe it’s imperative that the richest countries find ways to shore up their poorer neighbors. </p>
<h2>Global calamity</h2>
<p>Although rich, Western countries have been <a href="https://www.nytimes.com/interactive/2020/world/coronavirus-maps.html?action=click&pgtype=Article&state=default&module=styln-coronavirus-world&variant=show&region=TOP_BANNER&context=storyline_menu">among the hardest hit</a> by the coronavirus pandemic, few countries have been left unscathed. </p>
<p>Brazil, for example, <a href="https://brazilian.report/coronavirus-brazil-live-blog/">has reported thousands of cases</a> and hundreds of deaths, even as its president continues to <a href="https://www.washingtonpost.com/world/2020/04/07/bolsonaro-may-be-worlds-coronavirus-skeptic-in-chief/">play down the threat</a>. As a result of measures to contain it, South America’s largest economy <a href="https://www.reuters.com/article/us-health-coronavirus-brazil/brazil-cuts-growth-sees-coronavirus-quickly-ravaging-health-system-idUSKBN2171T4">expects no growth this year</a> – which some economists consider optimistic.</p>
<p>Chaos recently erupted in <a href="https://news.trust.org/item/20200330221113-1hcfs/">El Salvador</a> after the government promised $300 in aid to informal workers like house cleaners and street vendors. Even though the country was in the middle of a 30-day lockdown order, thousands of people formed lines outside of a government office hoping for aid, resulting in police using pepper spray to disperse crowds. </p>
<p>Overall, <a href="https://www.jpmorgan.com/global/research/coronavirus-impact">analysts expect</a> economies across <a href="https://www.brookings.edu/blog/order-from-chaos/2020/03/26/as-coronavirus-hits-latin-america-expect-serious-and-enduring-effects/">Latin America</a> to contract 2 to 3 percentage points, with <a href="https://www.adb.org/news/developing-asia-growth-fall-2020-covid-19-impact">similar impacts in Asia</a>. </p>
<p>And while countries in Africa haven’t seen all that many cases so far, the <a href="https://www.weforum.org/agenda/2020/04/africa-covid-19-time-bomb-defuse/">World Economic Forum</a> warned that the region faces a “COVID-19 time bomb.” Already it’s been enough to <a href="http://whotogo-whoafroccmaster.newsweaver.com/JournalEnglishNewsletter/nex1504dthvy48iiujdam4?lang=en&a=2&p=56762256&t=31103707">threaten fragile health care systems</a> in countries such as the Democratic Republic of the Congo, Burkina Faso and Senegal, which will <a href="https://www.mckinsey.com/featured-insights/middle-east-and-africa/tackling-covid-19-in-africa">severely strain their economies</a> too.</p>
<p>Most developing countries <a href="http://www.rfi.fr/en/africa/20200403-lack-of-covid-19-treatment-and-critical-care-could-be-catastrophic-for-africa">do not have enough hospital capacity</a>, including intensive care units, or equipment like ventilators needed to treat large numbers of patients, which <a href="https://www.newscientist.com/article/2239612-coronavirus-will-play-out-very-differently-in-worlds-poorest-nations/">could prove be a disaster</a> for these countries. </p>
<p>But experiencing a outbreak isn’t necessary for a country to see its economy crushed by the crisis. Countries that rely on remittances sent home from abroad, imports and tourism, such as <a href="https://www.africanews.com/2020/04/07/africa-s-coronavirus-free-dozen/">Leosotho</a>, <a href="https://www.adb.org/news/tajikistan-economy-slow-down-sharply-2020-and-2021-weighed-covid-19-pandemic-adb">Tajikistan</a> and some small island nations <a href="https://www.bbc.com/news/world-52120439">have seen few cases</a> but are still suffering from the impact.</p>
<h2>An interconnected world</h2>
<p>While it should be enough to offer these countries aid because it’s the right thing to do, it’s also in the self-interest of the U.S. and other wealthy countries. </p>
<p>For example, a significant share of imports and exports for both the <a href="https://www.census.gov/foreign-trade/statistics/highlights/top/top2002yr.html">U.S.</a> and Europe come from developing countries other than China. So the ability of developing countries to continue producing the things we buy and buying the things we produce is dependent upon the health of their economies.</p>
<p>This becomes more critical now <a href="https://unctad.org/en/PublicationsLibrary/ditcinf2020d1.pdf">when it comes to essential goods</a> like prescription generic drugs from <a href="https://www.cnbc.com/2020/03/24/us-drug-shortage-fears-grow-as-india-locks-down-due-to-the-coronavirus.html">India</a> and manufactured goods such as communication equipment and office machinery from Taiwan. </p>
<p>But, just as <a href="https://www.marketwatch.com/story/the-economy-is-in-for-tough-times-but-heres-a-roadmap-for-recovery-from-the-coronavirus-2020-03-13">Western economies begin to recover</a> from the current coronavirus wave, they will continue to be affected by continued turmoil elsewhere and will likely face severe shortages of essential raw materials, for example of <a href="https://finance.yahoo.com/news/copper-gains-supply-shortage-fears-141702101.html">copper from mines</a> in Peru, Chile and Mongolia.</p>
<p>Beyond the economic effects and <a href="https://www.project-syndicate.org/commentary/coronavirus-debt-crisis-by-jayati-ghosh-2020-03">financial contagion</a>, there are also <a href="https://foreignpolicy.com/2018/01/09/the-only-force-that-can-beat-climate-change-is-the-u-s-army/">national security concerns</a>. The collapse of economies in Latin America and Africa could lead to <a href="https://www.aei.org/foreign-and-defense-policy/mitigating-the-impact-of-coronavirus-in-central-america">massive migrations</a> as people try to flee troubles at home. </p>
<p>In other words, the ability of rich countries to weather the pandemic is inextricably linked to the ability of developing countries to do the same – and they’re going to need massive assistance. </p>
<h2>A global bailout</h2>
<p>So far, though, we’re just seeing a trickle of aid. </p>
<p>The International Monetary Fund <a href="https://www.imf.org/en/News/Articles/2020/03/04/sp030420-imf-makes-available-50-billion-to-help-address-coronavirus">announced</a> it would make US$50 billion available to low-income and emerging market economies. And the World Bank and IMF <a href="https://www.worldbank.org/en/news/statement/2020/03/25/joint-statement-from-the-world-bank-group-and-the-international-monetary-fund-regarding-a-call-to-action-on-the-debt-of-ida-countries">are encouraging</a> their members to place a moratorium on foreign debt payments by African countries. </p>
<p>This won’t be enough. During the 2008 global recession and financial crisis, the IMF responded by <a href="https://www.imf.org/en/News/Articles/2015/09/28/04/53/sopol082809a">issuing $250 billion worth</a> of its in-house currency to aid developing countries. </p>
<p>The current crisis, however, <a href="https://foreignpolicy.com/2020/03/18/coronavirus-economic-crash-2008-financial-crisis-worse/">combines a recession, financial crisis and an unprecedented health pandemic</a> – a triple whammy that has <a href="https://www.nytimes.com/article/coronavirus-travel-restrictions.html">closed borders</a>, <a href="https://www.dw.com/en/as-the-coronavirus-triggers-a-global-economic-crisis-just-how-bad-could-it-get/a-53000638">shut down entire economies</a> and resulted in <a href="https://www.theguardian.com/world/2020/apr/07/covid-19-expected-to-to-wipe-out-67-of-worlds-working-hours">massive unemployment</a>. </p>
<p>A group of economists <a href="https://ftalphaville.ft.com/2020/03/20/1584709367000/It-s-time-for-a-major-issuance-of-the-IMF-s-Special-Drawing-Rights/">recently proposed</a> that the IMF should quickly deploy double that amount to help them <a href="https://www.brookings.edu/blog/future-development/2020/03/26/imf-special-drawing-rights-a-key-tool-for-attacking-a-covid-19-financial-fallout-in-developing-countries/">stabilize their economies</a>, stem financial outflows and finance domestic stimulus packages. Based on my own calculations, I believe that actual need could be more like $1 trillion. And using the IMF’s own currency, known as <a href="https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR">special drawing rights</a>, is a low-cost way to provide aid.</p>
<p>This is an unprecedented global crisis of truly historic proportions, and it is not hyperbolic to say that the decisions that must be taken in the next weeks literally hold millions of lives in the balance.</p>
<p>If the rich countries thought they only needed to worry about themselves, they should think again. </p>
<p>[<em>Get facts about coronavirus and the latest research.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-facts">Sign up for The Conversation’s newsletter.</a>]</p><img src="https://counter.theconversation.com/content/135601/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rick Rowden does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While countries like the US and Italy have been among the hardest hit, the pandemic is severely straining the health systems and economies of countries across the world.Rick Rowden, Adjunct Professorial Lecturer, American University School of International ServiceLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1062442018-11-13T23:23:20Z2018-11-13T23:23:20ZThe urgent need for Canada to diversify its trade<figure><img src="https://images.theconversation.com/files/244113/original/file-20181106-74783-kpctkr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cargo containers from Asia are seen in the port of Vancouver in 2015. Canada needs to diversify its trade beyond the United States and increase our links to rapidly growing emerging market economies, particularly in Asia.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>With the difficult renegotiation of the trade agreement with Canada’s largest trading partner <a href="https://www.cnn.com/2018/09/30/politics/trump-nafta-canada/index.html">now resolved</a>, it’s time for Canada to get serious about trade diversification.</p>
<p>The experience of renegotiating NAFTA — or USMCA as it is now called — has highlighted Canada’s vulnerability to one dominant trading partner that buys <a href="https://tradingeconomics.com/canada/exports">roughly 75 per cent of our exports</a>. </p>
<p>As a country, we should not be in this position. We need to diversify our trade beyond the United States and increase our links to rapidly growing emerging market economies, particularly in Asia, despite the “anti-China” clause in the USMCA. </p>
<p>Given that growth has pivoted to these emerging markets in the last 15 years, the first question is why has this not happened already. The answer is straightforward.</p>
<p>For a long time, being right beside the United States — the biggest, richest market in the world — has been a great ride for Canada. What’s more, we’re very comfortable and good at doing business with Americans.</p>
<h2>Fewer benefits of living next to U.S.</h2>
<p>So why diversify? The short answer is being right next door to the United States is not the ride it used to be. Part of this is the alarmingly protectionist sentiment of U.S. President Donald Trump’s administration, but the root of the answer pre-dates Trump.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/trumps-protectionism-continues-long-history-of-us-rejection-of-free-trade-91190">Trump's protectionism continues long history of US rejection of free trade</a>
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<p>In the last 15 to 20 years, the United States has not been the engine of global growth that it was in the past. The U.S. share of global growth has been almost cut in half in the last two decades, falling from about 32 per cent in the 1990s to about 17 per cent in this decade. Over the same period, Asia’s share has risen from 32 per cent to just over 50 per cent, according to our analysis of World Bank trade data from the <a href="https://www.competeprosper.ca/">Institute for Competitiveness & Prosperity</a>. This has created a double challenge for Canada.</p>
<p>First, we are <a href="https://www.macleans.ca/economy/its-high-time-canada-looked-beyond-the-u-s-for-trade-opportunities/">significantly underexposed to emerging market economies</a>, so we are getting little upside from their acceleration in growth.</p>
<h2>Too engaged with sluggish economies</h2>
<p>In addition to the 75 per cent of our trade that goes to the U.S., another 10 per cent goes to other <a href="https://tradingeconomics.com/canada/exports">slow-growth advanced economies</a>, largely in Europe. Only about nine per cent of our trade is with faster-growing emerging economies like China, India, South Korea, Mexico and Brazil. </p>
<p>This is much lower than our peers. In Germany, the share of exports to emerging markets and other developing countries is in the 20s; for Japan and the U.S., it’s in the 30s; and in Australia, it’s in the 40s.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/244115/original/file-20181106-74760-h1l572.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/244115/original/file-20181106-74760-h1l572.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/244115/original/file-20181106-74760-h1l572.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/244115/original/file-20181106-74760-h1l572.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/244115/original/file-20181106-74760-h1l572.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/244115/original/file-20181106-74760-h1l572.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/244115/original/file-20181106-74760-h1l572.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Containers wait to be unloaded onto a container ship berthed at the Australian port of Melbourne. Australia does enormous trade with emerging markets, far more than Canada.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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</figure>
<p>Second, these rapidly growing economies are providing increasingly fierce competition for our products in the U.S. market. In 2000, <a href="https://wits.worldbank.org/CountryProfile/en/Country/USA/Year/2000/Summarytext">Canada was the leading source of American imports</a>. Today, China has the largest share of U.S. imports at <a href="https://tradingeconomics.com/united-states/imports-by-country">22 per cent</a>, up from only eight per cent in 2000. In the same period, Canada’s share has declined from just over 18 per cent to about 13 per cent. </p>
<p>We should have developed a diversification strategy a decade ago. But without a crisis, there has been little imperative. Call it lack of vision, risk-taking or leadership. </p>
<h2>Asian markets seen as risky</h2>
<p>Emerging markets and Asian markets, in particular, are often seen as distant and less familiar. They are seen as risky and more expensive to penetrate. The consequences have been stark.</p>
<p>In the last 15 years, Canada’s share of the world export market has slipped from about 4.5 per cent to about <a href="http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Country=CA">two per cent</a>. Part of this trend was inevitable as large emerging market economies joined the global trade and investment network, but Canada’s slide has been particularly precipitous. </p>
<p>Across the world’s Top 20 exporting countries, Canada’s performance since 2000 has been the second worst — only <a href="http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=S&Country=JP">Japan has seen a bigger decline</a> in its trade share than Canada. </p>
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<strong>
Read more:
<a href="https://theconversation.com/explainer-why-the-japanese-economy-is-stuck-in-a-holding-pattern-65806">Explainer: why the Japanese economy is stuck in a holding pattern</a>
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<p>Canada is losing share in the U.S. market that itself is losing share globally. We should instead be focused on gaining share in markets that are gaining share. This means diversifying our trade towards emerging market economies, particularly in Asia.</p>
<p>The place to start is with Asia’s two biggest economies, India and China. The new USMCA contains provisions that allow signatories to pull out of the deal if one country pursues a separate free-trade agreement with a “nonmarket country” — namely, China. But that should not be a barrier to this pivot. </p>
<p>India is a thriving democracy with strong ties to Canada. And as highlighted in a <a href="https://www.ppforum.ca/publications/diversification-not-dependence-a-made-in-canada-china-strategy/">recent report</a> on trade diversification from the Public Policy Forum, there is much that can be done with China short of a comprehensive free-trade agreement through sectoral agreements that offer “the best means for realizing quick and significant gains.”</p>
<p>Instead of waiting for a crisis, let’s make trade diversification the priority it should have been for at least the last decade.</p><img src="https://counter.theconversation.com/content/106244/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tiff Macklem is the chair of the board of the Global Risk Institute, chair of Ontario's Panel on Economic Growth and Prosperity, a director of Scotiabank and a member of the Asian Business Leaders Advisory Board. In April 2018 he was named by the Government of Canada as Chair of the Expert Panel on Sustainable Finance.</span></em></p>Canada needs to diversify its trade beyond the United States and increase links to rapidly growing emerging market economies, particularly in Asia, despite the “anti-China” clause in the USMCA.Tiff Macklem, Dean and Professor of Finance, Rotman School of Management, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1031892018-09-14T13:11:28Z2018-09-14T13:11:28ZSleepwalking towards the next financial crisis? Here are the five biggest risks<p>Wall Street giant Lehman Brothers <a href="https://theconversation.com/anniversary-of-lehmans-collapse-reminds-us-booms-are-often-followed-by-busts-102758">filed for bankruptcy</a> on September 15, 2008, triggering the most significant global financial crisis since the great depression. Lehman’s collapse was not triggered in a day but over a much longer period, with assets of US$680 billion (£518 billion) supported by only US$22.5 billion of capital by the time it went under. As the subprime mortgage crisis began to eat up financial institutions, this once invincible bank was suddenly no more. </p>
<p>A decade later, with many of the world’s leading economies <a href="https://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg?end=2017&start=1964">struggling</a> to grow consistently, one would have hoped that the banking industry and its regulators would have learned from what happened. Gordon Brown, UK prime minister at the time of the collapse, doesn’t think so. </p>
<p>Brown <a href="https://www.bbc.com/news/business-45504521">believes</a> we are “sleepwalking” into the next global financial crisis. He sees insufficient headroom to resuscitate economies by cutting interest rates or raising public spending. He describes a “leaderless world” in which it looks harder to achieve the global <a href="https://www.theguardian.com/business/2008/oct/13/creditcrunch-marketturmoil1">coordinated action</a> that was critical for avoiding even greater disaster ten years ago.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=469&fit=crop&dpr=1 600w, https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=469&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=469&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=589&fit=crop&dpr=1 754w, https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=589&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/236439/original/file-20180914-177953-k6vlpd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=589&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">SOS.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/on-edge-concept-man-standing-cliff-191337065?src=ueU-nvhYfCDXpPHr1h6wUQ-6-21">designelements</a></span>
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</figure>
<p>Is there any room for cheer? Here’s my brief assessment of the indicators that will be crucial in any future crisis.</p>
<h2>1. Debt</h2>
<p>Global debt <a href="https://goo.gl/q5vssd">recently hit</a> a new record high of 225% of world GDP, amounting to US$164 trillion. The world is now 12 points deeper in debt than the previous peak in 2009, with advanced economies’ ratios at levels not seen since World War II. </p>
<p>This is forcing countries with large fiscal deficits to pay ever more interest to cover their bills. And if they can’t reduce their deficits, they will find it tough to deal with even the lightest economic downturn. Hence the <a href="https://www.imf.org/en/News/Articles/2018/04/09/spring-meetings-curtain-raiser-speech">recent call</a> from IMF director Christine Lagarde for countries to fix “the roof while the sun is still shining”, by cutting deficits, improving banking capital buffers and maximising exchange rate flexibility. </p>
<p><strong>G20 fiscal deficits, 2017</strong> </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/236422/original/file-20180914-177947-1y68fsy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.cia.gov/library/publications/the-world-factbook/fields/2222.html">CIA</a></span>
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</figure>
<h2>2. Emerging markets</h2>
<p>Nervous investors have been heavily selling assets in emerging markets, such that inflows into these countries <a href="http://www.theedgemarkets.com/article/currency-storms-rage-stocks-wipeout-nears-us1-trillion">plummeted</a> to US$2.2 billion in August compared to a high of US$13.7 billion only a month before. The <a href="https://www.businessinsider.com/investing-in-emerging-markets-reasons-benefits-and-mistakes-2018-9/?IR=T">outflow of money</a> has emaciated the currencies of Turkey, Indonesia and Argentina. Meanwhile, the US greenback <a href="https://goo.gl/2c34Ci">gets</a> stronger and stronger as investors seek to benefit from the <a href="https://goo.gl/CFe1r7">strength of</a> US treasury bonds and other dollar-denominated assets. These changes are bound to affect international trade, heightening the prospect of contagion to other countries. </p>
<h2>3. Trade</h2>
<p>The trade tensions between the <a href="https://theconversation.com/donald-trumps-economic-gamble-with-trade-wars-and-tax-cuts-he-could-win-big-or-lose-everything-101945">US and China</a> represent a massive geopolitical risk. These countries <a href="https://goo.gl/EdjfV1">have the</a> highest debt piles in the world, US$48.1 trillion and US$25.5 trillion respectively. Any economic fallout from their trade posturing could put global financial markets in a fix. </p>
<p>We are already seeing the impact on the Chinese stock market, which <a href="https://goo.gl/ELbuK6">has lost</a> about 20% of its value already this year. There are knock-on effects in Hong Kong, <a href="https://goo.gl/Rv6a85">dragging down</a> the Hang Seng trading index to a 14-month low lately. The contagion could soon spread around the globe, including to emerging economies already reeling from the aforementioned currency crises discussed above. </p>
<h2>4. Banking</h2>
<p>In the aftermath of Lehman, the world’s major banks <a href="https://www.nytimes.com/interactive/2018/09/12/business/big-investment-banks-dodd-frank.html">have moved</a> from depending on short-term borrowings to building larger capital buffers to help them steer through another credit crunch. Be that as it may, many other banks have still looked vulnerable – especially after the <a href="http://www.cadtm.org/Banks-are-responsible-for-the">Greek</a>, <a href="https://goo.gl/hs3thW">Spanish</a> and <a href="https://goo.gl/sgph95">Italian</a> banking crises of recent years. It is a strong signal that regulations are still insufficient to protect the system overall. </p>
<p>Then there is <a href="https://theconversation.com/explainer-shadow-banking-and-where-it-came-from-75692">shadow banking</a> – essentially financial institutions which aren’t banks, such as insurance companies or hedge funds, providing banking services such as lending. This <a href="https://themarketmogul.com/uk-shadow-banking/">grew</a> rapidly after the previous crisis, since the institutions in question are subject to fewer regulatory restrictions as the banks. </p>
<p>A mind-boggling <a href="https://goo.gl/XEsz5W">study</a> from the US last year, for example, found that the market share of shadow banking in residential mortgages had rocketed from 15% in 2007 to 38% in 2015. This also represents a staggering 75% of all loans to low-income borrowers and risky borrowers. China’s shadow banking is another major concern, <a href="https://www.bloomberg.com/news/articles/2018-01-23/china-s-15-trillion-shadow-banking-edifice-showing-more-cracks">amounting to</a> US$15 trillion, or about 130% of GDP. Meanwhile, <a href="https://newint.org/features/2018/07/01/the-next-financial-crisis">fears are mounting</a> that many shadow banks around the world are relaxing their underwriting standards. </p>
<h2>5. Cyber hazards</h2>
<p>Some analysts also <a href="https://goo.gl/D32Knt">worry that</a> the next financial crisis could be triggered by cyber attacks on today’s fully digital and interconnected financial system. This has <a href="https://goo.gl/Lu4PLd">consistently been ranked</a> as the number one concern by respondents to the Depository Trust’s Systemic Risk Barometer since its surveys began in 2013. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/236438/original/file-20180914-177941-spfpco.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Game over?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/computer-code-on-screen-skull-representing-1050436496?src=szgt-1mnKt9HT0UxnzAWbA-1-3">solarseven</a></span>
</figcaption>
</figure>
