tag:theconversation.com,2011:/au/topics/commodities-382/articlesCommodities – The Conversation2023-02-14T06:15:06Ztag:theconversation.com,2011:article/1974472023-02-14T06:15:06Z2023-02-14T06:15:06ZGold mining is one of the world’s most destructive and unnecessary industries – here’s how to end it<figure><img src="https://images.theconversation.com/files/509425/original/file-20230210-26-satqns.jpg?ixlib=rb-1.1.0&rect=16%2C0%2C5590%2C3715&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Two trucks transport gold ore from Barrick Cowal Gold Mine in New South Wales, Australia.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/two-trucks-transport-gold-ore-open-253657471">Jason Benz Bennee/Shutterstock</a></span></figcaption></figure><p>The 16th-century <a href="https://www.nytimes.com/2005/10/24/world/behind-golds-glitter-torn-lands-and-pointed-questions.html">King Ferdinand of Spain</a> sent his subjects abroad with the command: “Get gold, humanely if possible, but at all hazards, get gold.” His statement rings true today. Gold remains one of the world’s most expensive substances, but mining it is one of the most environmentally and socially destructive processes on the planet.</p>
<p><a href="https://www.gold.org/goldhub/data/gold-demand-by-country">Around 7%</a> of the gold purchased globally each year is used for industry, technology or medicine. The rest winds up in bank vaults and jewellery shops. </p>
<p>Beautiful objects and stable investments are worthwhile things to create and own, and often have significant cultural value. But neither can justify gold mining’s staggering human and ecological toll. In a <a href="https://iopscience.iop.org/article/10.1088/1748-9326/ac9f26">recent study</a>, my colleagues and I showed how it might be possible to end mining and instead rely entirely on recycled gold.</p>
<p>Despite improvements in gold mining practices over the past century and <a href="https://www.mercuryconvention.org/en/resources/minamata-convention-mercury-text-and-annexes">new regulations</a> designed to limit mining’s impacts, this industry continues to wreak havoc upon landscapes across every continent except Antarctica.</p>
<p>In a given year, gold mines <a href="https://www.sciencedirect.com/science/article/pii/S0959652622004899">emit more greenhouse gases</a> than all passenger flights between European nations combined. <a href="https://chemistry-europe.onlinelibrary.wiley.com/doi/10.1002/chem.201704840">Gold mining</a> also accounts for 38% of annual global mercury emissions, which cause millions of small-scale miners to suffer from chronic mercury poisoning, which can cause <a href="http://doi.org/10.1016/j.aogh.2016.12.005">debilitating illness</a>, especially in children. </p>
<p>Our research involved modelling hypothetical scenarios in which gold consumption could decline to more sustainable levels. Using current recycling rates, we examined a fully circular gold economy in which the world’s entire supply of gold came from recycled sources. </p>
<p>Even today, nearly one-quarter of annual gold demand is supplied through recycling, making it one of the world’s most recycled materials. The recycling process uses no mercury and has <a href="https://link.springer.com/article/10.1007/s11367-020-01809-6">less than 1%</a> of the water and carbon footprint of mined gold.</p>
<p>We found that a global decline in gold mining would not necessarily derail any of gold’s three central functions in jewellery, technology or as an investment.</p>
<h2>Towards circularity</h2>
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<img alt="A figure showing the three hypothetical scenarios of future gold flows." src="https://images.theconversation.com/files/508372/original/file-20230206-25-ggplx7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/508372/original/file-20230206-25-ggplx7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508372/original/file-20230206-25-ggplx7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508372/original/file-20230206-25-ggplx7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508372/original/file-20230206-25-ggplx7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508372/original/file-20230206-25-ggplx7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508372/original/file-20230206-25-ggplx7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&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">Gold stocks and three scenarios of gold flows.</span>
<span class="attribution"><a class="source" href="https://iopscience.iop.org/article/10.1088/1748-9326/ac9f26">Lezak et al. (2022)</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
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<p>Our model showed that the gold used for industrial purposes (mainly in dentistry and smartphones) could be supplied for centuries even if all gold mining stopped tomorrow. </p>
<p>We also found that jewellery could still be produced with recycled gold in a fully circular gold industry. There would just be about 55% less to go around, which would still leave more than enough for essential uses. </p>
<p>In order to make this future a reality, investors would have to limit their trading to existing reserves, without adding newly mined gold to their coffers.</p>
<p>A world with a shrinking supply of gold would likely mean that consumers would pay more for the same 24-karat pure gold ring. But more likely, jewellery purchases would shift to cheaper (and more durable) alloys of gold that are already popular. And in the future, demand for gold may decline as consumers become more concerned with making sustainable choices. </p>