<p>In sum, despite the efforts to strengthen the financial system, it looks far from failsafe. Gordon Brown is unfortunately right that the world has not managed to do enough to prepare itself for the next shock, and the growing divisions within the international community make the situation look particularly dangerous. We have not been able to curb the tendency of financial institutions to take on excessive risk, and as Brown also said, there is still not enough of a corrective mechanism for those who act irresponsibly. </p>
<p>JP Morgan <a href="https://www.smh.com.au/business/markets/the-next-financial-crisis-will-strike-in-2020-says-jpmorgan-20180914-p503o7.html">is predicting</a> the next crisis will strike in 2020, if not earlier, and this does seem quite foreseeable. So brace yourself and stay prepared, and let’s hope that things don’t turn out as badly as they potentially could.</p><img src="https://counter.theconversation.com/content/103189/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nafis Alam does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Gordon Brown is worried. So should we all be.Nafis Alam, Associate Professor, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1029512018-09-11T12:44:17Z2018-09-11T12:44:17ZArgentina, Turkey, Indonesia – why it’s too early to speak of contagion in emerging markets<figure><img src="https://images.theconversation.com/files/235774/original/file-20180911-144458-nhs919.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The value of Argentina's peso has plummeted in recent months.</span> <span class="attribution"><span class="source">SC Image / Shutterstock.com</span></span></figcaption></figure><p><a href="https://theconversation.com/turkeys-lira-crisis-economic-war-sees-erdogan-look-east-for-new-allies-101466">Turkey</a>, <a href="https://www.ft.com/content/23361c1e-af28-11e8-8d14-6f049d06439c">Indonesia</a> and <a href="https://www.ft.com/content/57cf95ae-add4-11e8-8d14-6f049d06439c">Argentina</a> have all seen their currencies experience huge drops in recent months. Similarly, stocks in India, <a href="https://www.thetimes.co.uk/article/no-respite-for-emerging-markets-as-crisis-grows-3rzsjfgv6">South Africa</a>, Mexico <a href="https://www.theguardian.com/business/2018/sep/08/emerging-economies-crisis-looms-shadow-america-boom-interest-rates">and others</a> have taken a hit. </p>
<p>Emerging markets across the board have been under pressure since the US Federal Reserve raised interest rates in June. Governments and companies had borrowed in dollars when interest rates were low and the dollar was weak. Now the dollar is strong <a href="https://www.ft.com/content/19fe9bc8-6f1b-11e8-852d-d8b934ff5ffa">and interest rates are rising</a>. And research by economists Michael Bordo, Chris Meissner and David Stuckler has shown that countries with higher foreign currency debt are <a href="http://www.nber.org/papers/w15534">more likely to experience currency and debt crises</a>, especially in countries with lower policy credibility.</p>
<p>Some <a href="https://www.theguardian.com/business/2018/may/14/rising-dollar-the-world-usemerging-economies-trade-talks">fear</a> a repeat of the 1997 Asian financial crisis when contagion spread from the Thai baht to other South-East Asian currencies, resulting in a large regional economic crisis. But contagion this time round is unlikely. </p>
<p>The 1997 Asian financial crisis has changed the way economists approach currency crises. Before, they mainly believed that a run on a currency would occur only when a country was running a balance of payment deficit and the central bank did not have sufficient reserves to defend the currency. Following the Asian crisis, current IMF chief economist Maurice Obstfeld was <a href="http://www.nber.org/papers/w5285">among the first economists to show</a> that currency crises can be a self-fulfilling prophecy, as happened in 1997. If investors start to have a pessimistic outlook on emerging markets currencies, it can lead to runs on currencies with no unhealthy economic fundamental or no misguided government policies. </p>
<p>This is not what is happening now. Argentina shows <a href="https://www.economist.com/finance-and-economics/2018/05/10/argentinas-economic-woes">weak fundamentals</a> and the government is struggling to finance its budget for the upcoming years. Turkey’s central bank is <a href="https://theconversation.com/turkeys-lira-crisis-economic-war-sees-erdogan-look-east-for-new-allies-101466">under attack from its president</a>, Recep Tayyip Erdoğan, and needs to prove its independence to investors. But these are isolated situations and it is unlikely we will see global contagion. </p>
<p>The Fed recently <a href="https://www.federalreserve.gov/econres/notes/ifdp-notes/emerging-market-nonfinancial-corporate-debt-how-concerned-should-we-be-20170601.htm">issued a note</a> explaining that the global crisis risk associated with emerging market currencies. According to the note, the risk of contagion among emerging currencies is low as only a limited number of countries present a risk, and their importance relative to the global economy is small. They based their reasoning on a <a href="https://dash.harvard.edu/bitstream/handle/1/33110124/17-097.pdf?sequence=1">study</a> by Harvard economist Laura Alfaro and colleagues that demonstrated that emerging markets after the global financial crisis are less at risk than the five Asian crisis countries before 1997.</p>
<h2>Different approaches</h2>
<p>The Argentinian case is interesting, however, because the current government has been the poster child of orthodox economic policies. If the economy were to fall further, it would show that even by following most IMF recommendations, growth is not achievable. This would open the door to a more populist backlash or the return of Peronist opposition in the upcoming 2019 general election. </p>
<p>But all is not lost. The US$50 billion that the IMF offered Argentina is a significant amount compared to the size of the currency market in Argentina, which the Bank for International Settlements estimates to be roughly <a href="https://www.bis.org/publ/rpfx16.htm">US$1 billion a day</a>. This means that the central bank will have room for manoeuvre as long as Argentina’s president, Mauricio Macri, refrains from any missteps, such as when he announced his desire <a href="https://www.youtube.com/watch?v=CwM_sThawIE">for help from the IMF via YouTube</a>. The move reflected the president’s willingness to get his country on board to talk again to the IMF, an institution that is closely linked to the bankruptcy of the country in the early 2000s. But markets felt <a href="https://www.ft.com/content/bef83be0-b280-11e8-8d14-6f049d06439c">less reassured by his comments</a>. </p>
<p>Turkey, meanwhile, has implemented measures to try to stop the fall in the lira and to make it more difficult for speculators to bet against <a href="https://www.theguardian.com/world/2018/aug/13/turkey-financial-crisis-lira-plunges-again-amid-contagion-fears">or “short” the lira</a>. This has had some effect without solving the crisis. The real issue remains whether the central bank will be able to remain independent of Erdoğan, as economist Barry Eichengreen <a href="https://www.ft.com/content/c987fc2a-a147-11e8-b196-da9d6c239ca8">recently argued</a>. The Turkish president’s disdain for central bank independence shows how different Turkey’s situation is from Argentina’s.</p>
<p>It is too easy to lump together all emerging markets. But, although contagion is not yet on the agenda, this does not mean that all is fine. A recession in the US is overdue after over nine years <a href="http://www.nber.org/cycles.html">since the last official recession</a>, and this would have a more serious effect on the global economy by putting pressure on exports from emerging markets. This would be likely to lead to more currency crisis. But until then, contagion should be limited.</p><img src="https://counter.theconversation.com/content/102951/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alain Naef is funded by the Economic and Social Research Council (ESRC).</span></em></p>A number of emerging markets are struggling but this doesn’t mean they are totally related.Alain Naef, PhD Candidate in Financial History and Teaching Fellow in the Economics Faculty, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/822312017-09-14T16:46:33Z2017-09-14T16:46:33ZLessons from Mauritius on making companies more accountable<figure><img src="https://images.theconversation.com/files/185857/original/file-20170913-23130-v80ry1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shutterstock</span> </figcaption></figure><p>Since the turn of the century, developing countries have been adopting corporate governance codes with the promise that they will enhance accountability and growth, while delivering equitable, ethical, and sustainable business practices.</p>
<p>A governance code is a set of guiding principles drawn up by industry to standardise good corporate behaviour. They sensitise company boards and executives to a wide range of interests such as, investors, labour and local communities. </p>
<p>A key governance code – <a href="https://www.iasplus.com/en-gb/standards/corporate-governance">the Cadbury Code</a> – was established in the UK in the early 1990s to improve corporate accountability.</p>
<p>Since then, there have been a plethora of codes across the world. In Africa, governance codes have been designed to help address the legacies of colonialism, extractive post-colonial business behaviour and executive excesses. Several countries like South Africa, Kenya, Ghana and Mauritius have already stepped up to the plate.</p>
<p>Mauritius is interesting case study. The country has sustained its position as the <a href="https://www.forbes.com/best-countries-for-business/list/3/#tab:overall">best</a> country in Sub-Saharan Africa to conduct business leads the <a href="http://s.mo.ibrahim.foundation/u/2016/10/01184917/2016-Index-Report.pdf?_ga=2.256045388.61916143.1504967135-1409447380.1504967135">Mo Ibrahim Index of African Governance</a>. </p>
<p>But it does have some considerable limitations and mainly <a href="https://business.mega.mu/2015/06/04/moodys-report-some-extracts/">inefficiencies</a> in public governance.</p>
<p>We set out <a href="https://www.researchgate.net/publication/299365640_A_Longitudinal_Study_of_the_Implementation_of_the_Corporate_Governance_Code_in_a_Developing_Country_The_Case_of_Mauritius">to study</a> trends in the way companies adopt the corporate governance code in Mauritius. The aim was to provide useful insights to other developing countries, particularly in Africa.</p>
<p>Our study found significant levels of compliance with the code in the three years after implementation. But we also found that Mauritian companies picked and chose elements of the code. They implemented the easier ones perceived to be beneficial, or simply the ones that made them look good. </p>
<p>Our findings are important because developing countries have become important channels of foreign investment, but institutional investors remain concerned about firm- and country-level risks which are difficult to evaluate. The corporate governance arrangements in these are not fully understood. </p>
<h2>Part of a big reform</h2>
<p>Over the last three decades, the Mauritian government worked with international bodies to revamp the country’s regulatory framework for companies. This was part of a drive to encourage local and international investment. </p>
<p>The reforms were wide ranging and included setting up of a <a href="https://finance.mapsofworld.com/stock-exchange/mauritius.html">stock exchange</a> and adoption of international standards for corporate accounting and reporting. The country also established a number of agencies to regulate financial and professional service sectors. It also embarked on full and partial privatisation of state owned assets as well as the liberalisation of key sectors. </p>
<p>The Mauritian economy emerged from its dual colonial past (it was colonised by both the French and the British) with a number of challenges. One of the main challenges was that it was dominated by a few large conglomerates and state institutions operating in a weak regulatory environment.</p>
<p>The adoption of the codes of good corporate governance in 2004 formed part of this reform movement. It followed a 2002 World Bank/International Monetary Fund <a href="http://documents.worldbank.org/curated/en/755361468281373039/pdf/351110MAS0Corporate0MaurROSC.pdf">report</a> which highlighted governance deficiencies. A code of corporate governance was proposed as a solution.</p>
<p>Inspired by the South African <a href="http://www.iodsa.co.za/?page=KingIV">King Code</a>, Mauritius embraced a hybrid corporate governance model. This model mixes the ‘market-centric’ approach (typically practiced in the US and UK) and the ‘relationship-based’ ones (typically Japan, France, and Germany).</p>
<h2>A pick and choose game</h2>
<p>Our study found that companies were picking and choosing sections of the codes to implement as they wished. The more difficult or uncomfortable requirements were ignored. </p>
<p>For example, until now, information on ownership structures and CEO remuneration remain opaque. We concluded that the reason for this was the relatively small business elite, from which most directors and majority shareholders are drawn. They see some sections of the codes as being incompatible with a tradition of keeping things ‘discreet’.</p>
<p>Our investigation also revealed a significant relationship between the implementation of the code and the presence of independent non-executive directors. This confirmed the generally accepted potential of independent non-executive directors as agents of change. </p>
<p>But we also found a limiting factor for the role of independent non-executive directors within Mauritius corporations. Not many of these directors occupy critical posts like board chair and therefore have limited influence.</p>
<p>The recent World Bank/International Monetary Fund <a href="http://documents.worldbank.org/curated/en/475311468056654909/pdf/691600ESW0whit0CG0ROSC0Publication.pdf">report</a> praised Mauritius as an ‘international leader’ on <a href="http://www.emeraldinsight.com/doi/abs/10.1108/11766091211282661">board practices</a> (at par with leading Asian countries, such as India, Thailand, and Malaysia), but also highlighted problems. Directors deemed independent were not sufficiently so in relation to majority shareholders and there is opacity in the appointment of such directors. </p>
<p>The report also noted the pitfalls of a “persistent high concentration of the ownership” in large companies. Almost 60% of the counted companies had one controlling shareholder holding more than 20% of shares. This cannot be good for corporate accountability. It means a form of <a href="http://lsr.nellco.org/cgi/viewcontent.cgi?article=1054&context=harvard_olin">controller’s roadblock</a> has been allowed to persist.</p>
<h2>Limitations</h2>
<p>Some scholars are critical of the usefulness of these <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8683.2009.00730.x/full">“Western-inspired” codes for developing countries</a>. Criticism ranges from a charge that codes aren’t radical enough, they <a href="https://www.researchgate.net/publication/317687305_Scandals_from_an_Island_Testing_Anglo-American_Corporate_Governance_Frameworks">clash with local social and political factors</a>, to being <a href="http://onlinelibrary.wiley.com/doi/10.1111/corg.12163/full">implemented in a rather superficial way</a>.</p>
<p>The “comply or explain” principle traditionally applied to these codes means that there is flexibility to pick and choose. There’s also little market pressure for a more comprehensive adoption; <a href="http://onlinelibrary.wiley.com/doi/10.1111/lest.12014/full">an issue affecting many countries</a>. </p>
<p>The new version of the <a href="http://www.nccg.mu/sites/default/files/files/the-national-code-of-corporate-governance-for-mauritius_2016.pdf">Mauritius code</a> which was in 2016 provides for an “apply and explain” principle. In this version companies are expected to explain how they have applied the code and flag any areas where the code has not been applied. But even the new version continues to rely on “market discipline”. It is unclear whether this is feasible in markets characterised by high ownership concentration, low shareholder activism and a weak stakeholder base.</p>
<p>Our <a href="http://journals.sagepub.com/doi/abs/10.1177/0007650313501838">study</a> of other developing markets also shows that the market discipline approach is not effective where the capacity of regulators is limited. This is particularly the case where local politics retain an ability to dilute enforcement or where the state itself is a significant shareholder and has little to gain from a change in the status-quo.</p><img src="https://counter.theconversation.com/content/82231/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jyoti Devi (Brinda) Mahadeo receives funding from Mauritius Research Council. </span></em></p><p class="fine-print"><em><span>Teerooven Soobaroyen receives funding from the Mauritius Research Council, the UK Leadership Foundation for Higher Education (LFHE), UK Chartered Institute of Management Accountants (CIMA) and the British Council. </span></em></p>Its been 13 years since Mauritius introduced codes of corporate governance for listed companies with mixed results. Its experience is useful for other developing countries looking to do the same.Jyoti Devi (Brinda) Mahadeo, Lecturer in Management, Eastern Institute of TechnologyTeerooven Soobaroyen, Professor of Accounting, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/839962017-09-14T12:02:55Z2017-09-14T12:02:55ZApple makes a $999 gamble on its aspirational brand<p>Apple is taking a calculated risk with the pricing of its new phone. The US$999 iPhone X is a bet on users’ loyalty and wealth and is on the surface consistent with the company’s longstanding strategy of differentiation and exclusivity. The danger lies in how the phone sells in the world’s huge and growing emerging markets; Apple clearly thinks it is a risk worth taking.</p>
<p>And it’s not without reason. Apple has always targeted the higher end of the market worldwide rather than just aiming for a larger base of users. In fact, if anything, Apple tends to price phones <a href="http://www.telegraph.co.uk/technology/2016/09/10/how-much-does-the-iphone-7-cost-around-the-world/">higher outside the US</a>. The UK has to stomach <a href="https://www.theguardian.com/technology/2017/sep/13/apple-iphone-x-launch-uk-prices-dollar-parity">an inflated price</a> for the iPhone X even when tax differences are allowed for. </p>
<p>To be clear, the top end phone is not the only option. British customers will be able to pick up an iPhone 8 for £699 and an iPhone 8 Plus for £799. This is still more expensive than its direct competitors, but the demand curve for the iPhone is relatively inelastic. This means that for a given percentage increase in price, the percentage reduction in demand is smaller, giving an overall increase in revenues. No wonder the iPhone accounts for the majority of <a href="http://investor.apple.com/financials.cfm">Apple’s revenues and profits</a>.</p>
<h2>New markets</h2>
<p>The question that most immediately arises is whether Apple’s move will work in important emerging economies. It is certainly consistent with Apple’s image as an exclusive handset and as “the real thing”, despite the availability of much cheaper imitations. The dilemma for Apple when it comes to marketing strategy is this: A high price, while aiding exclusivity and strengthening its premium strategy, may also constrain its growth in lucrative emerging economies such as India. </p>
<p>On the other hand, if Apple decides to offer cheaper versions of its products in particular markets, or lower prices for the same products that are more expensive elsewhere, it will create bigger problems for itself. </p>
<p>Cheaper versions of its products sold anywhere will detract from its overall premium strategy. The same products sold more cheaply in some countries will quickly create arbitrage options that can be exploited by black market traders, unsettling Apple’s strategy in developed markets, too. </p>
<p>For now, Apple has chosen to maintain a consistent strategy worldwide, and ride the growth of emerging markets by tapping into the expansion of the middle class as it occurs. Despite teething troubles, this decision is working out <a href="https://www.cnbc.com/2017/07/25/apple-iphone-sales-in-china-market-share-falling-canalys-data.html">relatively well in China</a>, a country further ahead in its modernisation journey than its fellow emerging markets powerhouse India, and where more users can afford to buy genuine Apple products. While the $999 pricing may not be the ideal option for India right now, the other options are worse for Apple. </p>
<p>In the medium to long term, more and more people will be able to afford Apple products in India and beyond. Keeping a consistent image and quality will aid in the slower but steady increase in users in those emerging economies. The goal is to keep the iPhone as an aspirational device people will buy as soon as they are able to.</p>
<h2>New features</h2>
<p>At the same time, Apple is continuing to focus on intense levels of efficiency in production and more broadly at the operational level, aided by a largely consistent design, operating system and functions across its different iPhone models. The $999 iPhone has no home button enabled by a new type of screen, and includes face recognition and “animojies”. These are features that will find their way to more affordable iPhone models in subsequent releases.</p>
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<p>As <a href="http://www.wbs.ac.uk/wbs2012/assets/WBS_Core_Edition_One_Quantum%20Strategy%20at%20Apple%20Inc_56-59%20(3).pdf">I have argued elsewhere</a>, while Apple’s strategy for the broad market is one of differentiation, internally it is striving for the lowest cost possible, and <a href="http://www.sciencedirect.com/science/article/pii/S0090261613000132">has delivered impressive efficiency levels</a>. How does it do this? </p>
<p>Well, it is a combination of things, including good integration across its product lines which increases Apple’s negotiating power over suppliers and makes effective use of external manufacturers. Apple also keeps its supply chain lean by getting its products out the door and into our hands as quickly as possible. Apple bosses, meanwhile keep innovation spending highly focused, and further dampen costs by using a <a href="http://fortune.com/2011/08/29/rethinking-apples-org-chart/">stripped-down corporate hierarchy</a> which cuts down on meaningless meetings. </p>
<p>So, the $999 iPhone might just be worth it for Apple, but what about the customer? The advances that the iPhone X offers, such as face recognition, wireless charging, infrared camera and edge to edge screen may be significant in terms of user experience. We will need to wait for the reviews to come in though; will the facial recognition work seamlessly? How will people react to the absence of the home button, and will the gestures offer ease of use?</p>
<p>Pricing, apart from the ability to pay, is also to an extent a social construct. People will pay what they think is appropriate, if they can afford it. Apple has traditionally pushed the boundaries of customer sense of pricing appropriateness. In terms of affordability, in countries where mobile operators offer package deals, the incremental cost over the $699 iPhone 7 for example will amount to a couple of cups of coffee per month. In any case, users will have the option of buying the more affordable handsets. </p>
<p>People have been predicting Apple’s demise for several years now, but Apple’s performance has <a href="https://www.apple.com/uk/newsroom/2017/08/apple-reports-third-quarter-results/">remained strong</a> since Steve Jobs’ death. At a market cap of US$815 billion, Apple is the most valuable listed company in the world by some distance from the second, Alphabet (Google), at US$649 billion. Apple’s pricing move for its top iPhone is an example of the essence of strategy: making tough decisions, real choices that are meaningful for company performance. No move is risk-free, but at the very least this courageous move will create some distance from competing brands in terms of exclusivity.</p><img src="https://counter.theconversation.com/content/83996/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Loizos Heracleous does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The tech giant has doubled down on its strategy of exclusivity, but does it risk weakening its position in emerging markets?Loizos Heracleous, Professor of Strategy, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/687072016-11-14T07:36:07Z2016-11-14T07:36:07ZMobile phone continent: how the African digital economy is weaving its web in 2G<figure><img src="https://images.theconversation.com/files/145599/original/image-20161112-9045-1xuahae.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">By the end 2015, nearly 560 million people in Africa had some kind of mobile phone package.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/kiwanja/3169447879/in/gallery-46779331@N02-72157629613799201">Ken Banks/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Africa’s mobile market, second only to that of the <a href="http://www.telegraph.co.uk/technology/mobile-phones/11812322/smartphone-sales-in-china-fall-says-gartner.html">Asia-Pacific region</a>, has huge potential for growth. </p>
<p>Figures published by the <a href="https://www.gsmaintelligence.com/research/?file=3bc21ea879a5b217b64d62fa24c55bdf&download">global GSM Association</a> in Tanzania are breathtaking. Every five years, the group collects data from its 800 network carriers. Putting these figures together with research carried out in the <a href="http://vstice.auf.org/edition-scolaire-numerique/contexte-de-ledition-scolaire-numerique/considerations-sur-les-tic-en-afrique-utilisations-en-education-et-politiques-publiques/">Sahel region</a> provides an illuminating picture of mobile use across the continent.</p>