<p>The role that invested gold plays in the global economy would likely continue to function regardless of extraction. Like Renaissance art, gold is valuable precisely because it is scarce. Ending gold mining would not put an end to the buying and selling of gold for bank vaults. Instead, it would make existing stocks of gold more valuable.</p>
<p>Irrespective of whether the world needs gold, our research suggests that the world does not need gold mining.</p>
<p>Private investors and central banks may balk at this idea. The US government, for example, is the world’s single largest owner of gold, holding <a href="https://www.fiscal.treasury.gov/reports-statements/gold-report/21-02.html">US$11 (9.1) billion in reserves</a>. But transitions to sustainability are always hard-won and the gold industry is no exception.</p>
<h2>Inspired by other transitions</h2>
<p>Like gold, the extraction of fossil fuels is also environmentally damaging. But unlike gold, fossil fuels provide warmth and electricity to homes and businesses, power to vehicles and fertiliser to farms. Transitioning away from this resource required decades of research and investment into clean energy technologies.</p>
<p>By contrast, finding substitutes for gold does not require any research. Jewellery can be made more sustainable by blending gold with other metals. Investors can rely on existing gold stocks and diversify to other stable assets. And technology can continue to use recycled gold when appropriate.</p>
<p>Closing gold mines is the first step. But many regions have grown dependent on gold mining, and artisanal mining alone supports as many as <a href="http://dx.doi.org/10.1016/j.aogh.2016.12.005">19 million </a> miners and their families worldwide, mostly in developing economies.</p>
<p>These miners deserve a just transition that ensures they do not become collateral damage in the shift to sustainability. Governments must provide a robust safety net for former gold miners and their families. That includes offering low-cost training and reskilling to ensure that miners can find employment in more sustainable industries.</p>
<h2>Steps toward sustainability</h2>
<p>Responsibly drawing down gold extraction will take time. But several measures are available to begin the transition today.</p>
<p>On the demand side of the industry, major jewellery brands, including <a href="https://pandoragroup.com/sustainability/circular-innovation/towards-recycled-silver-and-gold">Pandora</a>, have already committed to using only recycled gold by 2025. Global technology firm <a href="https://www.greenbiz.com/article/can-apple-close-loop-tech-giant-targets-100-recycled-material">Apple</a> has also recently set a goal to use exclusively recycled materials by 2030.</p>
<p>On the supply side, mining companies should begin retiring mines that extract only gold. Many copper mines produce gold as a byproduct, which will likely continue into the future. </p>
<p>Meanwhile, institutional investors should stop investing in new gold mines. That includes groups like the <a href="https://finances.worldbank.org/Projects/IFC-Investment-Services-Projects/efin-cagm/data">World Bank</a>, which has invested US$800 (£660) million in gold mines in Africa, Asia, South America and the Pacific Islands since 2010.</p>
<p>Justice-minded fund managers, such as those overseeing endowments, should add gold mining firms alongside coal producers to their divestment lists. And central banks should redirect their future investments toward other stable stores of value, or at least source exclusively recycled gold.</p>
<p>The world is filled with difficult sustainability trade-offs. Gold mining is not one of them. Drawing down this industry stands out as a relatively easy way to reduce humanity’s footprint on a fragile planet.</p>
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<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p class="fine-print"><em><span>Stephen Lezak is a Gates Scholar at the University of Cambridge Department of Geography and a researcher at the University of Oxford Smith School of Enterprise and the Environment.</span></em></p>A gradual drawdown of gold mining is a critical step towards sustainability.Stephen Lezak, Research Manager at the Smith School of Enterprise and the Environment, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1976732023-01-30T13:14:44Z2023-01-30T13:14:44ZBrazil’s economic challenges are again Lula’s to tackle – this time around they’re more daunting<figure><img src="https://images.theconversation.com/files/505670/original/file-20230120-15684-t92yp2.jpg?ixlib=rb-1.1.0&rect=77%2C17%2C3917%2C2329&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bolstering Brazil's economy will be hard if there's a global recession.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/brazils-president-luiz-inacio-lula-da-silva-gestures-during-news-photo/1246116883?adppopup=true">Mauro Pimentel/AFP via Getty Images</a></span></figcaption></figure><p>Even when they’re in trouble, Brazilians rarely lose their sense of humor. But in recent years, their joviality has often given way to <a href="https://www.ipsos.com/sites/default/files/ct/news/documents/2021-06/Culture%20wars%20around%20the%20world%20_0.pdf">political division</a> everywhere from social media to the dinner table.</p>
<p>One <a href="https://theconversation.com/brazil-no-longer-the-country-of-the-future-59505">familiar quip</a> – that Brazil is the country of the future and always will be – has lost its levity as Luiz Inácio Lula da Silva begins his third <a href="https://www.gov.br/secretariadegoverno/pt-br/posse-presidencial">presidential term</a>. <a href="https://www.npr.org/2023/01/01/1146518711/leftist-lula-brazil-sworn-in-president">Lula previously led his country from 2003 to 2010</a>. The president, who was sworn in again on Jan. 1, 2023, promised on the campaign trail that Brazil’s future can be like its past again: more prosperous and less polarized. </p>
<p>Having <a href="https://scholar.google.com/citations?user=KBw41t4AAAAJ&hl=en&oi=ao">studied Brazil</a> in <a href="https://www.nber.org/people/marc_muendler?page=1&perPage=50">our economic research</a>, and having lived in the country for several years by birth or by choice, we argue that it will not be easy for Lula to fulfill his economic promises.</p>
<p>Unlike in his first two terms, when domestic and foreign markets <a href="https://www.econ.puc-rio.br/biblioteca.php/trabalhos/show/1533">helped the economy along</a>, Lula now faces <a href="https://www.oecd.org/economy/brazil-economic-snapshot">strong headwinds at home</a> <a href="https://www.weforum.org/press/2023/01/chief-economists-say-global-recession-likely-in-2023-but-cost-of-living-crisis-close-to-peaking">and abroad</a> – and that means sound policies are even more important this time around.</p>
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<h2>Good times, bad times and economic choices</h2>
<p>Brazil shot up from the world’s 14th-largest economy in 2003 to the <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=BR">seventh-biggest in 2010</a>, during a boom that largely coincided with Lula’s prior presidency. At the same time, the country’s <a href="https://databank.worldbank.org/source/world-development-indicators">poverty rate</a>, which the World Bank today pegs at the share of the population living on less than US$3.65 a day, fell sharply, from 26% to 12%.</p>
<p><a href="https://www.exportgenius.in/blog/brazil-exports-higher-than-imports-a-brief-overview-of-brazil-trade-641.php">Brazil exports so many</a> gallons of orange juice, bags of coffee, bushels of wheat and other commodities that it’s serving up the world’s breakfast. Global growth during those years boosted the demand for these commodities as well as for Brazil’s processed goods. Manufacturing exports fueled Brazil’s growth in the decade following the year 2000 for the first time, led by sales <a href="https://legacy.trade.gov/steel/countries/pdfs/exports-brazil.pdf">of products like steel</a>, car parts and cars, and <a href="https://embraer.com/">aircraft made by Embraer</a>.</p>
<p>During these boom years, Lula ran a balanced government budget, held inflation low and <a href="https://www.imf.org/en/Publications/Books/Issues/2019/03/11/Brazil-Boom-Bust-and-Road-to-Recovery-44927">kept the Brazilian real’s exchange rate </a> with other currencies under control – macroeconomic policies that he maintained from his predecessor, Fernando Henrique Cardoso. Lula also bundled <a href="https://doi.org/10.1080/01436597.2015.1059730">Cardoso’s popular anti-poverty programs</a> into Bolsa Família, a successful <a href="https://doi.org/10.1017/S0022216X0600157X">conditional cash transfer program</a>. To remain enrolled and receive the monetary benefits, low-income families had to get their children vaccinated against diseases, keep them in school and <a href="https://www.iadb.org/en/toolkit/conditional-cash-transfer-programs/brazil-bolsa-familia">meet other requirements</a>. </p>
<p>Cynthia Benedetto, Embraer’s chief financial officer, <a href="https://valor.globo.com/brasil/noticia/2011/09/13/chegou-a-hora-do-brasil-ou-ela-acabou-de-passar.ghtml">observed in 2011</a>: “Since my childhood I heard that Brazil is the country of the future,” and then warned, “Now the future has arrived, and I start to fear that it is short.”</p>
<p>She was right. The good times didn’t last. </p>
<p>During the second decade of this century, the prices of many of the commodities that Brazil exports <a href="https://fred.stlouisfed.org/series/PNFUELINDEXQ">fell or even plummeted</a>. The country experienced two of the <a href="https://www.npr.org/sections/thetwo-way/2017/03/07/519073220/brazils-recession-the-longest-and-deepest-in-its-history-new-figures-show">worst recessions in its history</a>. In the downturn that lasted from late 2014 to mid-2016, <a href="https://sidra.ibge.gov.br/tabela/4094">nearly 5 million Brazilians lost their jobs</a>. After a sluggish recovery, the COVID-19 pandemic hit, and <a href="https://repositorio.cepal.org/bitstream/handle/11362/46504/64/PO2020_Brazil_en.pdf">10 million Brazilians became jobless</a> in another big downturn.</p>
<h2>Political upheaval</h2>
<p>Bad choices made tough and unlucky times worse.</p>
<p>A combination of <a href="https://doi.org/10.1080/05775132.2020.1866906">economic mismanagement</a>, <a href="https://www.jstor.org/stable/45290155#metadata_info_tab_contents">widespread corruption</a>, <a href="https://semancha.com/2013/06/22/the-gringos-guide-to-demonstrations-in-brazil/">political turmoil</a> and a <a href="https://ourworldindata.org/coronavirus/country/brazil">global pandemic</a> all contributed to 10 years of backward sliding after a decade of progress.</p>
<p>Lula’s <a href="https://www.poder360.com.br/justica/5-anos-de-lava-jato-285-condenacoes-600-reus-e-3-000-anos-de-penas/">allies</a>, including some in his <a href="https://www.camara.leg.br/tv/388972-supremo-condena-ex-ministro-jose-dirceu-a-10-anos-e-10-meses-de-reclusao/">inner circle</a>, were found to be part of <a href="https://www.bbc.com/news/world-latin-america-35810578">one corruption scheme after another</a>. Lula himself <a href="https://www.reuters.com/article/brazil-corruption-lula/former-brazilian-president-lula-found-guilty-of-corruption-idUSE6N1JB014">ended up in prison for corruption</a> until <a href="https://portal.stf.jus.br/noticias/verNoticiaDetalhe.asp?idConteudo=464261&ori=1">Brazil’s Supreme Court declared the case a mistrial</a> because the presiding judge was determined to have been biased.</p>