<p>According to the GSMA report, by the end of 2015, nearly half of the 1.17 billion-strong African population (557 million people) had some kind of mobile phone plan. They now amount to 12% of all individual subscribers in the world, and make up 6% of global revenue – a 70% increase when compared to figures published by the same source just five years earlier.</p>
<p>Two main user characteristics emerge from studies carried out in the field. First, users favour <a href="http://www.carte-prepayee.fr/public/fr/1/cards.php">pre-paid packages</a>. Second, each subscriber owns 1.92 SIM cards on average. </p>
<p>Setting aside the problems this poses for identification and traceability, and the <a href="http://www.lefigaro.fr/secteur/high-tech/2015/11/23/32001-20151123ARTFIG00101-l-afrique-peine-a-tracer-les-utilisateurs-de-cartes-sim.php">resulting complications for operators</a>, this means that the market for SIM cards is huge – almost a billion units (965 million) at the end of 2015, and an estimated 1.3 billion by the end of 2020.</p>
<p>This spectacular growth in demand should result in 730 million individual subscribers by 2020. Unsurprisingly, the figures vary widely from country to country. For instance, <a href="http://www.journaldunet.com/ebusiness/expert/61063/le-potentiel-de-la-telephonie-mobile-en-afrique-est-encore-consequent.shtml">data from 2014</a> shows that the top five countries (Nigeria, Egypt, South Africa, Ethiopia and the Democratic Republic of Congo) account for about 44% of the total, while the bottom 30 countries only make up 10%. </p>
<p>Similarly, the actual rate of overall market penetration for SIM cards amongst people aged 15 and over is 67% (taking into account those who own several cards); some countries (Mali, Gambia, Gabon and Botswana) boast a rate of more than 100%.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/145650/original/image-20161113-9048-1cp4jjc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/145650/original/image-20161113-9048-1cp4jjc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/145650/original/image-20161113-9048-1cp4jjc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/145650/original/image-20161113-9048-1cp4jjc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/145650/original/image-20161113-9048-1cp4jjc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/145650/original/image-20161113-9048-1cp4jjc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/145650/original/image-20161113-9048-1cp4jjc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A mobile shop in Kabale, Uganda.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/adamcohn/6311095369/in/gallery-46779331@N02-72157629613799201">Adam Cohn/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Landlines met with little success (because customer experience left much to be desired) over the second half of the 20th century, and this seems to have boosted demand for mobile phones. This means <a href="http://www.rfi.fr/afrique/20160917-etude-game-of-phones-telephone-portable-omnipresent-quotidien-africains">mobile use today</a> is inversely related to that of landlines in the past.</p>
<h2>In a 2G continent, 4G is expanding fast</h2>
<p>The African market remains largely dominated by 2G packages, but high-speed mobile connections (4G/LTE) are gaining ground. In 2015, 46/LTE represented 25% of the market; this will rise to an estimated 60% by 2020. </p>
<p>Half of the 4G networks currently in use are less than two years old and <a href="http://www.balancingact-africa.com/news/telecoms_fr/35840/afrique-la-4g-lte-a-t-lance-dans-24-pays-et-netflix-prend-le-continent-dassaut">4G has just been made available</a> in 24 countries.</p>
<p>Smartphone sales now account for 23% of the mobile phone market. These sales are set to increase as infrastructure is modernised and network coverage improves, as are those of low-cost and counterfeit phones from Asia that are flooding the market across the entire continent due to ever lower prices. Currently, these low-cost phone make up 50% of the market.</p>
<p>Potential growth in revenue per subscriber remains high, especially when compared with <a href="http://www.zdnet.fr/actualites/marche-mondial-des-services-telecoms-etat-des-lieux-et-projections-39802921.htm">figures from Europe or North America</a>, but it is dependent upon a wider range of options, better network coverage and improved service quality. Estimated revenue for an average African subscriber is €8 per month (ranging from €2 in Ethiopia to €28 in Gabon), against €27 per month in Europe and €53 per month in North America.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/145653/original/image-20161113-9060-3ikmvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/145653/original/image-20161113-9060-3ikmvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=421&fit=crop&dpr=1 600w, https://images.theconversation.com/files/145653/original/image-20161113-9060-3ikmvu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=421&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/145653/original/image-20161113-9060-3ikmvu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=421&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/145653/original/image-20161113-9060-3ikmvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=529&fit=crop&dpr=1 754w, https://images.theconversation.com/files/145653/original/image-20161113-9060-3ikmvu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=529&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/145653/original/image-20161113-9060-3ikmvu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=529&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Nairobi Entrepreneurship Summit, July 2015.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/meaact/19953636861/in/album-72157655850881588/">MEAACT/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>A <a href="http://www.tactis.fr/wp-content/uploads/2013/11/Sub-Saharan-Africa_ME_Report_English_2013.pdf">2013 report</a> had already shown the high potential for mobiles, their ecosystem and their contribution, both direct and indirect, to growth in Sub-Saharan Africa. </p>
<p>In 2012, for example, economic activity related to mobile phones and their life-cycle accounted for about 3.3 million jobs and 6.3% of the region’s GDP, while market penetration was less than 40%. This demonstrates a massive potential for growth, with the arrival of 4G-LTE networks (although prices are still prohibitive for most users).</p>
<p>This robust activity comes with its own characteristics, chiefly arising from Africa’s substantial <a href="http://www.ilo.org/global/topics/employment-promotion/informal-economy/lang--en/index.htm">informal economy</a> (which, as a side note, is shamelessly exploited by developed countries). Just look at how easy it is to repair a smartphone, by virtue of some creative handiwork in markets and souks like the one at <a href="http://www.bladi.net/derb-ghallef-piratage-disparition.html">Derb Ghallef</a> in Morocco. </p>
<p>This does not translate to the phones being easily recycable, however. Phones are mainly disposed of in landfills and unauthorised markets like that of <a href="http://www.lemonde.fr/planete/article/2013/12/27/les-dechets-electroniques-intoxiquent-le-ghana_4340635_3244.html">Agbogbloshie</a> in Ghana. At a time when Africa is hosting the <a href="https://theconversation.com/bus-electriques-mosquees-vertes-sacs-plastiques-prohibes-marrakech-a-lheure-de-la-cop22-66698">COP22</a>, we must bring attention to the sector’s catastrophic social and environmental impact.</p>
<h2>Gaps in the market</h2>
<p>African consumers, like those across the world, are demanding and informed. They want clear, reliable, smooth running mobile solutions, especially as a way to compensate for the continent’s real – or perceived – shortfalls. They have <a href="https://www.itu.int/ITU-D/cyb/app/docs/itu-maee-mobile-innovation-afrique-f.pdf">appropriated the technology</a> in innovative ways (beeping, flashing, credit transfer). </p>
<p>Aside from network reliability, consumer demand centres around messaging, sound quality, data and ease of communication, but also e-payment, e-insurance and e-learning. Users can thus circumvent the banking and administrative red tape that is partly responsible for the <a href="http://www.lesechos.fr/idees-debats/cercle/cercle-121639-afrique-les-operateurs-telephoniques-supplanteront-ils-les-banques-pour-les-moyens-de-paiements-1087712.php">seldom used formal banking system</a>.</p>
<p>From the electronic purse to secure commercial transactions to group savings systems, the growth of <a href="http://www.gsma.com/mobilefordevelopment/programmes/mobile-money">mobile banking</a> in Africa, like that of all developing regions, is extraordinary. Consider, for instance, the amazing success of the shopping and bill settling solutions <a href="http://www.servicesmobiles.fr/pourquoi-cest-lafrique-qui-est-la-patrie-des-paiements-mobiles-29194/">offered by M-PESA</a> in Kenya, or the market penetration of mobile insurance solutions, <a href="https://ries.revues.org/1806https:/ries.revues.org/1806https:/ries.revues.org/1806">mobile learning and distance education</a>. </p>
<p>But consumer appetite for mobile phones is sometimes plainly stifled. Several factors explain this phenomenon, <a href="https://www.cairn.info/revue-l-expansion-management-review-2008-2-page-110.htm">despite the general consensus that the technology contributes to development</a>. Simply consider the lack of coverage, where vast rural areas are still under-serviced, or the inadequate pricing offers, given the continent’s weak buying power. The unreliability of operators due to technical, financial or structural problems explains why there is an average of two SIM cards per person on the continent, and the popularity of <a href="http://www.prixtel.com/decouvrir-PRIXTEL/actualite/news/telephonie-mobile-pratique-le-telephone-portable-double-sim/">mobiles with dual SIM capacity</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/145654/original/image-20161113-9073-1qypr95.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/145654/original/image-20161113-9073-1qypr95.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/145654/original/image-20161113-9073-1qypr95.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/145654/original/image-20161113-9073-1qypr95.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/145654/original/image-20161113-9073-1qypr95.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/145654/original/image-20161113-9073-1qypr95.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/145654/original/image-20161113-9073-1qypr95.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Nairobi Entrepreneurship Summit, July 2015.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/meaact/19760468768/in/photolist-zYuscb-zYuuKC-zYyJ2a-zYyXBB-zj3Moy-zYsZPL-Ah3Kbi-zYyZHF-AeTDpQ-zjbK5Z-AdMeeY-zYyZxk-AScCCe-yKv9eJ-tRh3FK-zjbEYx-zjbuvt-HFj6yY-zYyKTX-Ag5rND-Ah44xZ-AeTTyG-Ag5vpM-zj3Jbm-AeTJ3Y-zYufmh-Ah3TTP-Ah41kg-Ah3Sai-zYt8PU-AeTAc7-Ah3MgR-Ah3X6a-zYsWpQ-zYupzN-AdM95Q-zYyGFK-BoptTo-AYzcEE-z3Vv8t-yKvC9E-xCkmJU-xSCNLS-wo7bAY-wmsNNd-xVBdgD-w7ayVo-xU6g8h-vrUBhk-xSCBnE%20%22%22)">MEAACT/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>We could also mention <a href="https://www.africanlibraryproject.org/our-african-libraries/africa-facts">Africa’s low literacy rate</a>, or consumer reticence due to the apparent complexity of learning about, and using, information technology (despite the youth and creativity of most of the potential users). </p>
<p>The range of applications available is still largely inconsistent with the actual needs – be they to do with agriculture, education, health, food or services – of a large and disadvantaged proportion of the population. Few are available in the customers’ <a href="http://www.cosmovisions.com/languesAfricaines.htm">regional and national languages</a>.</p>
<h2>Supply is rapidly adapting</h2>
<p>Unsurprisingly, given that it represents operators, manufacturers and other producers, GSMA stresses the importance of a new <a href="http://www.gsma.com/publicpolicy/wp-content/uploads/2016/03/NERA_Summary_French.pdf">regulatory framework for the digital ecosystem</a>, underscoring the detrimental effect that taxes are having on the development of mobile services in the Democratic Republic of Congo, Ghana, Tanzania and Tunisia, notably.</p>
<p>In its July 2016 report, the group also stated that operators’ profit margins will only decline as markets become increasingly aggressive and network investment capacities are falling. The fact that <a href="http://www.compta-facile.com/ebitda-definition-calcul-utilite/">EBITDA margins</a>, which hovered around 40% in 2010, will likely decrease to around 30% by 2020, illustrates the need to address questions about the sector’s profitability, although the outlook for total revenue remains optimistic ($153 billion in 2015, rising to $210 billion by 2020.)</p>
<p>GSMA also highlights upcoming opportunities and challenges. First of all, opportunities for telecommunication operators to provide security, distribution and value-creation (<a href="http://business-analytics-info.fr/4768/donnees-des-telephones-mobiles-un-graal-pour-les-operateurs/">monetizing data content</a>) for data collected across the entire continent. There are also significant opportunities provided by the increasing, but still modest, rise of platform solutions for B2B transactions.</p>
<h2>Digital transformation is inevitable</h2>
<p>In addition to clients and regulatory authorities, the GSMA sees the cost of licensing and taxes on imports such as mobile phone accessories (cables, headphones, cameras, flash disks and so on) as a challenge that will be counterproductive to growth in the sector. </p>
<p>It also highlights the lack of clarity surrounding taxation and national legislation, which deters many transnational investors, and the immaturity of regulators, which hinders the harmonisation and allocation of terrestrial frequencies.</p>
<p>It seems clear that the <a href="http://www.liberation.fr/ecrans/2014/05/19/l-afrique-se-prend-des-decharges-electroniques_1021222">digital recycling sector</a>, relating to the life-cycle of all high-tech products, must be completely re-examined, <a href="http://fr.allafrica.com/stories/200610160108.html">cleaned up</a>, made viable and profitable in the long run throughout the continent. Digital technology in Africa can and should be sustainable.</p>
<p>The African continent has the most remarkable potential for growth, creativity and transformation, such as the <a href="http://www.afrikonomics.com/cameroons-drive-to-become-the-new-home-of-innovation/">silicon moutain of Africa</a> in Cameroon. </p>
<p>The issues and challenges are as vast as Africa itself. Let us hope that the key players in this inevitable, irreversible and accelerating transformation won’t lose sight of the human aspect.</p>
<p><em>Translated from the French by Alice Heathwood for <a href="http://www.fastforword.fr/en/">Fast for Word</a>.</em></p><img src="https://counter.theconversation.com/content/68707/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The African continent appears to have the most remarkable potential for growth and transformation, but can it be sustainable?Béchir Abba-Goni, Post-Doc en Sciences de Gestion, Université Aube NouvelleMarc Bidan, Professeur des universités en management des systèmes d’information, Université de NantesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/662862016-10-03T18:57:44Z2016-10-03T18:57:44ZWhy there’s an urgent need to revive the Doha round of trade talks<figure><img src="https://images.theconversation.com/files/140119/original/image-20161003-20200-kkpkkw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China and the US are at the centre of multilateral trade talk disagreements.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Fifteen years ago the <a href="https://www.wto.org/english/tratop_e/dda_e/dda_e.htm">Doha round</a> of trade negotiations was launched, creating much needed hope that the multilateral trade system carved under the banner of the <a href="https://www.wto.org/index.htm">World Trade Organisation</a> (WTO) would at last be made to work for the benefit of all members. </p>
<p>But those hopes remain dashed. Negotiations have run into the ground, with no progress being made since December 2008. And there are no signs of a resolution. This must rank as a major crisis and a threat to world peace.</p>
<p>The Doha round of trade talks was the ninth since the creation of the General Agreement on Tariffs and Trade (GATT) which was set up in 1947. The GATT, precursor to the WTO, was the brainchild of the US and UK. The Doha round was the first to end in failure.</p>
<p>The GATT arrangement was deficient in many ways. It failed to open the markets of the rich countries to the agriculture and textiles products produced in poor countries. It nevertheless provided the world with a basic framework for the multilateral trading system. It succeeded in <a href="https://www.wto.org/english/thewto_e/whatis_e/10thi_e/10thi09_e.htm">preventing</a> trade competition between nations from descending into conflict on the scale of the First and Second World Wars. </p>
<p>Trade <a href="http://em-journal.com/assets_c/14/141Smith.pdf">tensions</a> between nation states that could lead to conflict are once again beginning to sharpen. This is particularly the case given the <a href="https://www.jstor.org/stable/42704667?seq=1#page_scan_tab_contents">multi-polar world</a> that has emerged in the 21st century and the rise of emerging countries, such as China, India and Brazil.</p>
<p>Added to this is the <a href="http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1204&context=jil">selfish</a> attitude of the European Union and the US which continues to undermine the multilateral system.</p>
<p>The only way to ensure that the world creates a legitimate and secure world trading system is to rebuild the WTO based on fair trade, balanced rules, inclusivity and transparency. The next opportunity to do this will be when trade ministers meet again at the 11th WTO Ministerial Conference at the end of 2017. They should gun to revitalise the Doha round. </p>
<p>But how should we understand this failure? And how can the situation be resolved? </p>
<h2>Why the Doha round collapsed</h2>
<p>The underlying reason for the collapse of the Doha round has been increased <a href="https://www.theguardian.com/global-development/poverty-matters/2011/oct/11/eu-agriculture-hurts-developing-countries">protectionism</a> in both the US and the EU. This has been matched by formidable new alliances between developing country alliances in the WTO which have provided a real countervailing negotiating power to the US and EU.</p>
<p>The US economy has undergone dramatic changes since the launch of Doha. Big business lobbies have emerged to pressure the US on trade, including an increasingly aggressive competitive services sector and increasingly protectionist agriculture and manufacturing sectors. The EU has also seen a marked rise in the power of its agricultural lobby. </p>
<p>A second significant trend of the new millennium has been the increasing share of world trade of developing countries. Three decades of consistent growth propelled by foreign direct investment in Chinese manufacturing turned <a href="http://www.businessinsider.com/r-special-report-how-smuggled-workers-power-made-in-china-2015-8">China</a> into the “the manufacturing workshop of the world”. </p>
<p>China’s participation in world trade took a dramatic turn after its accession to the WTO in 2001. Its <a href="https://www.wto.org/english/res_e/statis_e/its2015_e/its2015_e.pdf">share of world exports</a> grew from 2.5% in 1993 to 10.3% in 2010 to make it the largest exporting country in the world ahead of Japan, Germany and the US. </p>
<p>At the same time the US’s <a href="https://www.wto.org/english/res_e/statis_e/its2015_e/its2015_e.pdf">share of world exports</a> fell from 13% in 1993 to 8.4% in 2010.</p>
<p>Business lobbies and US strategists began to fear the continuing growth of China’s manufacturing prowess, fuelling protectionist sentiments.</p>
<p>The new trends in the global economy and the interests of US business lobbies led the US negotiators to take a new approach to negotiations, principally by abandoning the understanding that required all the Doha list of issues to be negotiated and concluded at the same time.</p>
<p>At the launch of the Doha round negotiators had agreed to work on the principle that “nothing was agreed until everything is agreed”. The new approach of the US negotiators was to argue in favour of prioritising a “small package of issues”. </p>
<p>In addition, it argued that several major emerging market countries would need to make more concessions if the Doha round was to succeed. These included China, India, Brazil, Argentina, Indonesia and South Africa. </p>
<p>The unravelling of the Doha round began in earnest at the WTO ministerial conference held in <a href="https://www.wto.org/english/thewto_e/minist_e/mc9_e/balipackage_e.htm">Bali</a>, Indonesia in December 2013. There the US persuaded the WTO members to agree to a small package of issues. In addition, it persuaded a group of about 23 out of 164 WTO members to negotiate the further liberalisation of services trade. </p>
<p>By the time of the last WTO ministerial meeting, held in Nairobi in December 2015, the Doha round was effectively “dead”. </p>
<h2>Way forward</h2>
<p>The <a href="https://www.wto.org/english/thewto_e/minist_e/mc10_e/mc10_e.htm">Nairobi ministerial meeting</a> ended with some progress on specific issues, including a commitment by developed countries to finally eliminate export subsidies in agriculture. But the ministers were divided on the vexed issue of the future of the Doha round and how to revitalise the multilateral trading system.</p>
<p>The current trajectory of the US and the EU towards mega-regional trade deals, such as the <a href="http://www.bbc.com/news/business-32498715">Trans-Pacific Partnership Agreement</a> (TPP), is taking the world down a dangerous and highly risky path. These will further marginalise small and poor countries. In addition they threaten to impose new and burdensome rules on these fledgling economies.</p>
<p>Developing countries have long held that the trade arrangements under GATT/WTO are biased against their interests and that they have created an imbalanced system. </p>
<p>To break the current deadlock, the US and the EU must recognise that the main objective of the multilateral trading system is to provide security and stability in world trade rather than advance the interests of specific business lobbies. </p>
<p>China, India, Brazil and other significant developing countries, such as South Africa, also have to recognise that they need to prioritise the needs of the least developed countries and small and vulnerable economies. </p>
<p>Both groups must commit to working together to prevent the re-emergence of protectionism, and strengthening of the rules based trading system, in a way that is fair, development oriented and inclusive. This is the only basis to resolve the current crisis in the multilateral trading system and create a more secure and peaceful world. </p>
<p><em>This article was adapted from a presentation made by Professor Faizel Ismail to the United Nations University conference titled: <a href="https://www.wider.unu.edu/event/responding-crises">Responding to crisis</a>.</em></p><img src="https://counter.theconversation.com/content/66286/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Faizel Ismail does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With no sign of resolution in the near future the collapse of multilateral trade negotiations, tagged as the Doha round, risks breeding a major crisis.Faizel Ismail, Adjunct Professor, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/616372016-06-26T13:50:18Z2016-06-26T13:50:18ZAfrican exporters face choppy waters in the wake of Brexit<figure><img src="https://images.theconversation.com/files/128202/original/image-20160626-28395-k3p1my.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Markets plunged after the UK voted to exit the EU. Africa's trade relations with both the EU and UK will be affected by the decision.</span> <span class="attribution"><span class="source">Reuters/Kevin Coombs</span></span></figcaption></figure><p><em>One would certainly be forgiven if, like us, you found yourself doing a double take at the news that Britain’s public voted <a href="http://www.bloomberg.com/news/special-reports/britains-brexit-question">in favour of leaving the EU</a>. This is because shortly before the Brexit polls closed, opinion polls were showing the ‘remain’ vote marginally ahead. While currency markets were already reflecting heightened volatility in the run up to such a momentous event, the decision to leave certainly came as a surprise, garnering an even more tumultuous response. A more disconcerting development is that Britain’s decision has opened the possibility of other member states calling <a href="http://www.bbc.com/news/world-europe-36615879">their own referenda</a> on EU membership. This would result in a fragmented EU, creating further market uncertainties. Caroline Southey, the Conversation Africa’s editor, asked Fatima Bhoola and Nimisha Naik, lecturers in economics at the University of the Witwatersrand, what it means for Africa.</em></p>
<p><strong>What impact will the exit vote have on South Africa and other African countries and who on the continent will be most adversely affected?</strong></p>
<p>The immediate effects were clearly reflected in <a href="https://www.bloomberg.com/news/articles/2016-06-24/u-k-referendum-roils-global-currencies-from-australia-to-mexico">the currency markets</a>.</p>
<p>For emerging markets heavily reliant on commodity exports, Brexit could not have come at a more worrisome time. Growth prospects are already severely strained due to flat commodity prices and slower global growth.</p>
<p>UK ministers in favour of Britain’s exit were <a href="http://afkinsider.com/127726/what-brexit-means-for-africans/">quick to offer reassuring comments</a>. The UK minister for Africa <a href="http://afkinsider.com/127726/what-brexit-means-for-africans/">James Duddridge</a> pointed out that without the burden of the EU, relations between the UK and Africa would improve.</p>
<p>Despite this reassurance, Brexit will adversely affect countries such as Nigeria, which <a href="http://qz.com/715710/brexit-could-be-terrible-for-africas-largest-economies/">relies heavily</a> on foreign direct investment from the UK. The country’s tenacity is going to be severely tested by a combination of the post-Brexit transition period coupled with softer oil prices.</p>
<p>Kenya is equally concerned that trade with the UK will be disrupted because agreements made under the auspices of the EU will have to be renegotiated. Kenya is heavily dependent on earnings from agricultural exports to the UK such as cut flowers. On the other hand bilateral agreements between the two nations are long standing which means that trade relations are likely to continue.</p>
<p>On a positive note, the decision to leave the EU may well open a new chapter in the UK’s trade relations with the world in general and Africa in particular. The UK’s exit could give it new found sovereignty and autonomy over its relations with Africa. This could result in more favourable agreements with African trading blocs, creating incentives for African farmers as well as firms.</p>
<p>If Duddridge is to be believed, then the UK’s post Brexit resurgence of relations with Africa may <a href="http://www.brookings.edu/blogs/africa-in-focus/posts/2016/06/21-africa-brexit-trade-aid-economy-sow-sy">extend to its policies on monetary aid</a>. He argues that funds will be allocated more efficiently as they will no longer be channelled through the European Development Fund.</p>
<p><strong>How is the decision likely to affect the rand?</strong></p>
<p>The immediate aftermath of the announcement saw currency traders seeking refuge in safe havens such as the Yen and the US Dollar. These currencies strengthened while the pound hit record lows last seen during the <a href="http://www.investopedia.com/articles/forex/09/plaza-accord.asp">Plaza Accord</a>.</p>
<p>Naturally this also led to a significant decline in the currency of most emerging markets. Investors shed their pound denominated holdings. They sold anything associated with the currency while buying assets related as remotely
as possible to the pound.</p>
<p>South Africa was no exception. The strengthening dollar resulted in a sharp drop in the rand’s value to levels <a href="http://www.fin24.com/Markets/Currencies/brexit-sends-rand-diving-worse-than-nene-firing-20160624">lower</a> than those seen during last year’s ill-fated decision to reshuffle the finance ministry. The rand remains volatile and will do so as worldwide uncertainty prevails.</p>
<p>Unfortunately, the weakened and volatile rand does not bode well for South Africa. If it continues, the depreciation of the currency will put upward pressure on the inflation rate. Higher prices will weaken the economy further. A persistent decline in the rand may also reduce the country’s ability to service its foreign denominated debt.</p>
<p>The implication of this is that when ratings agencies reevaluate South Africa’s position later this year they may very well readjust <a href="https://theconversation.com/south-africa-is-on-a-cliff-edge-just-as-it-was-in-1985-53094">its credit rating to junk status</a>. If this happened international banks, among others, would be more reluctant to lend to South African entities. And existing credit lines <a href="https://theconversation.com/qanda-why-credit-rating-agencies-matter-for-developing-countries-51964">could also be withdrawn</a>. This is a development South Africa has been trying to prevent and most certainly cannot afford. </p>
<p><strong>Will there be any impact on South Africa’s trade relations with the UK?</strong></p>
<p>Trade is a cornerstone of South Africa’s relationship with the UK. It is the country’s seventh largest trading partner and the UK’s largest trading partner in Africa. This relationship is governed under the EU-Southern African Development Community (SADC) <a href="http://trade.ec.europa.eu/doclib/docs/2014/october/tradoc_152818.pdf">Economic Partnership Agreement</a>. South Africa also has several trade agreements with the 28-member EU member countries. But the UK is a highly profitable market for the country, generating exports to the value of nearly <a href="http://tradestats.thedti.gov.za/TableViewer/tableView.aspx">R42 billion in 2015</a>. This figure constitutes almost 20% of South Africa’s total exports to the <a href="http://tradestats.thedti.gov.za/TableViewer/tableView.aspx">EU</a>, making the UK one of the top four destinations for South African <a href="http://atlas.media.mit.edu/en/profile/country/zaf/">exports</a>.</p>
<p>In the very short term there are unlikely to be major changes to South Africa’s trade relations with the UK or even EU. This is because it could take two to four years before the UK officially exits. Nevertheless continued market uncertainty will see a definite decrease in exports of South African commodities to the UK as markets adjust to news of the exit. </p>
<p>But the medium term is going to be characterised by significant changes to South Africa’s trade relations with the UK, and, by the same token, with the remaining EU bloc. Professor Peter Sinclair at the University of Birmingham, who was opposed to Britain’s withdrawal from the EU, <a href="http://www.engineeringnews.co.za/article/south-africa-not-immune-from-brexit-fallout-economist-2016-06-02">believes</a> that because the UK constitutes such a substantial portion within the EU market, previous trade relations between South Africa and EU would certainly need to be re-evaluated. He believes that a more detailed renegotiation of trade relations, particularly with the UK, is inevitable.</p>
<p><strong>Will anybody benefit economically from this decision?</strong></p>
<p>The immediate reaction to the referendum was to move capital away from UK assets. Those holding dollar denominated assets emerged as the immediate beneficiaries. A brief period of weak foreign direct investment should be expected as the UK’s new relationship is renegotiated. But to assume that this capital flight will continue indefinitely is premature since the UK, despite not being a member of the EU, would still remain a safe haven for investors.</p>
<p>It may be surprising to some, but the benefactors of Brexit may well be the EU and UK. The creation and subsequent expansion of the EU delivered clear benefits for both Britain and continental Europe. However, <a href="http://www.andrewlilico.com/2016/05/16/why-the-rest-of-the-eu-would-grow-faster-post-brexit-and-how-that-would-benefit-the-uk/">according to British economist Andrew Lilico</a>, the success of the euro depends on the Eurozone becoming a more unified state. The UK’s refusal to join Europe’s common currency project was a clear obstacle to it achieving deeper European integration. Hence it is in fact <a href="http://www.andrewlilico.com/2016/05/16/why-the-rest-of-the-eu-would-grow-faster-post-brexit-and-how-that-would-benefit-the-uk/">in the EU’s best interest</a> that Britain voted to leave.</p><img src="https://counter.theconversation.com/content/61637/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Emerging market countries that rely heavily on commodity exports will be hit hardest by Britain’s decision to leave the European Union.Fatima Bhoola, Lecturer in Economics, University of the WitwatersrandNimisha Naik, Lecturer in Economics, Macroeconomics and Mathematical Economics, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/583782016-05-05T11:12:04Z2016-05-05T11:12:04ZA blueprint for bringing local economies to life in South Africa<figure><img src="https://images.theconversation.com/files/121225/original/image-20160504-17469-1qdlb6g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's local municipalities can do more to diversify their economies and push their products and services in high tech markets.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>South Africa needs a radical change in its approach to local economic development. Beyond social security and central government transfers, each district and local municipal area needs a clear plan to attract investment and create jobs. </p>
<p>These plans should address the two facets of economic sophistication. The first is to increase the range of products and services offered. Reliance on just one product or service should be reduced. The second is an emphasis on developing own technologies and processed goods. Selling a pig is one thing: developing and deploying technologies for processing pork products to increase value is another. </p>
<p>South Africa cannot create sustainable employment through its existing Expanded Public Works <a href="http://www.epwp.gov.za">Programmes</a>. These involve the central government funding temporary low skill jobs: filling potholes, construction, picking up trash, sweeping and even clerical work. The aim is to get people economically active. But these programmes are never linked to a process of skill formation that propels medium to high-tech industrial activity.</p>
<p>For any local economy to be resilient it must have the local skills – including those of an entrepreneurial nature – in sufficient quantities to support the creation of local industries. These can supply products and services to the surrounding towns, neighbouring provinces and countries. Simply put, to grow a local economy you must trade with the people who are closest to you geographically and are not too advanced <a href="http://www.uneca.org/publications/diversification-and-sophistication-lever-structural-transformation-north-african">technologically</a>. </p>
<h2>Scoping local market and regional opportunities</h2>
<p>One example is the Kenneth Kaunda District <a href="http://www.kaundadistrict.gov.za/">Muncipality</a> in South Africa’s North West province. This area used to be the country’s gold mining powerhouse. Today it boasts some of the highest <a href="http://www.statssa.gov.za/publications/P02114.2/P02114.22015.pdf">unemployment rates</a>. Yet it houses the University of Northwest’s Potchefstroom campus, which has substantial capability in engineering research and <a href="http://www.nwu.ac.za/fe/engineering">development</a>. The mining industry and its value chain, although in rapid decline, leaves behind droves of artisans, technicians and engineers. These people could be harnessed and refocused into high-tech activities that support automation and mechanisation in other industries. This includes agriculture, agro-processing and the value chain of mining areas in the neighbouring Platinum district, Northern Cape, Botswana and Namibia.</p>
<p>The first step would be to consider which high value services and products can be supplied to these areas. The Platinum district relies on platinum mining and migrant labour. Botswana and Namibia rely on diamonds and low-tech beef farming.</p>
<p>Immediately, the Kenneth Kaunda District can change its local economic development focus to stimulate local entrepreneurs who can provide medium to high-tech services and technologies that support the value chains of these neighbouring industries. It can also help its own residents to participate in emerging knowledge-based industries in partnership with foreign technology agencies and investors. </p>
<h2>Opportunities beyond mining</h2>
<p>There are plenty of opportunities beyond the world of mining and its related industries. For example, the <a href="http://www.ul.ac.za/">University of Limpopo</a> in the Capricon District, has very good optometry skills. It could offer an opportunity to create an industry around the treatment of eyesight and optics manufacturing. Those services and products could be exported to the whole of southern Africa.</p>
<p>At the moment Malawi is leading the way Southwards in the provision of optometry <a href="http://www.ecoo.info/projects-and-eu-affairs/optometry-giving-sight/">services</a>. The opportunity I’m describing here is not just about training and deploying optometrists. It’s about developing the entire value and supply chain around correcting and improving human vision. This includes infrastructure, manufacturing various quality and cheap optical products, logistics and developing service delivery points. The University of Limpopo can be at the centre of it all just like <a href="http://news.mit.edu/2015/report-entrepreneurial-impact-1209">Massachusetts Institute of Technology</a> is at the centre of similar initiatives in the US.</p>
<h2>A strategy for market leadership</h2>
<p>A successful strategy entails trading first with economies that are either below, on par or slightly ahead technologically. This means the local municipality’s economic development office must seek to integrate local companies in both value and supply chains of other high-tech neighbours. This would generate medium to long-term revenues. It would also create sustainable human and finance capital and increase chances for diversification.</p>
<p>These ideas have been used at a more advanced level by South Korea in dealing with the US in the Samsung versus Apple competition and collaboration. Samsung started out making components and phones for Apple. It eventually became a realistic contender for <a href="http://www.inquisitr.com/2783888/apples-market-share-is-dwindling-samsungs-smartphone-sales-increase-in-the-u-s/">market leadership</a> against Apple in its home market, the US.</p>
<p>So a company based in the North West province would be well advised to tackle the opportunities presented by its immediate neighbours, both technologically and geographically. The stable revenues, skills, capital and experience gained in these more rural settings could later be used to catapult to more demanding markets like the urban hub of <a href="http://www.sahistory.org.za/places/gauteng">Gauteng</a> and beyond.</p><img src="https://counter.theconversation.com/content/58378/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sandile Swana does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Through developing their technological skills, South Africa’s local municipalities can increase their capacity to compete with markets in neighbouring countries.Sandile Swana, Lecturer at Wits Business School, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/548652016-03-14T22:52:25Z2016-03-14T22:52:25ZFrom emerging to submerging: the debt burden killing off the age of the BRICS<figure><img src="https://images.theconversation.com/files/114402/original/image-20160309-22120-1bfn7dl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cracks are showing up in the growth success stories of emerging markets like Brazil.</span> <span class="attribution"><span class="source">AK Rockefeller/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Over the <a href="http://www.jstor.org/stable/3990061?seq=1#page_scan_tab_contents">past three decades</a>, global interest in emerging markets has soared, and when the financial crisis of 2008 hit, emerging markets were largely thought to be the <a href="http://cuts-international.org/brics-tern/pdf/BRICS_and_the_World_Order-A_Beginners_Guide.pdf">next engine of global growth</a>.</p>
<p>Insofar as <a href="https://www.credit-suisse.com/pwp/am/downloads/marketing/credit_suisse_lux_emerging_market_corporate_bond_fund_conference_call_may_2014.pdf">they have complied</a> with this investor aspiration over the past few decades, they have also adopted a negative aspect of the developed economies to which they aspired: corporate <a href="https://www.imf.org/external/pubs/ft/gfsr/2015/02/pdf/c3_v2.pdf">leverage</a>. As the corporate <a href="http://i-mba.dmst.aueb.gr/html/det/HBS_Winning_in_the_Emerging_Markets__5954.pdf#page=5">emerging giants</a> of the developing world have grown, so too have they issued debt at <a href="http://www.bloomberg.com/news/articles/2015-06-08/these-charts-show-the-astounding-growth-in-emerging-market-corporate-bonds">disproportionately faster</a> rates.</p>
<p>Emerging markets are now <a href="http://www.bloombergview.com/articles/2016-01-25/why-emerging-markets-freak-investors-out">saddled with more debt than ever before</a>, but in particular, the debt assumed by the <a href="http://www.bloomberg.com/news/articles/2015-06-08/these-charts-show-the-astounding-growth-in-emerging-market-corporate-bonds">largest corporations</a> in emerging markets has swelled to unforeseen levels.</p>
<p>This isn’t a trivial issue in global finance: in 2014 corporate emerging market bonds as an asset class <a href="https://www.tiaa-cref.org/public/pdf/Emerging_Mkt_Corp_Bond_White_Paper.pdf">represented more than</a> US$1.6 Trillion.</p>
<p>The market is beginning to grow weary of this additional leverage-induced risk, which is why the jitters for emerging markets are <a href="http://www.zerohedge.com/news/2016-01-20/emerging-markets-it-now-worse-asian-financial-crisis">now worse than</a> those during the Asian financial crisis. They have received a painful correction over the past month that is raising intense worries among investors.</p>
<p>The proportion of emerging market debt incurred by corporations rather than by sovereign governments has grown <a href="https://www.credit-suisse.com/pwp/am/downloads/marketing/credit_suisse_lux_emerging_market_corporate_bond_fund_conference_call_may_2014.pdf">at an astonishing rate</a> of more than 25% annually. By comparison, the overall emerging sovereign bonds grew by 10%. As a result, whereas the corporate component was a mere 15% of the size of sovereign emerging market debt in 1998, by 2014 it had swollen to more than 70%.</p>
<p>Furthermore, the ramp-up in corporate leverage has <a href="https://www.imf.org/external/pubs/ft/wp/2015/wp15148.pdf">not been uniform</a> across emerging markets, with corporates in the larger economies being the hungriest, including China, India, Brazil and Turkey.</p>
<p>The global monetary conditions had in recent years been <a href="http://www.imf.org/external/pubs/ft/survey/so/2015/POL092915B.htm">very favourable</a> towards corporate borrowing in emerging markets for a couple of reasons. First, as <a href="http://www.bis.org/speeches/sp121116.htm">monetary policy</a> in developed countries was loose, the central banks of emerging countries were setting lower policy rates as well in order to avoid pressures on their currency to appreciate. Second, loose monetary policy in developed countries also led to investors pouring money into emerging markets in the “<a href="https://www.imf.org/external/pubs/ft/wp/2012/wp12198.pdf">hunger for yield</a>”.</p>
<p><a href="https://www.imf.org/external/pubs/ft/wp/2010/wp1026.pdf">Leading research</a> on emerging market corporate debt finds that “global developments” (international crises) do have an important effect on the credit spreads and that “country factors remain important in asset pricing” even as emerging market corporations list themselves internationally. <a href="https://www.imf.org/external/pubs/ft/gfsr/2015/02/pdf/c3_v2.pdf">Similar literature</a> has already raised the question of whether leverage among emerging market corporates isn’t cause for concern.</p>
<p><a href="http://ssrn.com/abstract=2730622">My ongoing research</a> examines the impact of corporate leverage in emerging markets from a slightly different perspective: the difficulties for legislative fiscal institutions in oversight of debt. If corporations are larger holders of emerging market debt, how does the transparency and budget oversight capacity of legislatures in these countries change? Many emerging markets have undertaken governance reforms over the past decade to try to make their national budgets accountable. This has helped to improve political oversight of debt and make their fiscal positions more open and manageable. </p>
<p>However, the problem arises when debt is held by privately listed corporations, which have not been part of the reforms in emerging markets towards higher disclosure. Does this worsen the risks to fiscal sustainability and democracy if corporations amass debt on their balance sheets? How would national oversight bodies even know? These are some the questions my ongoing research attempts to address.</p>
<h2>Submerging markets?</h2>
<p>The current situation is evoking fears among investors in the <a href="http://i-mba.dmst.aueb.gr/html/det/HBS_Winning_in_the_Emerging_Markets__5954.pdf#page=5">emerging market asset classes</a>: in adopting the negative traits in tandem with the positive, which is to say the leverage in tandem with the best practices of global business, emerging market corporates are left extremely vulnerable to capital outflows.</p>
<p>This is exacerbated by the increasing attractiveness of US as a destination to park money while the Federal Reserve <a href="https://theconversation.com/why-rising-interest-rates-are-bad-news-for-emerging-markets-51431">raises interest rates</a> and thus enhances the price of storing money in American dollars.</p>
<p>Corporations in emerging markets cannot get away with the same balance sheet risks as developed-market corporations. They must therefore start to exercise greater caution vis-à-vis their balance sheets. Some of the noteworthy policy <a href="https://www.imf.org/external/pubs/ft/gfsr/2015/02/pdf/c3_v2.pdf">options prescribed</a> by the experts include: <a href="http://www.imf.org/external/pubs/ft/survey/so/2015/POL092915B.htm">monitoring</a> vulnerable and systemically important firms, improving the transparency of data on corporate sector finances, turning to <a href="http://www.dnb.nl/binaries/267%20-%20Macroprudential_tcm46-243120.pdf">macro-and micro-prudential policies</a>, and reforming insolvency regimes.</p>
<p>Experts on the more pessimistic end say the emerging market sell-off might <a href="http://www.cnbc.com/2015/10/12/is-em-turmoil-the-third-wave-of-the-financial-crisis-goldman-thinks-so.html">portend the “third wave”</a> of the 2008 economic crisis (following the American and European waves), and that the age of BRICs might be over <a href="https://theconversation.com/does-the-global-stock-market-sell-off-signal-the-bric-age-is-already-over-46550">before it really began</a>.</p><img src="https://counter.theconversation.com/content/54865/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Usman W. Chohan does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Debt is the reason jitters for emerging markets are now worse than during the Asian financial crisis.Usman W. Chohan, Doctoral Candidate, Policy Reform and Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/525852015-12-21T17:02:59Z2015-12-21T17:02:59ZHow plummeting prices are spurring reform in oil producing countries<p>It has been a turbulent year for oil. Prices were strong in summer 2014, before plummeting in the <a href="http://www.tradingeconomics.com/commodity/crude-oil">second half of that year</a>. After a modest stabilisation in early 2015, they dropped even further and are now more than two thirds lower than in <a href="http://www.tradingeconomics.com/commodity/crude-oil">summer 2014</a> – as the graph below shows. It’s bad news for oil producers but is forcing some, at least, to reform their economies as a result.</p>
<p>Russia is losing an estimated US$2 billion in revenues <a href="http://www.bbc.com/news/business-29643612">for every dollar fall in the oil price</a>. Its economy is heavily dependent on energy revenues, which account for <a href="http://dupress.com/articles/global-economic-outlook-q2-2015-russia/">50% of its federal budget revenues</a>. Even a dramatic interest rate hike to 17% has not helped the steep devaluation of the ruble, the stock-market drop or the amount of money leaving the country.</p>
<p>The situation is even worse for the world’s largest exporter of oil, Saudi Arabia, which is expected to end the year with a deficit of $150 billion – about 20% of its GDP and <a href="http://www.wsj.com/articles/oils-drop-puts-spotlight-on-saudi-arabia-1440459727">the largest in its history</a>. It has already started cutting project budgets and military acquisitions as a result. It is <a href="http://www.independent.co.uk/news/world/middle-east/six-gulf-states-will-start-taxing-people-for-the-first-time-a6768206.html">even introducing VAT</a> for the first time. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"678833280037355520"}"></div></p>
<p>The severity of falling oil prices on Saudi Arabia’s economy can also be seen in its decision to open its stock market to foreigners <a href="http://www.bbc.co.uk/news/business-33132166">in June 2015</a>. It has also relaxed rules to allow qualified investors direct access to stocks <a href="http://www.bloomberg.com/news/articles/2015-10-28/oil-below-50-signals-saudi-stocks-can-t-defy-history-for-long">to reduce the economy’s dependence on crude</a>. </p>
<p>In Venezuela, the economy was <a href="http://www.ibtimes.com/venezuelas-economy-will-continue-suffer-2014-analysts-predict-further-recession-1535334">already in a shambles</a> when oil was at $120 a barrel. And in Malaysia the government is realigning its budget <a href="http://www.straitstimes.com/asia/se-asia/malaysia-plans-more-subsidy-cuts">by removing gasoline and diesel subsidies</a>. Similar steps were taken by governments across the world <a href="http://www.nytimes.com/2015/02/04/business/low-energy-prices-offer-opening-for-subsidy-cuts.html?_r=0">to remove oil subsidies</a> – Indonesia abandoned a four-decade-old policy of subsidising gasoline while India also stopped subsidising diesel and raised fuel taxes.</p>