<p>Brazilians elected Lula’s hand-picked successor, <a href="https://www.bbc.com/news/world-latin-america-29782073">Dilma Rousseff</a>, in the 2010 and 2014 presidential races. She cast aside some of her predecessors’ policies that had buttressed economic stability.</p>
<p>Rousseff <a href="https://www.correiobraziliense.com.br/app/noticia/economia/2016/01/20/internas_economia,514557/tombini-se-curva-a-pressao-do-pt-e-banco-central-deve-manter-juros.shtml">ended the central bank’s de facto independence</a> and lowered interest rates in an <a href="https://drive.google.com/file/d/1ldGPSw-D2wugZNlKc8_lBg918YGC0-3G/edit">abrupt turnaround that sparked inflation</a>. She gave up on <a href="https://www.correiobraziliense.com.br/app/noticia/economia/2013/11/07/internas_economia,397597/mantega-admite-que-a-meta-fiscal-deste-ano-nao-sera-atingida.shtml">balancing the budget</a>.</p>
<p>Once corruption was exposed in state-owned oil company <a href="https://www.cnnbrasil.com.br/politica/lula-admite-corrupcao-na-petrobras-erros-de-dilma-e-compara-mensalao-a-orcament/">Petrobras</a>, the <a href="https://www.bbc.com/news/business-39194395">construction industry</a> and at Brazil’s massive <a href="https://www.metropoles.com/brasil/politica-brasil/diretor-do-bndes-brasil-legalizou-corrupcao-com-mudanca-na-lei">state-run development bank</a>, economic activity slowed across the board. Rousseff oversaw one of Brazil’s most severe economic contractions in memory: <a href="https://databank.worldbank.org/source/world-development-indicators">GDP shrank by 7%</a> and <a href="https://blogdoibre.fgv.br/posts/divida-bruta-ou-divida-liquida-eis-questao">public debt increased 20 percentage points as a share of GDP</a> from 2014 to 2016.</p>
<p>Brazil’s <a href="https://apnews.com/article/latin-america-caribbean-brazil-impeachments-international-news-d5614b598b25470e839d9d8acfc9cff8">Congress impeached and convicted Rousseff</a> in 2016 for fiscal improprieties. Her vice president, <a href="https://www.reuters.com/article/uk-brazil-politics-temer-idUKKCN0Y32WC">Michel Temer</a>, served out the rest of her term and appointed Lula’s central bank chair, <a href="https://www.reuters.com/article/us-brazil-politics-ministers/brazils-temer-names-henrique-meirelles-as-finance-minister-idUSKCN0Y322W">Henrique Meirelles, as minister of finance</a> to help rein in public debt.</p>
<p>Jair Bolsonaro, a vocal admirer of Brazil’s <a href="https://www.npr.org/2018/07/30/631952886/dictatorship-was-a-very-good-period-says-brazil-s-aspiring-president">20th-century military dictatorship</a>, <a href="https://www.theguardian.com/world/2019/jan/01/jair-bolsonaro-inauguration-brazil-president">became president in 2019</a> by riding the wave of widespread sentiment against Lula’s and Rousseff’s Workers’ Party. Bolsonaro prioritized <a href="https://oglobo.globo.com/economia/carlos-goes/coluna/2021/09/do-entusiasmo-com-equipe-economica-decepcao-25212666.ghtml">short-term political gain</a> over long-term adjustment, often <a href="https://www.bbc.com/portuguese/brasil-50105202">clashing with his own economic aides</a> and dodging rules meant to curb government spending. </p>
<p>By 2020, Brazil’s economy <a href="https://databank.worldbank.org/source/world-development-indicators">ranked No. 12 in the world in terms of GDP</a>, and living conditions deteriorated. In 2021, the poverty rate likely hit the highest level in a decade, according to estimates by <a href="https://web.archive.org/web/20230106004340/https://repositorio.ipea.gov.br/bitstream/11058/11563/4/NT_102_Disoc_Um_Pais.pdf">researchers at IPEA, a government think tank</a>, as well as <a href="https://agenciadenoticias.ibge.gov.br/en/agencia-news/2184-news-agency/news/35695-poverty-hits-a-record-in-2021-62-5-million-persons-highest-level-since-2012">IBGE</a>, Brazil’s statistics agency.</p>
<p>The pandemic and the social spending fluctuations it brought about have made it hard to accurately track economic trends in recent years. But the numbers suggest that Brazil is close again to where it started the 21st century. </p>
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<h2>Back to the future</h2>
<p>Lula’s economic challenges are daunting, over and above the political crisis after the <a href="https://theconversation.com/democracy-under-attack-in-brazil-5-questions-about-the-storming-of-congress-and-the-role-of-the-military-197396">riots by opposition supporters in Brasília</a>.</p>
<p>First, the economic outlook is gloomy. Inflation has led central banks worldwide to <a href="https://www.fitchratings.com/research/sovereigns/global-interest-rates-rising-faster-than-expected-pivot-unlikely-in-2023-10-11-2022">increase interest rates</a>, and the International Monetary Fund <a href="https://www.imf.org/en/Blogs/Articles/2022/10/11/policymakers-need-steady-hand-as-storm-clouds-gather-over-global-economy">forecasts a global slowdown in 2023</a>. </p>
<p>Even if the world still wants Brazil’s coffee, <a href="https://citrusindustry.net/2023/01/13/brazils-orange-juice-production-and-exports/">orange juice</a> and cereal from wheat or corn for breakfast, we doubt that foreign demand for Brazil’s exports will bounce back to the levels seen in past boom years. </p>
<p><a href="https://data.imf.org/commodityprices">Global prices for many of the commodities Brazil exports</a> have been sliding downward for the past 15 years. They briefly reached their 2008 peak level again in mid-2022, partly driven by Russia’s invasion of Ukraine and the ensuing global turmoil that <a href="https://www.ifpri.org/blog/food-export-restrictions-have-eased-russia-ukraine-war-continues-concerns-remain-key">drove food prices up</a>.</p>