<p>Of course, falling oil prices are not bad for all. They increase households’ scope for consumption and at the same time decrease companies’ production and transportation costs, which normally leads to higher profits and increased investments. Rapidly developing economies such as <a href="http://www.cnbc.com/2015/12/09/oil-prices-to-benefit-asian-ems-refining-hubs.html">China and India</a>, which are net importers of oil, are experiencing the most obvious immediate benefits. They are able to use savings on oil imports to reduce their trade deficit, improve government budgets, reduce inflation and redistribute money to infrastructure projects.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/106815/original/image-20151221-27890-lm899p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/106815/original/image-20151221-27890-lm899p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=349&fit=crop&dpr=1 600w, https://images.theconversation.com/files/106815/original/image-20151221-27890-lm899p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=349&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/106815/original/image-20151221-27890-lm899p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=349&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/106815/original/image-20151221-27890-lm899p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=439&fit=crop&dpr=1 754w, https://images.theconversation.com/files/106815/original/image-20151221-27890-lm899p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=439&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/106815/original/image-20151221-27890-lm899p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=439&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Out of pocket: drivers in India will no longer benefit from government diesel subsidies.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/figar/395267474/in/photolist-5Ja3sq-4mqQTt-7UWoWg-r9WEP-4fh9uc-8SzK7Y-6kQgFT-6kWgMf-92ZpUf-egxPHt-5V4CbP-7MdXJa-7Kc12R-5V92Ab-d8uDoC-7GoCEX-ANJ4L-7KXGEG-7KTJi2-6HGqz-A8iac-A8hYw-9MuMhR-6HGPh-6HGuU-JsYhF-AVRfs-ooQzA3-7xVxsH-eBUPF-tGepT-6KrKwt-cwFxCJ-cwFyeh-8uuDz2-8QLEHZ-8SRMDP-eBmaEo-buPgi7-7SuUXc-7Rj6ga-bHJ2Ng-4ui5gz-ir7pV-51ZjVd-dpMPaE-e4t3XM-57RyRi-6345V2-5Ztvhk">Steve/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>Blessing in disguise</h2>
<p>This is not the end of the rout. OPEC’s commitment to glutting the market, along with the prospect of US and Iranian supplies joining it, has sparked predictions that prices <a href="http://www.bloomberg.com/news/articles/2015-12-14/opec-history-shows-it-can-deal-even-bigger-blows-to-oil-price">could drop to $20 a barrel</a>. OPEC recently <a href="http://www.marketwatch.com/story/opec-hikes-production-quota-to-315-million-barrels-a-day-reuters-2015-12-04-991123">raised its production ceiling</a> to 31.5m from 30m barrels a day. Iran, meanwhile, is gearing up to pump an extra <a href="http://uk.reuters.com/article/uk-iran-nuclear-oil-idUKKCN0SD11Z20151019">500,000 barrels per day onto the market</a> as soon as sanctions are eased, which could be within months. And the US Congress has just <a href="http://news.yahoo.com/house-passes-bill-freeing-u-oil-exports-senate-161742293.html">lifted the country’s 40-year export ban</a>. </p>
<p>Nations that are dependent on oil revenues will therefore require immediate economic and financial reforms in 2016 to balance their budgets. One method being adopted by many Islamic states is the issuing of sharia law-approved bonds, known as sukuk. These bonds can be used to finance big projects such as the building of important infrastructure, including airports, and developing other natural resources. </p>
<p>Malaysia has been leading the way on this, banking on its burgeoning Islamic finance industry to reduce its oil earnings shortfall. It is planning to sell $1 billion to $1.5 billion of sovereign credit in 2016 <a href="http://www.bloomberg.com/news/articles/2015-12-16/oil-squeezed-malaysia-seen-selling-sukuk-as-1-2-billion-matures">on top of global Islamic bonds this year</a>. </p>
<p>The Saudi Arabian government is similarly depending on both conventional sovereign bonds and sukuk to finance its budget deficit. In 2015, the kingdom issued sovereign bonds worth around 100 billion riyals ($26.5 billion) <a href="http://goo.gl/sZ8YXg">to ease the shortfall</a>. It’s all part of a $130 billion spending plan <a href="http://www.bloomberg.com/news/articles/2015-12-16/oil-squeezed-malaysia-seen-selling-sukuk-as-1-2-billion-matures">to diversify its economy away from oil</a>. But to increase its share of the Islamic finance market, it will need to follow Malaysia’s lead in making the regulations clear for trading sukuk. </p>
<p>Many more oil exporters are turning to sukuk bonds to cover their deficits, including Bahrain, Oman, Qatar and Nigeria, Africa’s largest oil producer. The sukuk bond market is forecast <a href="http://www.albawaba.com/business/sukuk-market-forecasted-grow-15-percent-2016-777836">to grow by 15% in 2016</a> as a result.</p>
<p>The emergence of sukuk has been a significant development in Islamic capital markets for many oil rich nations in the Middle East and South East Asia. Funds raised through sukuk can be allocated in an efficient and transparent way. Sukuk issuance has proven its resilience during recent periods of turbulence <a href="http://aibim.com/dev/index.php/newsroom/global-news-aibim/146-sukuk-in-the-south-asian-stock-market">in global capital markets</a> and it is showing its potential to act as a cushion for falling oil prices for oil rich countries.</p><img src="https://counter.theconversation.com/content/52585/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nafis Alam does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Oil exporters have had a tough year … but there is hope for economic reform via the Islamic bond market.Nafis Alam, Associate Professor of Finance, Director- Centre for Islamic Business and Finance Research (CIBFR), University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/514312015-12-15T15:20:40Z2015-12-15T15:20:40ZWhy rising interest rates are bad news for emerging markets<p>All eyes are on the US Federal Reserve which is <a href="https://next.ft.com/content/52ebe58c-a275-11e5-bc70-7ff6d4fd203a">expected to raise interest rates</a> for the first time in nearly a decade. Since the financial crisis in 2008, the US, along with the eurozone, UK and Japan have held their interest rates <a href="https://theconversation.com/what-low-interest-rates-have-done-for-the-world-and-the-likely-effects-of-a-rise-51928">close to zero</a> and used quantitative easing to flood financial institutions with capital. </p>
<p>This two-pronged approach to reviving economic growth has led to a colossal amount of money being injected into the global financial system, offered at next to nothing. While the aim has been to revitalise the consumer spending needed to boost the economies of advanced economies, developing countries are poised to be the victims of these policies.</p>
<p>More than US$12 trillion has been injected into the global financial system <a href="http://www.independent.co.uk/news/business/comment/interest-rates-it-s-a-race-to-the-bottom-but-still-the-only-way-is-down-a6750851.html">since 2008</a> all in the name of stabilising the global economy. The injection of hot money at this pace and quantity is nothing more than a false economy, and could sooner rather than later trigger massive economic challenges in emerging economies. </p>
<p>Investors have been able to borrow significant sums for very little and direct the proceeds into high-yielding assets in developing countries. A fire hose of cash has poured into investments, financing infrastructure and other projects. But the massive surge in the supply of cheap credit has created unstable bubbles. </p>
<p>As the following graph shows, key emerging economies such as Ghana, Nigeria, Argentina, Brazil, Thailand and Vietnam have seen dramatic increases in their debt stock. And they are not alone. World Bank data shows they are among 80 emerging markets whose debt has increased significantly <a href="http://data.worldbank.org/indicator/DT.DOD.DECT.CD">since the financial crisis</a>.</p>
<iframe src="https://datawrapper.dwcdn.net/xIUWK/1/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="400"></iframe>
<p>A number of others such as Mongolia, Mauritius and Papua New Guinea saw their debt stock increase by close to 1,000% in the five years following the 2008 financial crisis. These are all low income economies and so their ability to absorb economic shocks is minimal. If (and when) foreign investment is pulled out, they will suffer. </p>
<iframe src="https://charts.datawrapper.de/iKSKI/index.html" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="400"></iframe>
<h2>Bubble bursting</h2>
<p>If investment is withdrawn – as is likely when interest rates rise – this will leave a gaping hole in the financial system of the recipient countries. Investment in everything from infrastructure to health, education and manufacturing in these countries would be left chronically underfunded, as a colossal amount of money would need to be channelled towards debt-servicing for many years to come. </p>
<p>Not only this, an increase in interest rates could trigger a massive capital outflow from developing countries to where the return on investments has suddenly increased. This is likely to cause a massive shortfall in market capitalisation and burble-busting in the developing countries affected. </p>
<p>To fill the sudden shortfall in capital, the developing countries affected could turn to public or private lenders for urgent financial assistance. But this will increase their debt burden even further.</p>
<p>Most of the debt stocks owed by these developing countries are denominated in foreign currencies, with approximately <a href="http://www.bis.org/publ/work483.pdf">80% in US dollars</a>. As the US raises interest rates, the US dollar <a href="http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/foreign-exchange-parity-influences.asp">will strengthen</a>, which will significantly heighten the debt-servicing cost for countries paying back their debts in that currency. Given the nature of their fragile economies, developing countries including Nigeria, Vietnam, Ethiopia and Ghana are most likely to be vulnerable and may have to resort to further borrowing and a fire sale of valuable assets in order to meet their debt obligations.</p>
<p>Exchange rate uncertainty could also trigger a series of credit events, which are capable of hurting the countries’ credit rating. This could lead to margin calls and a review of the existing terms and conditions of lending. And this will only exacerbate the debt burden of the countries concerned even further. </p>
<p>Even a small percentage increase in interest rates is likely to cause shock waves across developing countries. It is a challenging time for emerging markets right now, with commodities in a prolonged slump, and with both China and the eurozone (other key investors) facing economic slowdown. </p>
<p>With an interest rate hike marking the end of cheap credit, this will cause a gaping hole in developing economies’ capital markets. The outflow of capital from their markets will in turn cause their currencies to depreciate further, while the US dollar will strengthen as money flows in. This could lead to even more serious and prolonged debt-servicing problems.</p><img src="https://counter.theconversation.com/content/51431/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ola Sholarin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Monetary policy since the financial crisis has flooded the market with cheap capital. A rate rise will reverse this and put developing economies at risk.Ola Sholarin, Senior Lecturer, Quantitative and Financial Economics, University of WestminsterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/506072015-11-13T15:43:21Z2015-11-13T15:43:21ZModi in London: ‘Two great nations, one glorious future’ – just don’t mention the past<figure><img src="https://images.theconversation.com/files/101810/original/image-20151113-10407-iqqlr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When do we head to Wembley?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/number10gov/22778834660/in/photolist-AXCRUG-AmSLXv-AnhC15-B1EiGi-A3QhU4-AYxfrC-AXFYqB-A3Mt4Z-A3F8wK-AZtsph-AGTtWC-AZYvan-AXXcVC-B1hc8k-B2sCzM-AnhT2C-AZvoUF-AY4R9d-AXcUeb-A4auY7-AZHYRK-A3tpMW-AXgoJ1-AmrK9S-AYo4kC-AZyNeR-B1Efmp-AnGe71-A4Lx1c-B1EeLr-Aq1cCn-Aphmwi-AmqTBW-AGMcpb-AoNuLF-B1rxcR-Amufjk-AZstVi-AYgEwd-AXa6hQ-AnBmtz-B2ztN4-AYxZNC-A4ChHG">Number 10</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Wembley, the Red Arrows, fireworks and an “Olympic-style” welcome. All this for Narendra Modi, a man who, from 2002-2012, was <a href="http://www.theguardian.com/world/2012/oct/22/uk-ends-boycott-narendra-modi">barred from the UK</a> for human rights abuses. So how do we explain such a turnaround?</p>
<p>The official reason that the ban on Modi was lifted in 2012 was that he had been <a href="http://www.theguardian.com/world/2012/oct/22/uk-ends-boycott-narendra-modi">legally exonerated</a> from any wrong-doing in an anti-Muslim pogrom in Gujarat that left more than 1,000 people dead. But with Modi in 2012 already expected to become prime minister of one of the world’s great emerging powers, there were clearly other considerations at play. </p>
<p>One unnamed British official in Delhi conceded to The Guardian that lifting the ban would <a href="http://www.theguardian.com/world/2012/oct/22/uk-ends-boycott-narendra-modi">“broaden and advance commercial interests”</a> . There were, the official warned, “opportunity costs to not engaging”. </p>
<p>As the theme of the reception – “Two Great Nations. One Glorious Future” – implies, Modi has clearly been completely rehabilitated in Britain’s official eyes. The rhetoric helps to erase the memory of violence which has followed Modi’s career and which has left a troubling legacy, as testified by the <a href="http://www.theguardian.com/world/2015/oct/03/inside-bishari-indian-village-where-mob-killed-man-for-eating-beef">horrific acts of violence perpetrated</a> against Muslims and other marginal groups in India by supporters of Modi’s Bharatiya Janata Party, the BJP. This has continued since the BJP took power last year and <a href="http://www.nytimes.com/2015/10/18/world/asia/india-writers-return-awards-to-protest-government-silence-on-violence.html?_r=0">Modi has done nothing</a> to halt or condemn them. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=421&fit=crop&dpr=1 600w, https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=421&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=421&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=529&fit=crop&dpr=1 754w, https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=529&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/101830/original/image-20151113-10438-13muq3d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=529&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Modi at a BJP campaign rally.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/aljazeeraenglish/3479448201/in/photolist-m2paFe-m2pMTA-m2o52a-m2qhWX-m2rdqt-m2rdrF-m2nXw8-m2nYE9-m2oZeK-m2nYJY-m2rzdS-m2nSqK-m2odTi-m2nYKj-m2qxhi-m2sLUW-m2BBE5-m2oNMF-m2sLSw-m2sLVh-m2nYKQ-m2nYKE-m2qYmh-m2sLVs-m2qbPW-m2nMDc-m2qYiS-m2sLSb-m2sLSm-m2nYK9-m2oZfg-6it5AR-kMhZJZ-6it5Je-kMpEHY">Al Jazeera English</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Of course, violence in India is not an unfamiliar concept to Modi’s hosts. And in order to truly understand the reason for his rehabilitation in the UK we need to consider not only Modi’s inglorious past, but Britain’s. </p>
<p>Framing India and Britain simply as two great nations with a “glorious future” conveniently sidesteps the fact that Britain conquered and then colonised the Indian subcontinent; a colonisation that depended on violence. The exoneration of Modi and his celebratory visit to the UK reveal less about the ways in which Modi has managed to reinvent his past than they do about the way Britain has. </p>
<h2>Rogue state</h2>
<p>In fact, Britain has skilfully employed the same style of rhetoric to silence the violence of its colonial past. Crucially, that has seen the responsibility for endemic, systemic violence transitioned onto what <a href="https://www.dukeupress.edu/organizing-empire/index.html">English professor Purnima Bose refers to</a> as “rogue colonial individuals”.</p>
<p>A rogue colonial individual is an official who is essentially criminalised for engaging in excessive brutality against “natives” as a means of distancing the colonial regime from its violence. Bose uses the example of General Reginald Dyer and the <a href="http://www.history.com/this-day-in-history/the-amritsar-massacre">Amritsar massacre</a> to illustrate how this process works. </p>
<p>On April 13, 1919, Dyer <a href="https://www.dukeupress.edu/organizing-empire/index.html">ordered his soldiers</a> to fire on an unarmed crowd of between 10,000 and 20,000 unarmed people who had gathered in an enclosed compound known as Jallianwala Bagh, in the Punjabi city of Amritsar. They were holding a protest meeting against <a href="https://www.dukeupress.edu/organizing-empire/index.html">the Rowlatt Act</a>, which allowed for detention without trial. </p>
<p>Dyer gave no warning before his troops began firing a hail of bullets that lasted ten minutes which only ceased when they ran out of ammunition. Carnage followed and, <a href="https://archive.org/details/reportofcommissi01indi">according to one estimate</a>, there was a death toll of more than a thousand people, with 1,200 others wounded. </p>
<h2>Convenient silence</h2>
<p>In India, Dyer rapidly acquired the epithet “the Butcher of Amritsar”. The main political organ of anti-colonial opposition in India, the Indian National Congress, referred to him in its report on the massacre as “depraved” and his actions a “crime against humanity”. </p>
<p>In Britain reaction to Dyer’s actions was mixed. For supporters, <a href="http://www.telegraphindia.com/1130221/jsp/frontpage/story_16587696.jsp#.Ugh5LRZXTGA">such as Rudyard Kipling</a>, Dyer was “the man who saved India” by staving off a rebellion, even though the official investigation into the massacre concluded there were no signs of this erupting. Opponents, on the other hand, regarded Dyer’s behaviour as barbaric, exceptional and aberrant. The secretary of state for India, Edwin Montagu, <a href="https://www.dukeupress.edu/organizing-empire/index.html">even accused Dyer</a> of operating under a “doctrine of terrorism”.</p>
<p>But in rendering colonial violence as something anomalous, perpetrated by a rogue individual in a random act, rather than a central element of colonial rule, such rhetoric served ultimately to erase the endemic nature of colonial violence. It usefully obscured the reality, as <a href="http://www.printsasia.co.uk/book/jallianwala-bagh-commemoration-volume-and-amritsar-and-our-duty-to-india-devinder-kumar-8173803889">one critic observed</a> in the parliamentary debates on Dyer, that Britain held India “by force – undoubtedly by force”. Dyer’s actions were the physical manifestation of the threat of violence which underscored colonial rule. </p>
<p>We can also view Modi as a “rogue individual”. Or, significantly, as a “rogue post-colonial individual”, whose behaviour had been singled out by the British government for its violation of civilised norms. But unlike Dyer, Modi is the central figure in the commercial and political interests now at play between India and the UK. While “the Butcher of Amritsar” was a useful device to draw a veil over endemic colonial violence, it now serves Britain to rehabilitate Modi, and draw a veil over systemic post-colonial violence too. Modi’s rehabilitation is simply another useful act of silencing.</p><img src="https://counter.theconversation.com/content/50607/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Deana Heath does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>How India’s prime minister secured a rehabilitation from a legacy of post-colonial violence.Deana Heath, Senior Lecturer in Indian and Colonial History, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/491912015-10-21T05:19:48Z2015-10-21T05:19:48ZFrom Chinese milk to Indian chocolate, behind the world’s fast-expanding markets<figure><img src="https://images.theconversation.com/files/99032/original/image-20151020-32258-b70hl3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Got milk? China joins the lactose lovers.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/gwendolyn_stansbury/17405540533/in/photolist-7ayepS-7hDWRe-dTf1tw-bTwp2k-mksTaH-rWuR9T-sw4WNr-4zugmn-o2iDUJ-ammeX7-9AkZ13-5AA2Yw-aarWBx-ietpvH-dZaiX4-hLB1BA-aSLHmg-dnKNjq-eCC1YY-i9nFR1-9kFZh4-apjV7y-gtpNHW-zWkVW6-iDvgsy-dxs9sa-6weqvG-bZowLy-vwgTaU-4oTK6W-3B8oi-9Zmrds-7tPYD6-iBtVZh-aJPxkD-5EbXEc-4mA8TW-b6iCaP-iAiHE5-5EgfEC-4Hx9hL-Hg8Wo-ztgcK-aMTW3v-fDSFLi-4dcmqU-wQV3N-6bnGLt-6L4jau-5NQrHY">Gwendolyn Stansbury</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>It’s time to think small when it comes to identifying growth areas in the global economy.</p>
<p>For the past 15 years, since the BRIC acronym was coined for Brazil, Russia, India and China, the world’s biggest emerging economies have been the focus for discussion on growth opportunities outside of western developed markets. But with <a href="http://www.bbc.co.uk/news/business-34550759">a slowdown in China</a> and a <a href="http://www.ft.com/cms/s/0/7f923140-6279-11e5-97e9-7f0bf5e7177b.html">credit downgrade for Brazil</a>, it is getting harder to view the BRICs story as a simple, grand narrative of gilded opportunity for investors and businesses alike. </p>
<p>Those concerns are not confined to China and Brazil. <a href="http://www.reuters.com/article/2015/10/03/russia-economy-gdp-idUSR4N11R01X20151003">Russia’s economy is contracting this year</a> due to low energy prices; India’s economic recovery too has been <a href="http://blogs.wsj.com/indiarealtime/2015/10/07/what-the-imf-said-about-indias-growth-outlook/">slower than expected</a>.</p>
<p>But these nations are not a busted flush; we just have to adjust our thinking. Real growth can be found in fast-expanding markets within those countries. It is a subject we have examined recently in a paper <a href="http://onlinelibrary.wiley.com/doi/10.1002/tie.21738/abstract">published in the Thunderbird International Business Review</a>, seeking to understand these markets which transcend sectors as well as nations, and sometimes even confound conventional wisdom.</p>
<h2>Milking it</h2>
<p>While BRICs was useful shorthand for showing that a few populous countries would reshape the global economy this century, this macroeconomic lure has in fact been a microeconomic disappointment for some big companies. Home Depot had an emblematic experience, entering China in 2006 and <a href="http://www.wsj.com/articles/SB10000872396390444433504577651072911154602">pulling out completely in 2012</a>. It didn’t anticipate that the do-it-yourself culture of the US wouldn’t translate into a country with abundant and relatively cheap labourers.</p>
<p>It is a story that illustrates the difficulty in using a top-down approach when operating in emerging markets. So rather than only taking a bird’s-eye view of such populous countries, it is useful to also take a ground-up look at where highly specific opportunities lie in BRIC countries and beyond.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/99001/original/image-20151020-32258-1dzcr51.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The heat is on. Fast expanding markets take flight.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/billnwmsu/4865546739/in/photolist-8pXcwT-SA29P-a5a1pC-4VSHKB-8pXcBK-9RrVfh-am29z6-8CKHNF-fn1NMq-2fZnnf-2Tcfkx-frUPZ5-gVK9K-9MczU8-x8z3RA-82kgpj-x9A28q-2NvbVn-6XAb7z-dnhWPC-2KR2Z1-38tLXy-38tCF1-2TccP4-2Tce54-6icsEc-RhERj-igetHg-4GGUD8-oTgahW-nWEnM-7MX3Pt-e9DFvp-oouvmM-isXw3P-iDtYbZ-a2LNiG-8q1na7-8q1mXS-e9DFka-2fUYRB-faNCVb-p229Ki-2f6voB-8onDhn-6En2kb-8GSdyT-smiR8P-2uypG-8pXb5X">Will Murphy</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>In China, one of these fast-expanding markets is milk production and consumption. More people have been paying close attention to their health and to the role that milk can play in their basic diet. Other factors have included an upgrade to the supply chain, a relaxation of the country’s one-child policy and the continued westernisation of China as companies such as Starbucks grow popular.</p>
<p>From 2000 to 2006 alone, China’s raw milk consumption nearly quadrupled, and the country is now the world’s third-largest producer behind the US and India as agricultural infrastructure has improved.</p>
<h2>Choc-alert</h2>
<p>In India, fast-expanding markets include <a href="http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Cheese%20Demand%20Rising%20-%20New%20Market%20Opportunities_New%20Delhi_India_9-30-2015.pdf">Western-style cheese</a>, which saw sales growth of nearly 200% from 2008-2013; <a href="http://mnre.gov.in/schemes/decentralized-systems/solar-systems/solar-water-heatres-air-heating-systems/">solar water heaters</a>, with the area in square metres of instalments almost doubling between 2009 and 2011; and the <a href="http://www.ktvn.com/story/30151602/india-chocolate-market-projected-to-surpass-us-17-billion-in-2020-says-techsci-research">chocolate industry</a> may treble this year to more than $2 billion, as a rise in sugar prices has made traditional sweets more expensive.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=467&fit=crop&dpr=1 754w, https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=467&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/98892/original/image-20151019-23267-drgqf5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=467&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Object of desire. In Liectenstein at least.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/124018523@N04/14848998042/in/photolist-oC9ZMC-H7C5e-5G5aw-s9aTjd-nUGg36-kTwbMP-5eS1k-4RDmgY-itZych-bF8MR-71UaqX-6VAhbC-7AS3iG-aiwvq5-5NQcCU-3Mctsz-6beqFb-6FDLVS-qvuopQ-8HP8fh-4mmNU3-73BEhh-dGoDb-6mMsx9-e8NbWJ-5W3Pp5-hgzA2X-cCwjVb-5p9G2-4xxhJ7-yD7Jua-iAvcY-6MsVK8-wpXxW-9pBiJX-jd9onD-JndG9-aNErz-ebNwN8-bdKh4-cmNTeb-arbeBi-A3AgU-w9f9Du-aCdTMv-778vmT-tcUefF-3exgsa-byTNZT-vgeeF8">Partha S. Sahana</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Beyond BRICs, fast-expanding markets include mobile money transfers in Kenya and video game production in Turkey, developing games which conform to Islamic values.</p>
<p>And we can even branch out beyond the developing world too. There are opportunities for entrepreneurs, investors and businesses in the Vitamin D testing <a href="http://m360.sim.edu.sg/article/Pages/Finding-Fast-Expanding-Markets-in-Zero-Growth-Countries.aspx">market in Italy</a>, benefitting from an increasing lack of direct sun exposure; in organic food production in Spain, linked to a downturn in the property market; in <a href="http://www.huffingtonpost.com/2012/10/26/food-trucks_n_2017376.html">food trucks in the US</a>, which have grown at a double-digit annual rate in recent years; and ceramic teeth in Liechtenstein, an industry which expanded in the past five years at a compound annual growth rate of 9.5%.</p>
<p>While overall growth is useful to know, an unquestioned loyalty to macroeconomic data misses much of the equation and loses most of the intelligence that can drive astute investment decisions. That’s partly because macroeconomic analysis often takes a linear look at the future, and this can often prove wrong. If you were to look at the <a href="https://www.census.gov/population/www/documentation/twps0029/tab04.html">US population statistics</a> in the early 1900s, one could reach the conclusion that the country would have been 80% Italian and Polish by 1930 if trends had followed a linear progression.</p>
<h2>Pocketing the wealth</h2>
<p>The central idea is that wealth can be found everywhere, even in countries that share gloomy macroeconomic data or prospects, like Bolivia, which is the country that has driven the quinoa revolution into the “ready to eat” industry in the US. With <a href="https://thinkers.in/fast-expanding-markets-a-new-needed-economic-lens-in-the-21st-century/">an annual growth rate of 26.5%</a>, Bolivia has exploded its production of quinoa, to the benefits of the new dietary aspirations of Americans, who have integrated the super grain into the daily use of soups, salads and energy bars. This is a great example of an agricultural fast-expanding market, which stems from what many consider as the poorest economy in Latin America.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/99002/original/image-20151020-32227-1ku833n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Making the most of the boom. Bolivian quinoa farmers.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bioversity/8414334430/in/photolist-dPxEty-6anLWD-muoNsR-f56NGm-6W8qU3-9o6E8P-6anLWr-6arXby-qQWmGv-qQWwmR-qQSth4-qQMfFG-66haf3-r8hmCS-r8fvRA-qQWk3P-qQWs78-r8drxP-ds6qo6-6anLWk-6WZVV6-bzwY4b-vuYKbo-fvGaoj-oHJQPj-4JcRqz-6W8oS9-qbwSLF-qQMqfS-4dGHqZ-baGVKn-qbzeoP-r8hrGQ-r8hsE1-r8eTE7-r8nvR4-6WZXu6-ds6tut-qQTGbi-6X4XDd-9RZBd1-qQU8vz-2bGjKv-9YdFSw-9X6iBV-9XphVg-9Ybos6-6anLWz-6bojKa-y7Uv3M">Bioversity International</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Sometimes, fast-emerging markets develop in unlikely settings. Italy has long had a reputation for high-quality food products and delicious wines, but in the midst of that, <a href="http://www.telegraph.co.uk/foodanddrink/beer/11676185/The-best-Italian-beers-to-try-this-summer.html">microbreweries are gaining a foothold</a>. This is partly because the lack of a traditional beer culture in Italy means microbreweries can more readily experiment with flavours and ingredients. Another surprising expanding market in Italy: American-style bakery products such as chocolate chip cookies, cupcakes and donuts.</p>
<p>Some may scoff that craft beer in Italy or quinoa in Bolivia are pretty insignificant compared to major global industries such as automobiles or machine tools. But such a reaction risks blinding us to fresh insights that can lead to new pockets of excellence that, taken together, make a real difference to the world economy.</p><img src="https://counter.theconversation.com/content/49191/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ignore the gloom around prospects for emerging markets. There are diamonds in the rough.Khaled Soufani, Senior Faculty in Management Practice (Finance), University of CambridgeMark Esposito, Professor of Business & Economics at Grenoble Ecole de Management and Harvard Extension School, Harvard UniversityTerence Tse, Associate Professor of Finance / Head of Competitiveness Studies at i7 Institute for Innovation and Competitiveness, ESCP Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/490142015-10-13T10:12:55Z2015-10-13T10:12:55ZHow data empowered the economic individual and gained a Nobel for Angus Deaton<p>On Monday in the staff common rooms of economics departments throughout the world, I doubt anyone was complaining about the award of this year’s <a href="http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/press.html">Nobel prize for economics to Angus Deaton</a>. </p>
<p>It is a choice perhaps with a view to addressing criticism that the discipline of economics can sometimes seem like ideology rather than science. It also appears to favour the micro over the macro; the experience of individuals rather than the grand plans of policy makers.</p>
<p>The first area of research mentioned in the Nobel Committee’s citation of Deaton’s work was his development of the <a href="https://www.aeaweb.org/aer/top20/70.3.312-326.pdf">Almost Ideal Demand (AID) System</a> with John Muellbauer of Oxford in the early 1980s. This system of equations allows policy makers to estimate not only how the price of a good affects its own demand but also how the price of other goods affect the demand for that good. So, if for example, VAT is increased on cigarettes, economists can estimate the likely effects on alcohol consumption. </p>
<p>The initial attempts to estimate these demand equations were unsatisfactory due to the way that the equations were written down rather than due to statistical or computational difficulties. It turned out that these equations were not flexible enough to allow certain key predictions of consumer theory to be tested. For example, will raising the price of diesel affect demand for petrol with the same magnitude as the affect of a change in the price of petrol on the demand for diesel? The contribution of Deaton and Muellbauer’s system of equations was that the key predictions of consumer theory could be tested rather than just assumed. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/98199/original/image-20151013-31138-1oe9cog.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Price sensitivity.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/helldorado666/4748890417/in/photolist-8eDiEZ-shRzU-8VHRV2-bn1cd7-ooLjQ6-4Hb916-8Zo7wV-5RAdLh-67rRe3-8369Jd-9EmhxY-8Uwt9o-4JPDg1-dKTZng-dY99M6-8k78rR-5bzdV-dJxR1L-jWE3fn-dQ5AWj-9EmvfG-qKoZzC-4kCdRX-74p3sr-dTXrk-8RSRus-iNpH9k-4JKpjR-7w6cnb-83zxqq-ydHnV-k6wQnV-81JzLb-81EsMc-4JKphX-7rwdK9-81JAH3-6spzDG-w8TJV5-PXvDF-hyYNr-iL1YcL-jW5nt-avwPzr-aE8LKd-a4p9sG-acDKMn-qDmXiy-BJkyy-4MMso9">Hell Dorado</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>Questioning theories</h2>
<p>Deaton then turned his focus to theories about income, savings and consumption. Macroeconomists up until the early 1990s felt that their <a href="http://www.ifs.org.uk/wps/wp0401.pdf">Permanent Income Hypothesis (PIH)</a> explained the real world pattern that aggregate consumption changes less than aggregate income. It was a case of theorists wanting to see their theory come true in the real world data. Deaton realised that when you fully think through the implications of PIH, then income should be smoother than consumption. This is because sometimes unexpected increases in income are, to some extent, permanent and not always completely random blips that disappear. </p>
<p>However, this wrinkle was not borne out by the Permanent Income Hypothesis and it was a finding that led to a whole reassessment of a key plank of macroeconomic theory. Deaton’s work resulted in the use of individual level longitudinal data to supplement the existing use of aggregate data. Again, his work was about inserting people and their experiences into economic theory. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/98201/original/image-20151013-31126-19uzy6q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The sharp end of the household survey industry.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dany13/4642471820/in/photolist-85eT8A-c99mWN-dCFaqg-c99mFb-mS4dKB-mS63Zx-mSTr9Q-mS4VZx-nQStLM-8qc8fV-4Th5YG-qFF6Vm-irRE1v-ciDBwU-65PudD-9nhVg5-ugQkhA-7etbG4-7eiNET-nxb8WV-ttguYM-98GBgF-8yV35L-tGWSft-bvDgEL-nxaJJ5-8fxfEB-unMuAy-azKNR6-jwV15T-fL5qUt-ttgpbz-5zG6tg-9MwL8F-ffrEEZ-6oaj2i-nXrJfH-4ze6Jp-qJKHZQ-nXuatK-ogK5ci-oerzMX-qJLQMh-oeLUqm-q5xFfi-4NC7qN-4NxTnp-faBuqf-zU5ww-9MwLza">dany13</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Development of data for policy</h2>
<p>Then, in the 1990s, Deaton’s work focused on the study of poverty in developing countries. Up until that point, development economics had many theories but less than convincing empirical evidence to back up those theories. Deaton was instrumental in the design and collection of household survey data in many parts of the developing world, particularly India. </p>
<p>Survey design and data collection can sometimes be a less than exciting area of research. However good quality data are vital to testing theory and too many economists don’t take responsibility for the quality of the data that they use. Deaton’s work in this area led him and others to research important topics such as measuring poverty, calorie consumption and how assets are divided within a household in the developing world. </p>
<h2>Optimist</h2>
<p>To get an accessible version Deaton’s work, I would recommend his 2013 book: <a href="http://www.amazon.co.uk/The-Great-Escape-Origins-Inequality/dp/0691165629">The Great Escape: Health, Wealth and the Origins of Inequality</a> published by Princeton University Press. The book is pitched at a popular level but is based on extremely rigorous interrogation of data. Using a series of deceptively simple graphs, Deaton charts the very long-term trends in health and economic circumstances. It is a book that discuses history, medical science, industrial policy, development economics and political economy. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/98202/original/image-20151013-31129-nzkvbx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The challenge of old age.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/justcallmemo/8727658387/in/photolist-eiewLK-gzXJ45-rdVCTe-vjcei4-e8yymB-cBsaHG-b4Lgt6-7SvGMF-iGcHu1-62PcAj-dYmNhD-4q34S7-eaG5Zn-71cyhh-kR95g6-nc2FFR-86m1C6-66gLRM-sYjutV-68YS99-8uLewq-7nqhWo-9jFsWg-58vVdb-5C85kp-x7MWoe-9Q3n6L-niM3wp-nug5Fp-nQrALa-yqn6Wh-nCFC4-5UU8K9-2yLJjo-5ySYmm-3MqxzF-mKJPB-aCLzRL-68uPJ2-j62JSn-3ZhLT-AEFS-6WSEY-54Q2ek-ozpKTa-3KtyX-bESypn-8gnQ3H-5qs4dR-4YfoFh">Just Call Me Mo</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>He argues that improvements in our scientific understanding of disease and the role of public health measures, such as clean water supplies, had the major role in the improvements in our health. He shows how the Western world has largely escaped from the ravages of contagious diseases and that now the challenge is from the chronic diseases of old age. Reading the book, one is struck by his optimistic view of the world. He really has faith in science’s ability to improve the well-being of mankind. And yes, that does include economics.</p>
<p>However, he also keenly aware of our continuing problems. He discusses how perverse incentives in the pharmaceutical industry have needlessly allowed communicable diseases to continue to claim lives in parts of the developing world. Later in the book, he convincingly argues, that long-term aid to countries does more a lot more harm than good because despotic regimes, with an external source of income, have less of a need to collect taxes and so become even less accountable to their own people.</p>
<h2>Debate on the future of economics</h2>
<p>The later point, hints that Deaton is not afraid to say controversial things. A few years ago Deaton asked some big questions about the <a href="https://www.aeaweb.org/articles.php?doi=10.1257/jel.48.2.424">future of empirical economics</a>. The recent trend in applied microeconomics, especially in development economics has been a move away from traditional theory towards the use of experiments. For example, randomising participation in education programmes to reduce sexually transmitted diseases in developing countries, and then evaluating the effect of the programme. Deaton argued that this approach to economics has limited external validity – that an HIV prevention program aimed at teenage girls in Kenya may not have the same effect as a chlamydia prevention program aimed at working women in South Africa. </p>
<p>Deaton called for the applied microeconomists not to abandon economic theory in favour of experiments but instead to think more deeply about the consequences of economic theories and how they can be tested using real-world data. This is the approach he has followed throughout his career and what has led to him win a Nobel Prize.</p><img src="https://counter.theconversation.com/content/49014/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vincent O'Sullivan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The annual economics award recognises the value of micro analysis and good, old-fashioned legwork.Vincent O'Sullivan, Lecturer in Economics, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/364602015-01-20T09:58:53Z2015-01-20T09:58:53ZFacebook’s free-access internet is limited – and that’s raised questions over fairness<p>Despite the importance of the internet to contemporary society, according to the ITU <a href="http://www.itu.int/en/ITU-D/Statistics/Pages/publications/mis2014.aspx">only 42% of the world’s population</a> are online. That leaves 4.3 billion people without the internet, of which 90% live in the developing world. African, Asian and Latin American nations have some of the world’s lowest rates of internet use, where barriers include afforadability, lack of infrastructure, perceived lack of need and linguistic barriers.</p>
<p>Historically world internet use has <a href="http://www.internetlivestats.com/internet-users/">grown around 2%-3% every year</a>. If this slow trend is to continue, then the information society will be a highly divided one for many more years to come – those who are connected will continue to enjoy the benefits provided by the internet in terms of better access to healthcare, employment, knowledge and a more connected society while the disconnected being left out. It’s vital that we speed up this growth – lack of internet access has been recognised as a universal problem – with the United Nations declaring <a href="http://www.huffingtonpost.com/2011/06/08/internet-access-human-right-united-nations-report_n_872836.html">access to the internet as a human right</a>.</p>
<p>Aware of their need to provide social benefits (“corporate social responsibility”) but also of the untapped market potential of emerging economies, firms such as Google and Facebook have tried their luck in providing affordable internet connectivity to developing regions by partnering with mobile phone operators in those countries.</p>
<p>Facebook launched its <a href="https://internet.org/">internet.org</a> campaign in 2013 with the mantra to “connect the next three billion”. In fact Facebook has been establishing zero-rated platforms since 2010 (an initiative that was launched well before the internet.org initiative) in several countries in Africa and is now venturing into Latin American markets with a <a href="http://www.reuters.com/article/2015/01/14/us-facebook-colombia-idUSKBN0KN2F720150114">zero-rated service in Colombia</a>. In other words, users can access Facebook and a few other select services – and only these – for free, without any network data usage charges. </p>
<p>The telecoms companies see this as an opportunity to attract potential customers, who may have shied away from taking up a data plan, to discover the benefits and sign up. Internet firms such as Facebook and Google funnel further customers through their advertising-driven web platforms.</p>
<p>Facebook’s free-access package includes some other useful services such as news, jobs, and health information, but while it may be a good first step to bring the internet to those who cannot afford it, there are still doubts on whether it’s useful, or fair. </p>
<p>The benefits are debatable, considering free access is limited only to certain services that are part of <a href="http://www.zdnet.com/article/google-facebook-is-becoming-a-closed-walled-garden/">Facebook’s “walled garden”</a>, where it can monetise the new arrivals to the internet. Yet Facebook itself is filled with links to off-site content that would require users to step outside and so start racking up data charges. </p>
<p>There is also the question of whether it is possible for any service provider to opt-in to being part of this free access ecosystem. If Facebook is managing the ecosystem alone then it can demand strict conditions for those that join – if it allows it at all. There is growing scepticism of whether zero-rated platforms like this, run by a single organisation or single group, are the right approach to solving the problem of rolling out affordable internet access. </p>
<p>Other criticisms come from net neutrality purists, who believe that all internet traffic should be treated equally. Their concern is that network operators prioritising certain applications or services could provide an unfair market advantage to larger service providers, while shutting out smaller firms. It’s certainly the case that this applies to the internet economies in the West, but it’s yet to be seen whether the same goes for emerging economies where there is little local competition in the first place. </p>
<p>If anything, these economies suffer from local monopoly or oligopoly and a <a href="http://www.analysysmason.com/About-Us/News/Insight/Africa-Internet-development-Jun2013/">lack of competition</a> – a main reason for inflated internet access costs. Providing a means for new firms to enter the market in a fair manner can create the right environment leading to reduced costs – but this requires a better regulatory environment too.</p>
<p>Irrespective of any criticism, Facebook seems to have struck a chord – reaching <a href="http://www.itnewsafrica.com/2014/09/facebook-hits-100m-users-in-africa/">100m Facebook users a month across Africa</a>, 80% of whom access the Internet via their mobile. It’s far from perfect, but it’s working.</p><img src="https://counter.theconversation.com/content/36460/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Arjuna Sathiaseelan receives funding from the European Commission via the EC H2020 aRchitecture for an Internet For Everybody (RIFE) project Grant No. 644663. He works for University of Cambridge. He is also the Chair of the Internet Research Task Force (IRTF) Global Access to the Internet for All (GAIA) Research Group and a member of the Internet Research Steering Group (IRSG). He would like to thank Steve Song from the Network Startup Resource Center (NSRC) and Jon Crowcroft from University of Cambridge for their useful feedback on this article.</span></em></p>Despite the importance of the internet to contemporary society, according to the ITU only 42% of the world’s population are online. That leaves 4.3 billion people without the internet, of which 90% live…Arjuna Sathiaseelan, Senior Research Associate, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/346212014-11-26T11:46:17Z2014-11-26T11:46:17ZThe OECD signals a two speed global recovery, and Britain could drift into the slow lane<figure><img src="https://images.theconversation.com/files/65514/original/image-20141125-4234-11pkicz.jpg?ixlib=rb-1.1.0&rect=52%2C41%2C916%2C553&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">All bark no bite? Green shoots of growth hide risks as well as opportunities.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/clairity/233646986/in/photolist-oyLnQN-4KGLQd-dYPs6L-boKDBC-3ccJba-fcPay5-9SKQC2-pcj5zn-fKVXyE-edvoCC-6r1hT8-oHpeoJ-mDv7j-4GABHF-bixFLg-dnf1dp-8XWKmJ-vQS5G-4KhZ3f-4Kid3L-gtaKNf-9FrE1n-4L1Avp-enpSDa-hMZvpq-5xi6KV-m36S4Z-4w2sPA-9sJwFf-4zD2pN-7z9fig-dw33yy-4KifQy-iMq89G-nKN9w4-4Yr4tn-nqd6Wi-dDKJX-oXKJKr-fjiwnc-6h5njn-6dyK72-jcov8b-6ahuYi-jzaCaE-8ywHjf-9SR1rJ-hperU6-7WF1k-4Ff5Sq">Sharon Mollerus</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Not too long ago, cynics were wondering if David Cameron’s fears over the global economy were a ploy to shift blame for any flaws in the UK’s performance as we near the May 2015 general election. However, the publication of the Organisation for Economic Co-operation and Development’s <a href="http://www.oecd.org/newsroom/stronger-policy-response-needed-to-avoid-risks-to-growth-especially-in-the-euro-area.htm">latest Economic Outlook</a> can only make the British prime minister’s <a href="http://www.theguardian.com/commentisfree/2014/nov/16/red-lights-global-economy-david-cameron">“red warning lights”</a> flash a little brighter.</p>
<p>The headline forecasts for global growth from the OECD are for an increase from 3.3% in 2014 to 3.9% in 2016, but they mask considerable variations in the prospects of the leading economic powers. Brazil, India, and the United States are, if the OECD’s forecasts come to pass, likely to see growth rates accelerating. Meanwhile, China is expected to see its economy grow at an impressive 7% a year through to 2016. In contrast, the euro zone <a href="https://theconversation.com/japans-snap-election-is-about-more-than-just-abenomics-34394">and Japan</a> are expected to languish with annual growth rates around 1%. </p>
<h2>American dream</h2>
<p>What a difference a year makes. For many, doubts about the US recovery were finally set aside in 2014, so much so that the Federal Reserve <a href="https://theconversation.com/how-to-interpret-the-fed-as-it-ends-qe-and-morphs-into-a-hawk-33277">stopped its policy of quantitative easing (QE)</a>. Like many others, the OECD is pretty bullish on India after the torpor that set in during the run up to the national election in May. Japan shot itself in the foot by raising a consumption tax and the euro zone slides ever closer towards deflation. Indeed if the manufacturing sector’s falling producer prices defined inflation, as opposed to consumer prices, then much of the euro zone is already in serious trouble. </p>
<p>On the whole, the OECD found that governments have eased off on austerity, while central bankers are still expected to pull a rabbit out of the hat and turn stagnating economies around. Economic reforms have stalled in many countries. With the exception of Japan, policy surprises have been few and far between. And by and large, government leaders continue to duck the fundamental challenge of rebalancing national economies.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=639&fit=crop&dpr=1 600w, https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=639&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=639&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=803&fit=crop&dpr=1 754w, https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=803&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/65513/original/image-20141125-4253-28cbnp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=803&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Speed limits.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/thatguyfromcchs08/2800472595/in/photolist-5gt9Wg-e9TRuy-mtKLtp-wnQ3p-6pRn4J-cu6Fc-xnEcg-694MVa-23xXY-bJTxoF-4me8vi-eomR-nUu6YR-cQgK7U-iWF95x-i9ntie-5TnKcA-pzJ8GP-BQKJf-8dhZfM-npRJco-cQgMrN-7HscSQ-bXbUWJ-5UgoU2-9RgmMZ-cQgKLW-hE9Cz7-cQgLf7-9iG3Qb-9saDQZ-at4qz-5JWdrK-dab4FH-ds3CfT-bjueSp-eomV-5pYkR-fuL35L-9h9mWa-iVjfn3-briF9M-ddvZCT-6mGLh8-9BtMnr-6eoRue-5h66NK-71hLEg-PRHrU-efGSDx">Nathan E Photography</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>In the meantime the divergence between rosy pre-crisis trends and present circumstances becomes clearer and clearer. World <a href="http://www.slideshare.net/oecdeconomy/advance-g20-release-of-oecd-economic-outlook">trade growth is markedly slower</a> than in previous recovery phases. Private investment rates <a href="http://www.slideshare.net/oecdeconomy/advance-g20-release-of-oecd-economic-outlook">remain below trend</a> in many industrialised economies. The OECD reckons that the maximum speed with which many countries can now grow without stoking high rates of inflation has slowed markedly. Economists are used to distinguishing between longer term trends and shorter term cycles; nowadays <a href="https://theconversation.com/hard-evidence-are-we-facing-another-financial-crisis-34331">a faltering recovery</a> appears to be undermining the drivers of longer-term living standards.</p>
<h2>Oil well</h2>
<p>The combination of low growth and falling prices is relentlessly pushing up <a href="https://theconversation.com/david-camerons-red-light-zone-is-closer-to-home-than-he-thinks-34333">private sector debt levels</a> in Europe, while borrowing binges in many emerging markets go unchecked and add to financial vulnerabilities. Still, at least we have seen the end of last year’s <a href="http://www.imf.org/external/pubs/cat/longres.aspx?sk=41890">“taper tantrum”</a> in many emerging markets sparked by the end of US quantitative easing, and the OECD notes that most indicators of financial market instability have calmed down.</p>