<p>But the prices of commodities that are <a href="https://www.usitc.gov/data/gravity/itpde.htm">particularly important to Brazil</a>, such as <a href="https://tradingeconomics.com/commodity/soybeans">soybeans</a>, <a href="https://tradingeconomics.com/commodity/corn">corn</a> and <a href="https://tradingeconomics.com/commodity/coffee">coffee</a>, are all down significantly from their recent peaks.</p>
<p>During his 2022 campaign, Lula promised to <a href="https://economia.uol.com.br/noticias/reuters/2022/08/17/lula-reajuste-tabela-imposto-de-renda.htm">slash taxes on the upper-middle class</a> and <a href="https://oglobo.globo.com/economia/noticia/2022/10/eleito-prioridade-de-lula-e-renovar-auxilio-brasil-de-r-600-e-dar-aumento-real-para-o-minimo.ghtml">increase benefits for the poor</a> while <a href="https://gauchazh.clicrbs.com.br/economia/noticia/2022/11/alckmin-diz-que-governo-lula-vai-fechar-contas-no-azul-e-reduzir-divida-mas-nao-em-24-horas-clalruut3000801g7stvj1i22.html">keeping government finances under control</a>.</p>
<p>This arithmetic is feasible in an era of rapid growth, when newly generated wealth can finance public transfers. At times of slow or no growth, like today, it becomes much harder to pull off.</p>
<p><iframe id="7jPK6" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/7jPK6/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Second, unlike when Lula first took office <a href="https://oxfordre.com/latinamericanhistory/display/10.1093/acrefore/9780199366439.001.0001/acrefore-9780199366439-e-416;jsessionid=A0929A5DBDAF95045F6D2AA8214B2378?mediaType=Article">following a period of fiscal stability</a>, this time he must credibly rebuild much of the fiscal framework.</p>
<p>After boosts to benefits, tax cuts and some <a href="https://www.insper.edu.br/agenda-de-eventos/lancamento-do-livro-para-nao-esquecer-politicas-publicas-que-empobrecem-o-brasil/">unfunded pension commitments to retirees</a>, it’s become hard to balance Brazil’s budget. In response to the crisis in the mid-2010s, Brazil’s <a href="https://www12.senado.leg.br/noticias/materias/2016/12/15/promulgada-emenda-constitucional-do-teto-de-gastos">Congress passed a spending cap</a> that gradually rises so as to foster slow fiscal adjustment while avoiding harsh austerity. But Bolsonaro essentially got rid of the cap by circumventing it.</p>
<p>One example is the federal government’s obligation to cover court-mandated payments: <a href="https://www.google.com/url?q=https://www.camara.leg.br/noticias/839381-camara-aprova-em-2o-turno-mudancas-na-pec-dos-precatorios/&sa=D&source=docs&ust=1674072828470042&usg=AOvVaw3wBnAFA1gSAvGVnSFLHL8g">Bolsonaro delayed</a> the disbursement of 110 billion reais ($21.6 billion), equal to more than 1% of Brazil’s GDP, in 2022. That means the new government has to pay this year’s and some of last year’s bills at the same time.</p>
<p>While <a href="https://www.nbcnews.com/news/latino/brazils-bolsonaro-says-no-national-lockdown-record-covid-deaths-rcna618">Bolsonaro dismissed the severity of COVID-19</a> when it was spreading uncontrolled through his country, his government did help people cope with its economic fallout by allowing <a href="https://www.planalto.gov.br/ccivil_03/portaria/dlg6-2020.htm">emergency spending that breached Brazil’s spending cap</a>. However, his administration <a href="https://g1.globo.com/jornal-nacional/noticia/2022/06/30/senado-aprova-pec-que-preve-estado-de-emergencia-para-ampliar-beneficios-sociais.ghtml">maneuvered to perpetuate the state of emergency</a> and kept spending levels higher than the cap would allow long after Brazilians stopped staying at home for public health reasons.</p>
<p>Third, we expect political divisions, including some <a href="https://www.gov.br/planalto/pt-br/acompanhe-o-planalto/noticias/2023/01/geraldo-alckmin-toma-posse-como-vice-presidente-da-republica">within Lula’s administration</a>, to be another obstacle. Different factions on his economic team are likely to be at loggerheads for the foreseeable future because they prefer starkly different policies.</p>
<p><a href="https://www.cnnbrasil.com.br/politica/simone-tebet-quem-e-a-nova-ministra-do-planejamento-e-ex-adversaria-de-lula-na-eleicao/">Simone Tebet</a>, the new economic planning minister who is in charge of coordinating spending, has several fiscal conservatives on her team.</p>
<p>Finance Minister Fernando Haddad, in contrast, has appointed undersecretaries known to invariably <a href="https://www1.folha.uol.com.br/colunas/bernardo-guimaraes/2022/12/o-que-esperar-da-politica-economica-do-novo-governo.shtml">advocate for more spending</a>. Plans for taxes and spending released to date set a budget surplus of 0.5% of GDP as the new government’s target, primarily financed with more tax collection. </p>
<p>Using budget projections by the <a href="https://www.imf.org/-/media/Files/Publications/fiscal-monitor/2022/October/Data/fm-october-2022-database.ashx">International Monetary Fund</a>, we consider those revenue projections <a href="https://www1.folha.uol.com.br/mercado/2023/01/pacote-de-haddad-vai-na-direcao-correta-mas-ha-duvidas-sobre-execucao-dizem-economistas.shtml">overly optimistic</a>.</p>
<p>To be sure, any new government deserves time to prove itself, especially under tough circumstances. But <a href="https://www.briq-institute.org/global-preferences/rankings#1-0-1">patience is rarer in Brazil</a> than humor – and always has been.</p><img src="https://counter.theconversation.com/content/197673/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc-Andreas Muendler received funding from the National Science Foundation for research using Brazilian data.