<p>One factor, likely to be a net positive for the global economy, but which the OECD has given little attention to is falling oil prices. The price of a barrel of Brent crude is down 29% this year (see the chart below). Some experts estimate that the fillip to consumption spending that resulted from lower oil prices will, among other effects, boost global growth by between 0.5-1.5% in 2015, which in the current era of relatively slow growth is pretty significant. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=457&fit=crop&dpr=1 600w, https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=457&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=457&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=574&fit=crop&dpr=1 754w, https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=574&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/65512/original/image-20141125-4244-sqj0d8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=574&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A year in oil.</span>
<span class="attribution"><a class="source" href="http://www.nasdaq.com/markets/crude-oil-brent.aspx?timeframe=1y">www.nasdaq.com</a></span>
</figcaption>
</figure>
<p>Expect a positive impact on many governments’ fiscal deficits too, especially in those countries where energy subsidies are rife and where climate change concerns are being used as a pretext to increase taxes on oil. Of course, given the rollercoaster of <a href="https://theconversation.com/why-reducing-energy-consumption-through-a-recession-doesnt-really-count-33602">oil prices</a> during the past decade plus the growing interest in shale gas, forecasting energy prices is particularly fraught. Still, so long as oil prices stay low, then eventually this is going to feed into the global economy.</p>
<h2>Danger zones</h2>
<p>All of which might make you think we were home and dry. The concern remains, however, that policymakers in the euro zone and Japan will resort to more desperate measures. Here the OECD report contained the results of a simulation that is almost certainly going to raise eyebrows in many national capitals. The OECD simulated the impact of Japan and the euro zone devaluing their currencies by 1% in each of the next 10 quarters on trading partners’ growth. These devaluations would cut into China, India, and Russia’s growth rates in 2015 and 2016. </p>
<p>According to the forecast, however, the country most harmed will be the UK, with its <a href="https://theconversation.com/ties-that-bind-the-british-jobs-data-that-really-shows-the-value-of-the-eu-34032">extensive trading ties to the continent</a>. The OECD reckons that these relatively mild devaluations would by 2016 knock half a percentage point off British growth, further slowing an already weak recovery. If so, Cameron’s fears about the global economy may be valid after all.</p><img src="https://counter.theconversation.com/content/34621/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Evenett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Not too long ago, cynics were wondering if David Cameron’s fears over the global economy were a ploy to shift blame for any flaws in the UK’s performance as we near the May 2015 general election. However…Simon Evenett, Professor of International Trade and Economic Development, University of St.GallenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/320592014-09-24T14:26:50Z2014-09-24T14:26:50ZAndroid One won’t make Google big bucks, so why bother with cheap smartphones?<figure><img src="https://images.theconversation.com/files/59799/original/np9f68xs-1411484727.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Time for an upgrade kiddo.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/sarahamina/3716085867">sarahamina</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Google launched its <a href="http://www.android.com/one/">Android One</a> initiative this summer, with the aim of bringing smartphones, apps and the whole mobile internet to the five billion people around the world who do not yet have access to a smartphone. The program targets worlds’ most populous areas, especially in Asia, and the first devices have just <a href="http://techcrunch.com/2014/09/15/android-one-india/">recently been announced</a> in India.</p>
<p>Google will not manufacture or sell the phones itself. The company provides a reference design for an affordable Android device to its partners in the developing world, and software tailored to its target users, such as an offline version of the YouTube app in order to save its users from racking up data transfer bills. Manufacturing partners can modify the reference design to differentiate their products from one another’s. All will undoubtedly benefit from Google’s massive marketing machine.</p>
<p>Producing and selling a high-quality modern smartphone at a price point that is affordable to billions of people sounds like a loss leader strategy. This is the strategy adopted by many video game console manufacturers (although <a href="http://www.forbes.com/sites/timworstall/2013/09/06/microsoft-upends-the-economics-of-games-machines-with-xbox-one/">reversed</a> by Microsoft for its latest Xbox One), consumer inkjet printers or razors – the profits are made on sales of games, ink cartridges or blades respectively. This is not the case with Android One. </p>
<p>Most of the initial partners are brands relatively unknown in the west like <a href="http://tech.firstpost.com/reviews/micromax-canvas-a1-android-one-review-humble-specs-but-brilliant-experience-234768.html">Micromax</a>, <a href="http://www.gizbot.com/mobile/karbonn-sparkle-v-spice-dream-uno-mi-498l-micromax-canvas-a1-top-10-smartphone-rivals-019595-pg1.html">Karbonn and Spice</a> which operate with much smaller margins than global top-tier brands such as Samsung and Apple.</p>
<h2>Cutting edge</h2>
<p>They do not spend billions to advertise their products, for example. And while hardware components carry a cost, it is not nearly as much as the retail price of the latest Samsung or Apple kit would have us believe. The components of the cutting edge, recently launched Apple iPhone 6 cost <a href="http://www.businessinsider.com/iphone-6-teardown-reveals-costs-2014-9">an estimated US$229</a>, compared to its price tag of more than US$600. Using cheaper components, it could be entirely possible to manufacture and sell a decent smartphone below US$100, since most of the research and development costs are borne by Google.</p>
<p>So if Google is going to make hardly any revenue from the sale of Android One phones, why bother? </p>
<p>The push into developing markets is easy to understand when seen against the company business model and strategy. According to Google, its “mission is to ”<a href="https://www.google.com/about/">organise the world’s information and make it universally accessible and useful</a>“. Google makes money by selling highly targeted advertising – primarily from all that information it has made universally accessible and useful. The more users there are of its Android mobile phones, the more valuable advertising targeting information and opportunities there are for monetisation. Android One can be understood as an attempt to secure future growth – with the emphasis on future. Like other major technology companies, Google is cash rich and in an extremely strong position, and this allows them to be very patient and play the long game in order to turn strategic initiatives into profits.</p>
<p>It is also tempting to speculate that Google wants to preempt the possibility that a potential competitor could, by dominating developing markets, gain the momentum to challenge Android – currently the <a href="http://www.ibtimes.com/android-vs-ios-whats-most-popular-mobile-operating-system-your-country-1464892">world’s most popular</a> mobile phone operating system. Google can leverage its business model and massive cash resources to turn smartphone manufacturing into a highly competitive, low-margin business that will make it very difficult for any potential competitor to recoup research and development costs from subsequent hardware sales. In fact Google’s efforts are <a href="http://www.theregister.co.uk/2014/09/19/smartphones_its_the_economics_stupid">already destroying equipment manufacturers margins</a>, changing the dynamics of the industry.</p>
<h2>First world problems?</h2>
<p>What about the consumers who will use these affordable Androids? One could be as unforgiving as <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6582">Shoshana Zuboff</a>, retired professor at Harvard Business School, who <a href="http://www.faz.net/aktuell/feuilleton/debatten/the-digital-debate/shoshanna-zuboff-dark-google-12916679.html">feels considerable unease</a> at the extent to which one company has expanded its ability to extract increasingly detailed data from the whole world’s population. Perhaps these are "first world problems” that only the western intelligentsia has time for – but they can hardly be faulted for being suspicious of the company whose former CEO famously <a href="http://www.huffingtonpost.com/2009/12/07/google-ceo-on-privacy-if_n_383105.html">stated</a>: “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.”</p>
<p>Most people are going to be, at least initially, happy to get their hands on a decent smartphone. There will be lots of ingenious applications that cater for particular social settings and needs. There are genuine social and economic benefits that stem from granting more and more people access to the digital, internet-connected ecosystem, and these cannot be dismissed as a public relations exercise or corporate profiteering. </p>
<p>At the same time, it would be naive not to see the <a href="http://www.washingtonpost.com/politics/how-google-is-transforming-power-and-politicsgoogle-once-disdainful-of-lobbying-now-a-master-of-washington-influence/2014/04/12/51648b92-b4d3-11e3-8cb6-284052554d74_story.html">strategy</a> involved in Google’s data-based business. Today’s technology business behemoths command resources that exceed many national governments, and their activities can change the conditions of people’s lives, whether or not this is their intention.</p><img src="https://counter.theconversation.com/content/32059/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Aleksi Aaltonen does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Google launched its Android One initiative this summer, with the aim of bringing smartphones, apps and the whole mobile internet to the five billion people around the world who do not yet have access to…Aleksi Aaltonen, Assistant Professor of Information Systems, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/317932014-09-23T03:56:17Z2014-09-23T03:56:17ZApple and Google make changes in the battle for new markets<figure><img src="https://images.theconversation.com/files/59744/original/pxyfmby6-1411435046.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Android and Apple looking to expand into new markets in India and China.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/aidanwojtas/5879866927">Flickr/Aidan</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Has Google finally decided to take total control of its Android destiny with the release of its <a href="http://www.android.com/one/">Android One</a> operating system?</p>
<p>Aimed at “<a href="http://www.zdnet.com/with-android-one-google-puts-itself-firmly-back-in-the-os-driving-seat-7000033662/">emerging markets</a>”, such as <a href="http://www.android.com/one/india/">India</a>, Google will operate the smartphone device rather than handing over to hardware partners such as Samsung and HTC.</p>
<p>Historically, Google has taken a hands-off approach to Android, providing it “free” to manufacturers as an <a href="http://source.android.com">open source product</a>.</p>
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<a href="https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=413&fit=crop&dpr=1 600w, https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=413&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=413&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=518&fit=crop&dpr=1 754w, https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=518&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/59745/original/3966d78j-1411435430.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=518&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Samsung and HTC smartphones use their own versions of Google’s Android OS.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/janitors/13448767153">Flickr/Karlis Dambrans</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>These manufacturers have a reputation for adding on their own extra features such as the <a href="http://www.samsung.com/uk/mobileappsandservices/touchwiz.html">Samsung TouchWiz user interface</a>.</p>
<p>The assumed goal was that a better mobile experience for consumers would <a href="http://arstechnica.com/gadgets/2013/10/googles-iron-grip-on-android-controlling-open-source-by-any-means-necessary/">funnel them towards Google’s other products</a> such as its popular search.</p>
<p>In contrast, Android One will not allow that customisation, giving Google full control of the operating system users get. So perhaps the latest move represents a paradigm shift for the company?</p>
<h2>The life and times of Android</h2>
<p>The approach taken with the Android operating system has always been more open than that taken by rival Apple with its iOS operating system.</p>
<p>In fact, in general Android has always been considered more open than iOS, starting from the very beginning before the company was acquired by Google and the original Android operating system was released open source to the community.</p>
<p>That version of the operating system still exists today and is used by companies such as Amazon on its <a href="https://developer.amazon.com/public/solutions/devices/fire-tablets">Kindle Fire tablet</a>. This creates what software developers call a “fork”, with the base Android operating system sitting underneath the customisations that Amazon makes.</p>
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<figcaption>
<span class="caption">The many flavours of Android on display at Google’s offices in the US.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/56573578@N06/7564325198">Flickr/Dan H</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>But in recent times Google has begun to demonstrate a desire to take more control of its operating system. Starting with the <a href="https://www.google.com.au/nexus/">Nexus phones and devices</a>, which involved Google providing a reference design for both phone and operating system free of the extras added by the hardware manufacturers and the carriers.</p>
<p>This has continued with the announcement of Android One, with Google starting to become more involved in the entire process and trying to own the user experience.</p>
<p>Products such as <a href="http://www.google.com.au/glass/start/">Google Glass</a> represent other forays into this vertical integration, an area traditionally embraced by their main competitor, Apple.</p>
<p>But Apple is starting to change its approach as well.</p>
<h2>A more open Apple?</h2>
<p>Apple has always been a product focused company. Starting with the launch of the Macintosh in 1984 and continuing with the iPhone and other iOS devices, Apple has always strived to control the whole experience of hardware, software and services.</p>
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<figcaption>
<span class="caption">The original Apple Macintosh.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/raneko/3656196540">Flickr/raneko</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>Earlier this month in a <a href="http://www.charlierose.com/watch/60444569">television interview with Charlie Rose</a>, Apple CEO Tim Cook said that Apple values vertical integration and wants to control their primary product.</p>
<p>But looking at Apple, industry insiders can begin to see a shift in the way that the company operates. The most recent hardware and software announced by Apple (announced one week before the first Android One smartphones) provides a <a href="http://www.apple.com/ios/developer/">lot more control for developers and users</a> than they’ve ever had before.</p>
<p>Features such as extensions allow apps to communicate with each other and users to share data among apps through the share pane. Developers can add features to place small apps called widgets in the notification centre or to enable actionable notifications, allowing you to (for instance) respond directly to a Facebook message from within the notification.</p>
<p>And, in an unprecedented move, users can replace the Apple provided keyboard with a third party alternative. While all of these sound like small changes, they represent Apple relinquishing control of some parts of their iOS experience back to developers, a major departure from when Steve Jobs launched the iPhone in 2007.</p>
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<span class="caption">Apple CEO Tim Cook.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/deerkoski/7178643521">Flickr/Mike Deerkoski</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>In his interview with Charlie Rose, Tim Cook was also asked what companies Apple competed with and, without hesitation he nominated Google as the main competitor, even going so far as to downplay Samsung as a competitor as the Android operating system was created by Google.</p>
<p>This is especially interesting given that Apple has slowly moved Google out of its phones, (in)famously replacing Google Maps with Apple Maps a couple of years ago as well as slowly enhancing the voice recognising personal assistant, Siri, to perform many of the functions that Google performs with search.</p>
<p>Even though the Apple Maps launch was riddled with problems (with users claiming the experience was sub par compared to the Google offering and prompting Tim Cook to <a href="https://www.apple.com/letter-from-tim-cook-on-maps/">issue an apology</a>), Apple is clearly looking to shed itself of Google and own more of this part of the experience too.</p>
<h2>A new battle for market (and mind) share</h2>
<p>So, over the course of September, both Google and Apple have shown a new side to themselves. Both are pushing into new markets, with Android One specifically targeted at the China/India market.</p>
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<p>Many analysts suggest that the iPhone 6 Plus is an Apple foray into the desire for “bigger phones” in the same market.</p>
<p>To conquer this market and maintain a foothold on the market in existing developed countries, it would appear both companies are making some changes - with Google taking control of its destiny while Apple becomes more open.</p>
<p>Both are baby steps for now, but perhaps this is the beginning of a new battle, for the market (and mind) of more and more consumers.</p><img src="https://counter.theconversation.com/content/31793/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Cowling does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Has Google finally decided to take total control of its Android destiny with the release of its Android One operating system? Aimed at “emerging markets”, such as India, Google will operate the smartphone…Michael Cowling, Senior Lecturer & Discipline Leader, Mobile Computing & Applications, CQUniversity AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/311202014-09-01T20:26:27Z2014-09-01T20:26:27ZBid to avoid repeat of Argentina debt row risks a sting in the tail<p>Sovereign debt is a crucial lubricant for growth, especially among emerging nations, and so it is equally crucial that we can ensure the <a href="https://theconversation.com/why-argentina-matters-for-indebted-countries-everywhere-30801">interminable row over Argentina’s default</a> is not repeated. Measures proposed to do just that, however, might just make things worse.</p>
<p>Argentina’s latest default (its eighth) has at least sparked key players into action. According to <a href="http://www.ft.com/intl/cms/s/8e27f6b8-2e8b-11e4-afe4-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8e27f6b8-2e8b-11e4-afe4-00144feabdc0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia#axzz3Bk1HkvYl">a report in the Financial Times</a>, the International Capital Market Association (ICMA), whose members include banks, investors and debt issuers, has created fresh clauses for inclusion in sovereign debt contracts that will give countries the option to bind all investors to decisions agreed by the majority.</p>
<p>It is an effort to keep the wheels turning smoothly in international financing: Just as a new company requires loans to start up, emerging markets must depend on richer countries to fund their development needs. </p>
<p>But, just as a company may go bankrupt because of external factors, a country may be faced with economic crises that make it difficult to repay the debt. A company in that situation can declare bankruptcy and reach a deal with creditors to restructure or sell assets in a deal brokered by the local courts. When the same situation faces an entire nation, there is no international court that can enforce contracts between creditors and debtors from different countries. This lack of enforceability creates a host of problems.</p>
<h2>Credit where credit’s due</h2>
<p>A natural question is that if creditors are aware of the non-enforceability of contracts, why would they lend in the first place? And how can sovereign states then raise funds? The obvious answer is reputation for repayment. If a country shows that it is credit-worthy because it repaid loans in the past, then this reputational capital may be used to attract funding. In principle, a better credit history may imply better terms of repayment – and we can all relate to that.</p>
<p>However, this relies on the creditors being able to punish the debtor country effectively once default occurs. In other words, if there is no punishment after default, then the signal is that debt will be forgiven in any case and may lead to less effort to repay on the part of the debtor country. This undermines the reputation mechanism and is a particularly salient issue when there are multiple creditors, as in the case of most sovereign debt, and notably Argentina. </p>
<p>Argentina’s experience has acted as a pretty thorough examination of the flaws in the current system. In 2005, at the time of the last crisis, the country had agreed on reduced debt servicing with the vast majority of creditors (75% of the defaulted bonds). In 2010, another 17% of the original bond holders agreed to the new terms. Thus all but a small minority of the bondholders agreed to a proposed “haircut” on their debt which essentially meant creditors sacrificed 35% of what they were owed.</p>
<h2>Out for blood</h2>
<p>The 8% of bondholders who did not accept the terms, <a href="http://www.businessweek.com/articles/2014-08-07/argentinas-vulture-paul-singer-is-wall-street-freedom-fighter">“vulture” investors like Elliott Associates</a>, specialise in buying up cheap debt and seeking full repayment when the country comes out of the crisis. They sued the Argentinian government for full repayment plus the interest accrued (about $1.5 billion). Had the debt been issued in Argentina, it would be handled by judges within Argentina. The problem was that the debt was issued in New York and thus subject to the American judicial system (this made it cheaper for Argentina to borrow money). </p>
<p>Judge Greisa, the governing judge in the case, <a href="https://theconversation.com/argentinas-vulture-defeat-shows-courts-have-too-much-power-28623">has ruled in favour of the vulture funds</a> and has prevented Argentina from paying back the restructured debt to other creditors until it pays the full amount asked for by Elliot Associates. This has virtually sent Argentina into an involuntary default. </p>
<p>So, what’s going to happen now? What can Argentina do? <a href="http://www.bloomberg.com/news/2014-07-30/argentina-defaults-according-to-s-p-as-debt-meetings-continue.html">Standard and Poor’s has already downgraded Argentinian debt</a>. Usually, as after the Greek crisis, a downgrade means that countries can only borrow at very high rates of interest. In the case of Argentina, this may not happen because investors realise the reason for the default is not in Argentina’s control. If Argentina were to do what Judge Greisa has ordered, it opens itself up to a spate of legislation from other creditors, making another default inevitable.</p>
<p>The main problem lies in the inability to make creditors agree on the restructuring deal. The latest proposal from the ICMA has been suggested before and has some broad support, even if some fine turning of the new clauses for insertion in contracts would be required to deal with multiple bond issues and all debt. The proposed solution would bind all creditors to a vote that is agreed to by at least 75% of the creditors, instead of 100%. The idea is that this reduces the incentives to hold out. Some countries, such as the UK, already employ these clauses.</p>
<h2>Counter-productive?</h2>
<p>While this approach is promising, the trade-off is that debtor countries may default more readily knowing that restructuring can be agreed to more readily. This in turn may discourage creditors from lending in the first place. The new clauses, after all would not address the lack of enforceability of sovereign debt, and so we are left to see how they impact on the reputational mechanism instead.</p>
<p>The change in the voting threshold implies that the value of distressed debt will be higher, thus reducing the incentives of vulture funds to buy it. This can only be good. However, will the new clauses improve creditor coordination? And what if, instead of faster agreements, the bondholder composition becomes more concentrated and more creditors decide to hold out? The risk lies is not quite knowing whether a new regime would lead to a different, and more coordinated group of creditors, and not knowing which way they might act. </p>