Marc-Andreas Muendler worked as a consulting researcher for the Brazilian labor ministry and the Brazilian census bureau, and currently works closely with the research department of Brazil's central bank in Sao Paulo on research into firm dynamics.</span></em></p><p class="fine-print"><em><span>Carlos Góes was a senior economic adviser at the Executive Office of the President of Brazil (2017-18). He is currently an economics columnist for O Globo, a Brazilian newspaper. He is the founder of Instituto Mercado Popular, a nonpartisan São Paulo-based think tank. </span></em></p>He faces strong headwinds at home and abroad as his third term as president gets underway.Marc-Andreas Muendler, Professor of Economics, University of California, San DiegoCarlos Góes, Doctoral Candidate in Economics, University of California, San DiegoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1860692022-08-31T14:53:36Z2022-08-31T14:53:36ZEnergy crisis: why the UK will be at the mercy of international gas prices for years to come<figure><img src="https://images.theconversation.com/files/482051/original/file-20220831-26-imdrtk.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C8622%2C5644&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The UK is expecting a long, cold winter and gas prices are unlikely to fall for some years to come. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/cold-grandfather-warming-himself-by-radiator-2106329783">Jelena Stanojkovic / Shutterstock</a></span></figcaption></figure><p>The UK is trying to ensure households and businesses have enough energy this winter by turning to international markets buoyed by booming <a href="https://www.reuters.com/markets/commodities/firms-make-deals-boost-lng-exports-60-us-canada-mexico-2022-08-23/">US liquefied natural gas (LNG) supply</a>, and reinstating retired <a href="https://www.energyvoice.com/oilandgas/north-sea/440350/nsta-gives-centrica-green-light-to-reopen-rough-gas-storage-site/">storage capabilities</a>. But the impact of Russia’s recent decision to switch off its <a href="https://www.theguardian.com/business/2022/aug/31/nord-stream-1-russia-switches-off-gas-pipeline-citing-maintenance">Nord Stream 1 pipeline</a> has proven that European countries are still very much at the mercy of changes in global gas market supply and demand. </p>
<p>Such events are likely to continue to cause gas price volatility until more supply is available, which could take at least three years. Indeed, a <a href="https://www.theguardian.com/business/2022/aug/30/wholesale-gas-prices-tumble-as-europe-prepares-to-intervene-in-energy-markets">recent dip</a> in European gas prices is likely to be temporary.</p>
<p>Avoiding a significant gas supply emergency this winter will require the continued flow of some Russian gas to Europe, lower-than-average Asian demand for LNG, and mild weather. But prices will also depend on how <a href="https://progressivepost.eu/europes-gas-crisis-requires-a-european-solution/">European neighbours respond</a> to any emergency.</p>
<p>In 2021, natural gas <a href="https://www.gov.uk/government/statistics/uk-energy-in-brief-2022">accounted for</a> 42% of the UK’s primary energy consumption and generated 40% of its electricity. It also heats over 80% of households, and is an important raw material and source of heat for industry. </p>
<p>Even though cheaper renewable sources <a href="https://ukerc.ac.uk/publications/can-renewables-help-keep-bills-down/">provide 60%</a> of the country’s energy, the UK market is structured so that electricity prices are currently set by the <a href="https://www.ofgem.gov.uk/news-and-views/blog/what-drives-wholesale-electricity-prices-britain#:%7E:text=is%20often%20the-,marginal%20source%20of%20generation,-.%20When%20electricity%20demand">most expensive unit</a> produced, which is gas.</p>
<p>The government can do little to address the cost of gas. The UK gets around half of its annual gas supply from its own North Sea reserves, but relies on <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/articles/energypricesandtheireffectonhouseholds/2022-02-01#:%7E:text=The%20UK%E2%80%AFimports%20around%2050%25%20of%20its%20gas%20from%20the%20international%20market">global markets</a> for the rest. As such, gas consumers in the UK are exposed to global market forces of supply and demand.</p>
<h2>The global rise of LNG</h2>
<p><a href="https://www.politybooks.com/search?s=Natural%20Gas">International trade in gas</a> currently relies on two forms of transportation: natural gas pipelines and ships carrying LNG. In the past, trade was regional and dominated by pipelines, but the LNG sector has grown by 57% over the last decade, creating a <a href="https://www.tandfonline.com/doi/full/10.1080/00130095.2017.1283212">globally connected market</a>. </p>
<p>Last year LNG accounted for 51% of internationally traded gas, up from 41% a decade ago. Today, <a href="https://giignl.org/wp-content/uploads/2022/05/GIIGNL2022_Annual_Report_May24.pdf">19 countries export and 44 import</a> LNG.</p>
<p>Production of LNG is expensive and complex. It involves a multi-billion dollar supply chain of liquefaction plants (where the gas is cooled to liquefy it and make it easier to transport), as well as specialist ships and regasification terminals to offload and store the LNG before it is converted into gas for power generation or injection into a domestic pipeline system. </p>
<p>Australia (21%), Qatar (21%) and the US (18%) are the top three global LNG producers, while Asia accounts for <a href="https://www.igu.org/resources/world-lng-report-2022/">73% of global LNG demand</a>. China <a href="https://www.tandfonline.com/doi/abs/10.1080/15387216.2020.1716819">consumes 21.3%</a>, followed by Japan (20%) and South Korea (12.6%). In 2021, Europe soaked up 21.0% and the UK 2.9% of total LNG trade.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/482030/original/file-20220831-18-4yglhc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/482030/original/file-20220831-18-4yglhc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=251&fit=crop&dpr=1 600w, https://images.theconversation.com/files/482030/original/file-20220831-18-4yglhc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=251&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/482030/original/file-20220831-18-4yglhc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=251&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/482030/original/file-20220831-18-4yglhc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=315&fit=crop&dpr=1 754w, https://images.theconversation.com/files/482030/original/file-20220831-18-4yglhc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=315&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/482030/original/file-20220831-18-4yglhc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=315&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An LNG tanker moored to a gas terminal.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/lng-tanker-ship-dawn-moored-gas-1295259748">Wojciech Wrzesien / Shutterstock</a></span>
</figcaption>
</figure>
<p>Some of these global buyers and sellers strike long-term contracts that can span decades and include a destination clause requiring cargoes be delivered to a specific market. </p>
<p>But the growing demand for LNG has seen a rise in shorter-term (4 years or less), more flexible contracts that allow cargoes to change route to supply the markets in which prices are higher. “Spot markets” for LNG are even shorter term, with cargoes delivered within three months of the transaction date.</p>
<p>While Asian buyers like Japan tend to purchase LNG with <a href="https://csis-website-prod.s3.amazonaws.com/s3fs-public/publication/220614_DebatingJapan_V5_I2.pdf?jygsf6Y8zhJjNSaAnvpkUe934EdD.0d">long-term contracts</a>, Europe sources <a href="https://www.shell.com/energy-and-innovation/natural-gas/liquefied-natural-gas-lng/lng-outlook-2022.html#iframe=L3dlYmFwcHMvTE5HX291dGxvb2tfMjAyMi8">most of its LNG</a> via short-term contracts and the spot market. This allows it to benefit from lower prices when the global LNG market is well supplied, but exposes it to higher prices when supply is tight, like it is now.</p>
<p>Expanding supply would certainly loosen the LNG market, but there is little prospect of a significant near-term increase in supply. In April 2022, 136 million tonnes per year of liquefaction capacity was under construction or approved for development, compared to total production capacity of <a href="https://www.igu.org/resources/world-lng-report-2022/">459.5 million tonnes per year</a>) in 2021. </p>
<p>But relatively little of this LNG will be available in the next couple of years, including <a href="https://www.highnorthnews.com/en/eu-sanctions-stop-construction-arctic-lng-2-modules-china">projects in Russia</a> that are now unlikely to complete due to sanctions. Recent <a href="https://globalenergymonitor.org/report/how-long-does-it-take-to-build-an-lng-export-terminal-in-the-united-states/">US experience suggests</a> it takes three to five years to build an LNG plant. </p>
<p>The supply and demand balance will change dramatically by 2028, therefore, when global LNG export capacity is likely to be <a href="https://www.oxfordenergy.org/publications/quarterly-gas-review-issue-18/">50% higher</a>.</p>
<h2>Russian restrictions</h2>
<p>Of course pipelines can also transport natural gas, but since its invasion of Ukraine in late February 2022, Russian gas supplies to Europe have become increasingly volatile. After refusing to supply companies that didn’t pay in Roubles, for example, Russia then used various technicalities to restrict <a href="https://www.oxfordenergy.org/publications/falling-like-dominoes-the-impact-of-nord-stream-on-russian-gas-flows-in-europe/">supply from the Nord Stream 2</a> pipeline to Germany, as well as Nord Stream 1 more recently. </p>
<p>The International Energy Agency expects Russia to meet <a href="https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/070522-russia-set-to-meet-just-25-of-eu-gas-demand-in-2022-iea">25% of EU gas demand</a> in 2022, down from over 40% in 2021. There are fears that Russia will stop supplies all together.</p>
<p>To combat this, Europe is aiming to <a href="https://www.consilium.europa.eu/en/press/press-releases/2022/07/26/member-states-commit-to-reducing-gas-demand-by-15-next-winter/">reduce its reliance on gas</a>, and <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3131">Russian gas</a> in particular. It has turned to <a href="https://www.economist.com/graphic-detail/2022/06/01/how-europe-plans-to-cope-as-russia-cuts-off-the-gas">LNG imports</a> to fill storage for the coming winter. But, with limited LNG available, <a href="https://blog.geographydirections.com/2022/05/03/the-eus-global-scramble-for-gas/">prices have skyrocketed</a>.</p>
<h2>Skyrocketing gas prices</h2>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=474&fit=crop&dpr=1 754w, https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=474&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/481999/original/file-20220831-18-55nu1g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=474&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">UK natural gas prices to August 2022.</span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/commodity/uk-natural-gas">Trading Economics</a></span>
</figcaption>
</figure>
<p>Increased European demand complicates matters for the UK. While Russia only accounts for about <a href="https://researchbriefings.files.parliament.uk/documents/CBP-9523/CBP-9523.pdf">4% of UK gas imports</a>, declining production from the North Sea means the country now import about half of the gas it consumes. Most imports come from Norway, but <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1086525/Supply_of_Liquefied_Natural_Gas_in_the_UK__2021.pdf">LNG also plays a critical role</a>.</p>
<p>And while the UK has sufficient terminal and pipeline capacity to import the gas it needs, it <a href="https://www.bloomberg.com/news/articles/2021-09-21/u-k-s-lack-of-gas-plan-leaves-country-at-mercy-of-global-market?sref=PF2RkEmW">lacks significant storage</a>. There are plans to reinstate Britain’s <a href="https://www.telegraph.co.uk/business/2022/08/15/rough-gas-storage-site-cleared-start-filling-within-weeks/">Rough storage facility</a>, which had been retired in 2017, but this will take time. Meanwhile, the UK must rely on shorter-term flexible contracts and the spot market, exposing consumers to greater price volatility.</p>
<h2>How long will the crisis last?</h2>
<p>The factors currently driving gas prices up will remain in place for several years and so the energy crisis is likely to last for <a href="https://www.ft.com/content/0ed80178-0573-41a8-b437-49e3a293f6a9">at least this winter and next</a>. This is also reflected in the <a href="https://www.ft.com/content/e11ca7cf-dd7a-43a9-a4e7-0dbd12f244d7">futures market</a>, where traders can lock in natural gas at a set price for delivery at some point in the future. </p>