<p>The second point to make here is that the revised contracts will have to wrestle with age-old dilemmas over the balance created in such debt deals. If bankruptcy laws favour the debtor too much, it creates incentives to misuse them and in turn discourages banks and investors from lending. If the law favours creditors too much, then it reduces the incentives to borrow money and reduces the potential for innovation and entrepreneurship. Sovereign states and the financiers know this only too well, and no single clause will be a cure-all for the kind of predicament faced by Argentina.</p><img src="https://counter.theconversation.com/content/31120/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amrita Dhillon does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Sovereign debt is a crucial lubricant for growth, especially among emerging nations, and so it is equally crucial that we can ensure the interminable row over Argentina’s default is not repeated. Measures…Amrita Dhillon, Professor of Economics, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/290042014-07-10T05:13:26Z2014-07-10T05:13:26ZWorld Cup humiliation gives Brazil a chance to move on from football<p>The extraordinary 7-1 defeat of Brazil by Germany in the World Cup semi-final is richly ironic. Many Brazilians had hoped that by hosting the World Cup in 2014, their country could finally <a href="http://www.theguardian.com/football/blog/2014/jul/08/germany-brazil-semi-final-maracanazo">exorcise the ghost of the 1950 Maracanazo</a> — the 2-1 defeat to Uruguay in the last match of the last World Cup to be held in Brazil. And in a way it has. </p>
<p>But this has not happened as was originally imagined, with the national team of the host nation lifting the trophy in triumph in the Maracanã stadium in Rio. Instead, the Maracanazo has been eclipsed by <a href="http://sports.yahoo.com/blogs/soccer-dirty-tackle/david-luiz-cries-on-tv-as-he-offers-apology-for-brazil-performance-231708490.html">a performance so shocking, so inept</a>, so below the standards of artistry, flair, and superiority set by earlier versions of the national team, the <em>seleção</em>, that the 1950 defeat pales in comparison. The only hope can be that in the embers of a team that crashed and burned, there might be an opportunity to recast Brazil’s international profile as well as reforming the mechanics of its footballing obsession.</p>
<h2>Redemption</h2>
<p>The semi-final disaster raises three interesting questions. First, can Brazil redeem itself in the match for third place scheduled for Saturday July 12? This will be more complicated if the opponent is Argentina, as it would be more humiliating to lose to them. However, it is likely that the team will dust itself off and try to salvage some dignity in this game. Likewise, the nation will probably carry on being a good host of the World Cup for the few days of the tournament that remain.</p>
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<a href="https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/53435/original/9b5cktt5-1404917299.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A golden moment for reform?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/diogolhh/612581746/in/photolist-81y1hC-65UiEz-z5We9-6ExRjd-6EtAwc-dZdcms-bQiudn-63ED2o-dhfo9H-65Uf1k-4LSX9c-5QvxPJ-bnwyzx-dhfnR2-W8Ddf-dhfndJ-eRGCyG-dZddsG-6ExQX7-6ExQv7-3KxmbN-dhfny3-fH4Z7-gPWFW-5SMDAd-6EtHje-6ExTYA-6ExRMm-6EtCxX-6ExNsG-6EtGAH-6EtBFV-6ExVgm-6EtKma-6ExPMm-6ExUno-6EtDWp-6EtGYZ-6EtDbV-6ExVWj-6ExN9d-6EtBoB-6EtB4g-6ExLdQ-6ExSub-6ExUNQ-6ExP4W-6ExKPb-6RiKWi-4oDQGq">Diogo Rodrigues Gonçalves</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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</figure>
<p>Second, does this defeat mean that Brazilian football needs to be reformed? Some of the most thoughtful commentators in Brazil are suggesting that it does. In other words, this game was not a freak accident, and Brazilian football has been resting on its laurels since its last World Cup win in 2002. In this vision, reform would mean not just getting a new coach but looking at the entire organization and procedures of the <a href="http://www.cbf.com.br/">Brazilian Football Confederation (CBF)</a> and how it runs its finances, recruits its coaching staff and trains the players on the national team. </p>
<p>The national team’s assistant coach Carlos Alberto Parreira once said that the CBF was an example of the Brazil that works, but many of his compatriots would now disagree. Brazilians might now have lost trust in the CBF, as they have in so many other national institutions. Reform could also mean going to the club level as well, and trying to clean up club finances, root out corruption, bring more fans back to the stadiums, and perhaps retain more top players in the domestic game. Many Brazilians will call for such reforms, in the belief that they offer the only hope of crafting a national team capable of winning another World Cup. In this respect, the semi-final humiliation could have a positive impact.</p>
<h2>Beyond the Jogo Bonito</h2>
<p>A different response would be to ask: do Brazilians still want football to be such an important part of their national identity? Should it matter so much to the country that its team was trounced on home soil in a semi-final match? </p>
<p>The country is richer, more diverse, and more pluralistic than it was in 1950, when losing to Uruguay in the World Cup seemed like such a national tragedy to so many. In the mid-20th century, with all its barriers (including language), perhaps it made sense that symbols of Brazilian nationality came from nature or expressions of the human body, especially dance and football. </p>
<p>But in the globalized early 21st century, why should football be such an important part of the soul of the country? Many Brazilians speak English and know the world, and translation is easier than before, so why can’t Brazilian national identity be expressed just as well in science, in literature, in technology, or in other sports as it is in football? In this respect the idea that the Brazilian team represents the nation on the pitch might be something of a mid-20th century anachronism. As <a href="http://www1.folha.uol.com.br/opiniao/2014/07/1483170-editorial-patria-sem-chuteiras.shtml">an editorial in the <em>Folha de São Paulo</em> newspaper put it</a>: “Brazil is bigger than its football”, and has more important challenges than winning the next World Cup. </p>
<p>It is unlikely that Brazil’s sporting defeat will have an immediate, direct impact on the presidential election campaign that is now fully underway, but that campaign will raise the sorts of questions that the dream of a sixth World Cup championship only postponed. These include, how can the country become both more competitive and less unequal? How can it improve the quality of the public goods produced by the state, most crucially education, health care, and public transportation? </p>
<p>Can trust in the country’s representative institutions be restored, and if so, how? And how can Brazil use its growing influence in the world to make a positive difference? The presidential campaign, which will culminate in a first-round election on October 5 (and a probable second round on October 28), should give us some answers to the first three questions. <a href="http://www.brics6.itamaraty.gov.br/">The 6th BRICS Summit, which Brazil is hosting in Fortaleza</a> immediately after the World Cup final, might give us a glimpse of a possible answer to the last.</p><img src="https://counter.theconversation.com/content/29004/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Pereira does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The extraordinary 7-1 defeat of Brazil by Germany in the World Cup semi-final is richly ironic. Many Brazilians had hoped that by hosting the World Cup in 2014, their country could finally exorcise the…Anthony Pereira, Director, King's Brazil Institute, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/278482014-06-19T12:59:28Z2014-06-19T12:59:28ZEngland players need to get out more to have a chance of winning the World Cup<p>Like football, globalisation creates winners and losers. For now, the England football team is one of the back markers.</p>
<p>By globalisation we mean free movement: it is the increase in mobility across national borders of capital, of goods and services, and of labour. Winners of globalisation tend to be those countries, regions, cities and individuals that, in the words of Dani Rodrik, “<a href="http://www.project-syndicate.org/commentary/globalization-and-the-beautiful-game">have done their homework</a>”. That is, those that have developed domestic capabilities that can take full advantage of the mobility of capital, goods and labour.</p>
<p>Football is a global game in 2014 but not so long ago this was far from the case. It benefited a lot from the wave of globalisation which started around 1990. In his great history of the game, David Goldblatt paints the time between the early 1970s and the early 1990s as the years in which “<a href="http://books.google.co.uk/books/about/The_Ball_is_Round.html?id=HAUMGbLH5zoC">things fall apart</a>”, as the Dark Ages of International Football. In Europe, because of hooliganism; in Latin America, thanks to the generals. </p>
<p>Across the whole of Europe, hooliganism was a serious issue and some may even argue that it remains so as evidenced by events in Dortmund after the <a href="http://www.spiegel.de/international/violence-in-dortmund-police-quell-hooligan-world-cup-riot-a-421554.html">2006 Germany-Poland match</a>. The UK government was one of the first to tackle organised violence with the English Premier League, created in 1992, part of this response. The other side of the Dark Ages were the generals in Latin America. The problem in Latin America was epitomised by military dictatorships using the World Cup for political purposes. Argentina 1978 provides notable examples, chiefly among them, the <a href="http://www.theguardian.com/football/2008/apr/17/newsstory.sport">Cruyff no-show</a> and the <a href="http://www.channel4.com/news/dr-henry-kissinger-and-footballs-longest-unsolved-riddle">Argentina-Peru</a> match.</p>
<h2>Free movement</h2>
<p><a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1542-4774.2011.01037.x/abstract;jsessionid=4EA08FD41BDBF430C0770AACF4A68854.f03t02">Deep integration</a> is one way to develop domestic capabilities that can take advantage of the free mobility of goods, capital, and labour and European integration is one of the most powerful examples. In December 1995, the European Court of Justice (the highest court in the European Union) decided that football could not opt out from the free movement of labour enshrined in the Treaty of Rome. This became known as the Bosman ruling – after <a href="http://www.independent.co.uk/sport/who-is-jeanmarc-bosman-1602219.html">the player that most came to symbolise the campaign</a> – and it has changed world football because it prohibited European clubs from discriminating against foreign players.</p>
<p>What do economists know about migration and the performance of national teams in major international football tournaments? It may surprise some but the answer is “quite a lot.” <a href="https://www.gc.cuny.edu/CUNY_GC/media/CUNY-Graduate-Center/PDF/Centers/LIS/Milanovic/papers/2005/RRIP_A_133964.pdf">Branko Milanovic</a> wrote the seminal piece on this in 2005. He argues that free movement of labour benefits the game by making it more competitive, by reducing inequality (measured as average goal difference) between national teams. </p>
<p>In 2007, Garry Gelade and Paul Dobson <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6237.2007.00456.x/abstract">found</a> that the percentage of national team players playing abroad has a positive and significant impact on national team performance. More recently, it’s been <a href="http://www.sciencedirect.com/science/article/pii/S0927537112001303">estimated</a> that migration of national team players significantly improves the international performance of the national football team. They also find that this effect is larger, the larger the gap in quality between playing at home and playing abroad. </p>
<h2>Three unmovable lions</h2>
<p>How is migration good for team performance in World Cups? Most of this literature identifies human capital spillovers as the main reason. The idea is that players learn from other players. For instance, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2333289">it has been shown</a> that, all things being equal, more linguistically diverse teams do better in the Champions League. It has also been <a href="http://www.sciencedirect.com/science/article/pii/S0927537112001303">argued</a> that migration is good for performance in World Cups because of the better quality of training facilities, diet and equipment in other countries. </p>
<p>This is a good general explanation because the vast majority of national team players in this World Cup play in countries that are richer than their countries of origin (think of the many African players currently in European teams). But what about England? Training facilities can not be that much better abroad. </p>
<p>If migration in particular and globalisation in general are so good for the performance of the national team, how come England has not won a major tournament since 1966? After all, the Premier League is a commercial and sporting success: a global brand that has supplied the largest number of players for this years’ World Cup (although Bayern Munich leads at a club level with <a href="http://www.theguardian.com/football/datablog/2014/jun/06/world-cup-squads-rosters-broken-down-club-age-height?utm_content=buffer18775&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer&_ga=1.233966166.91241866.1402470039">15 players</a> in the tournament), a league in which 13 of the 20 clubs are foreign-owned and the football league that generates the largest TV revenues in the world. </p>
<p>In the 2014 World Cup, there are only two national teams with <a href="http://www.fifa.com/worldcup/news/y=2014/m=6/news=world-cup-squads-officially-confirmed-2354847.html">every single one of their players</a> based in their home countries: England and Russia. The only Englishman not playing in England is a goalkeeper who plies his trade in Scotland. The Russian coach is Italian. Hair-splitters should have a field day debating whether England or Russia wins the title for least globalised team in the 2014 World Cup. </p>
<p>Incidentally, Italy is the third least globalized team, with 19 of 23 players in the domestic league (but has an Argentina-born player and a Brazil-born player in the squad). Yet what seems evident from the make-up of the 32 teams that qualified for Brazil is their diversity in terms of players from clubs in different countries (that is, Russia and England seem to be outliers).</p>
<h2>The final whistle</h2>
<p>A lesson for England is that globalisation is a two-way street. Foreign players benefit from playing in England but the reverse is not true because there are few top English players playing abroad. </p>
<p>How can migration be good for international football performance? One example is that migration allows exposure to different cultures, in this case, to different refereeing styles. The rules are the same the world over, but their interpretation and enforcement differ. </p>
<p>One example: tackling. England is where “football is a contact sport” and the “<a href="http://ajs.sagepub.com/content/32/1_suppl/43S.short">tackle</a>” is king. If you ask English fans what is the most memorable play in the history of international football many would say Bobby Moore’s 1970 tackle on Pele. </p>
<p>But English fans must have noticed that referees abroad do not seem to enjoy tackles “from behind” even if a stud does graze the ball first. World Cup referees often punish such tackles with a foul and possibly even a yellow card – let’s call the 2010 World Cup final the exception, <a href="http://news.bbc.co.uk/sport1/hi/football/world_cup_2010/8817459.stm">but where was the referee from again</a>?</p><img src="https://counter.theconversation.com/content/27848/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nauro F. Campos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Like football, globalisation creates winners and losers. For now, the England football team is one of the back markers. By globalisation we mean free movement: it is the increase in mobility across national…Nauro F. Campos, Professor of Economics and Finance, Brunel University LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/273062014-06-12T17:07:18Z2014-06-12T17:07:18ZDon’t believe the naysayers, Brazil is still strong and the World Cup is a force for good<p>When FIFA awarded the <a href="https://theconversation.com/uk/world-cup-2014">2014 World Cup finals</a> to Brazil seven years ago, it looked as if the tournament would be a coming out party for the country. Now, the picture is far more mixed. It has become fashionable to say that hosting the World Cup was a mistake, and that the competition will only expose Brazil’s economic weakness, social inequalities, and political tensions.</p>
<p>These arguments are tendentious and based on selective reasoning. <a href="http://www.bbc.co.uk/news/business-27643472">Rumours of the demise of the Brazilian economy</a> are greatly exaggerated, and the Brazilian government’s decision to host the World Cup is not the root of the country’s social, political, and economic problems. </p>
<p>The past decade has been a good one for Brazil. From 2003 to 2011, <a href="https://www.wwp.org.br/sites/default/files/pbf_sumex_ingles_web1.pdf">Brazilian per capita income increased by 40%, from R$550</a> (about £146) per month to a little over R$770 (£205). The incomes of the bottom 10% rose much faster than the incomes of the top 10%. </p>
<p>The poverty rate fell <a href="books.google.co.uk/books?id=US-pAgAAQBAJ&pg=PA133&lpg=PA133&dq=brazil+poverty+21.42&source=bl&ots=rSYnt4cjan&sig=oQZ2t_bkJcpM4fC7NJ1D2GyRWuM&hl=en&sa=X&ei=uNOZU6XVGdGB7QbwoAE&ved=0CDMQ6AEwAg#v=onepage&q=brazil%20poverty%2021.42&f=false">from 37.13% in 2003 to 21.42% in 2009</a>. In absolute terms, from 2001 to 2007, the population living in extreme poverty (with monthly per capita income below R$70, or roughly £19) fell by 11 million people, while the number of people living in poverty (with monthly per capita income below R$150, or about £40) declined by 13 million. </p>
<p>From 2003 to 2011, the number of people in the so-called “class C” – a marketing category consisting of those with a monthly family income between R$1,000 (£266) and R$4,000 (£1,064) – <a href="http://www.ipea.gov.br/agencia/images/stories/PDFs/140319_neri_ncm_brics.pdf">rose from 65.8 million to 105.4 million</a>, becoming a majority of the Brazilian population.</p>
<h2>Growth and equality</h2>
<p>Until recently, the Brazilian economy has been doing something very few other major economies have been doing. It has been growing (modestly, at an average of close to 3% per year in 2003-2010) and reducing inequality. From 2003 to 2011, the <a href="http://data.worldbank.org/indicator/SI.POV.GINI">Gini coefficient</a>, a measure of income inequality, fell by 9.2%, from 0.576 to 0.523. <a>Thomas Piketty, the author of Capital</a>, would insist that such a measure should be supplemented by other analyses, such as an estimate of inequalities in wealth, and a disaggregation of income from labour and capital. Nevertheless, Brazil’s recent inclusive growth has been striking, considering that inequality (as measured by the Gini and a variety of other indicators) clearly rose in India and China, as well as in post-financial crisis Europe and the US.</p>
<p>Under President Dilma Rousseff, the Brazilian <a href="http://www.reuters.com/article/2014/06/04/us-brazil-rousseff-idUSKBN0EF04020140604">economy has slowed</a>. Growth averaged 2% in 2011-13, and is predicted to be about 2% again this year. Reductions in economic inequality have also slowed. The drop in quantitative easing in the US, a fall in commodity prices, and structural limitations in the Brazilian economy, including poor infrastructure and relatively low quality basic education, are some of the reasons for this. </p>
<p>The <a href="http://online.wsj.com/articles/hope-fades-in-brazil-for-a-world-cup-economic-boost-1401242039">international financial press</a> has attacked Brazil’s malaise (exaggerating it in the process) and called for a more liberal, market-oriented approach. But Brazil’s challenges go beyond a simple dichotomy between more state and more market. And the consensus on economic policy in Brazil is more statist than the consensus in the UK and the US – no politician accepts the label of “neoliberal”, for example – and will remain so whoever wins this year’s presidential election.</p>
<h2>Home advantage</h2>
<p>Slower economic growth obscures a relatively buoyant picture at the level of household incomes in Brazil. Per capita earnings were still positive in 2013. And Brazil’s fundamentals, such as international reserves of almost $400 billion and an unemployment rate of less than 5%, would be the envy of any European country.</p>
<p>So why do Brazilians seem so unhappy, <a href="https://theconversation.com/brazilians-await-the-world-cup-kick-off-with-ambivalence-27902">or at least ambivalent</a>, about hosting the World Cup? The Confederations Cup of June-July 2013, a warm-up for the World Cup, became a lightning rod for a <a href="http://www.economist.com/blogs/americasview/2013/06/protests-brazil">huge variety of protesters</a> last year. One of the most common criticisms of the government was that it built “FIFA-standard” football stadiums, without building “FIFA-standard” hospitals, schools, or public transportation systems. Protestors objected to the tripling of the costs of the football stadiums, to about $3.7 billion, and the overall price tag for the World Cup, of about $11.5 billion.</p>
<p>These criticisms reflect an admirable exercise of citizenship, and protestors’ demands for the government to curb corruption and improve public services are understandable. Nevertheless, the World Cup has to be put in context. It was not silly for football-mad Brazil to host another tournament, given that it last did so in 1950. Popular football clubs will extensively use most of the new stadiums after the World Cup. (Just ask a Corinthians fan if spending on the new Itaquerao stadium in Sao Paulo was worth it.) </p>
<p>And the cost of the World Cup for Brazil is relatively small compared to other government expenditures. The annual interest payments on Brazil’s public debt, for example, are almost nine times bigger than the government’s World Cup spending. <a href="https://theconversation.com/serious-about-fixing-corruption-whichever-way-you-look-at-it-fifa-doesnt-come-out-well-27532">FIFA may be a corrupt and unaccountable organisation</a>, but it is not the main cause of global economic inequality. A financial system that enriches an oligopoly of lenders to sovereign states is a much more plausible candidate for such a role, but, being complex and fragmented, tends not to be targeted by protesters. </p>
<p>Football is not responsible for social exclusion in Brazil. Instead, football has been a means of inclusion and social mobility for many poor and non-white players, and is more racially integrated than other spheres of Brazilian life, such as fashion, elite universities, or the upper echelons of many Federal ministries. There is more to do to include non-white participants in football management and club directorship in Brazil, but football hardly deserves to be singled out as a symbol of something that is uniquely wrong about the country. </p>
<p>Playing football has brought joy to millions of Brazilians. Watching football has united fans, and performances of the Selecao, Brazil’s national team, has projected a positive image of “Brazilianness” abroad.</p>
<h2>Political football</h2>
<p>Brazil’s <a href="http://www.bloomberg.com/news/2014-06-06/rousseff-s-lead-narrows-in-brazil-as-undecided-voters-increase.html">presidential election</a> officially begins on July 5, but it will really begin on July 14, the day after the World Cup final in the Maracana stadium in Rio. The World Cup is unlikely to directly affect the election, unless there is a major problem in the tournament’s organisation. In recent years, success on the pitch for the <em>Selecao</em> (the national side) has not been a requirement for the re-election of a government. </p>
<p>José Serra, the preferred successor to President Fernando Henrique Cardoso (1995-2002) lost in 2002 when Brazil won the Cup in Japan, and President Lula (2003-2010) was re-elected in 2006 after Brazil was knocked out by France in a quarter-final in Germany. President Roussef’s principal opponent in the election, Aécio Neves, may try to play on public misgivings about the World Cup, but he helped to organise the tournament in his home state of Minas Gerais when he was governor there. </p>
<p>Despite what many critics say, the real question facing Brazil is not whether it should have staged the World Cup or not, or whether it should liberalise its economy along orthodox lines, or even whether it can achieve again a growth rate of 7.5%, as it did in 2010. The real question is whether it can continue to reduce economic inequality, and thus fulfil its democratic promise. That challenge will remain after the last final whistle blows next month.</p><img src="https://counter.theconversation.com/content/27306/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Pereira does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When FIFA awarded the 2014 World Cup finals to Brazil seven years ago, it looked as if the tournament would be a coming out party for the country. Now, the picture is far more mixed. It has become fashionable…Anthony Pereira, Director, King's Brazil Institute, King's College LondonLicensed as Creative Commons – attribution, no derivatives.