<p>Reduced demand will help – whether via policy or economic recession – but the global LNG market will remain tight, and UK consumers will have to pay a high price for the gas they need. </p>
<p>Beyond 2025, a substantial increase in global LNG supply will help matters, energy efficiency will improve, and alternative sources of power generation may start to come online. But unfortunately, for the moment, there is no relief in sight for those impacted by the energy crisis.</p><img src="https://counter.theconversation.com/content/186069/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Bradshaw receives funding from UKRI to support his participation in the UK Energy Research Centre (UKERC) and the NERC-ESRC research programme on Unconventional Hydrocarbons. He consults with international energy companies and NGOs and is a Visiting Research Fellow at the Oxford Institute for Energy Studies.</span></em></p>Why the UK’s reliance on natural gas means the energy crisis is unlikely to end this winter.Michael Bradshaw, Professor of Global Energy, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1884892022-08-21T09:58:40Z2022-08-21T09:58:40ZNigerians feel the pinch as food prices continue to spiral. There aren’t easy solutions<figure><img src="https://images.theconversation.com/files/479345/original/file-20220816-16-z5eua.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Things are not rosy for Nigerians as food prices keep rising. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/general-view-of-grains-of-rice-at-paul-chinedus-shop-in-a-news-photo/1233761729?adppopup=true">Benson Ibeabuchi/AFP via Getty Images</a></span></figcaption></figure><p><em>Nigeria is grappling with rising food prices, as reflected in the spike in inflation. The <a href="https://tradingeconomics.com/nigeria/inflation-cpi">annual inflation rate</a> accelerated for a sixth straight month to 19.64% in July 2022, the highest rate since January 2017. The Conversation Africa asked economist Ndubisi Nwokoma about the spike, and what steps government can take.</em></p>
<h2>How bad is the food price issue in Nigeria?</h2>
<p>The increasing cost of food in Nigeria <a href="https://businessday.ng/business-economy/article/more-pains-for-nigerians-as-food-prices-surges-the-most-in-8months/">has significantly affected</a> the living standards of ordinary citizens. It has become a serious cause for concern. <a href="https://nigerianstat.gov.ng/elibrary/read/1241203">For instance</a>, the average price of one kilogram of beans rose on a year-on-year basis by 24.17% in June 2022. The real income of the average income earner <a href="https://theconversation.com/nigerian-workers-struggle-as-cost-of-living-outstrips-incomes-182069">has been falling consistently</a>. This implies that people can now afford fewer baskets of commodities for their livelihood and sustenance. </p>
<p>The food and non-alcoholic beverages component of inflation is by far the most important determinant as it accounts for almost 50% of the total weight of the basket of items that are used to measure price increases. </p>
<p>Food that has gone up in price includes bread, cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats and vegetables. Average Nigerians consume these items daily, particularly bread. Yam and cassava are used for producing garri and fufu, which are widely consumed across the country. </p>
<p>According to the Organised Private Sector – manufacturers and the Lagos Chamber of Commerce and Industry – inflation is perhaps <a href="https://guardian.ng/news/rising-prices-weaken-disposable-incomes-despite-easing-inflation/">the biggest poverty accelerator</a> in the economy due to its weakening effect on people’s purchasing power. The World Bank in a <a href="https://www.worldbank.org/en/country/nigeria/publication/nigeria-development-update-ndu">recent report</a> said inflation was likely to push an additional one million Nigerians into poverty by the end of 2022. </p>
<p>The bank had warned earlier that <a href="https://www.worldbank.org/en/news/press-release/2022/06/14/a-business-unusual-approach-even-more-urgently-needed-to-reduce-inflation-lessen-fiscal-pressures-and-attract-investment">six million more Nigerians</a> would fall into poverty because of rising food prices. </p>
<h2>What’s behind inflation?</h2>
<p>The inflationary trend is largely attributable to factors that have pushed up costs such as wages and input costs such as the price of energy. For example <a href="https://guardian.ng/news/nnpc-quietly-approves-petrol-pump-price-hike-to-n179-litre/">the price of premium motor spirit</a> and <a href="https://www.premiumtimesng.com/news/top-news/527984-buharis-govt-approves-electricity-tariffs-increase-without-informing-nigerians.html">tariffs for electricity</a> have gone up.</p>
<p>Production dislocations – such as disruptions to agricultural production through invasion of farmlands by itinerant herders – have also added to the rise in prices. Herders continue to resist the ranching of their cattle. This has had <a href="https://www.africanews.com/2022/02/02/hunger-crisis-looms-in-nigeria-amid-conflict-between-farmers-herders//">negative effects on the level of food production</a> because many farmers are scared of going to farm. <a href="https://www.wfp.org/emergencies/nigeria-emergency">Over four million people</a> are facing acute hunger and 320,000 children are suffering from acute malnutrition in northeast Nigeria. </p>
<p>The disruption to supply chains caused by the war in Ukraine has affected the volume of food imports. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/war-in-ukraine-is-pushing-global-acute-hunger-to-the-highest-level-in-this-century-181414">War in Ukraine is pushing global acute hunger to the highest level in this century</a>
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<p>The depreciating exchange rate of the naira against other foreign currencies has also played a role. A recent International Monetary Fund <a href="https://www.imf.org/-/media/Files/Publications/CR/2022/English/1NGAEA2022002.ashx">report</a> said that the naira depreciation over the 2021-2022 period was as much as 1.5 times worse than the currencies of other emerging market and developing economies. </p>
<p>The currency depreciation has meant that Nigeria is paying more for the commodities it imports, including wheat and other food items such as bread and flour. Ordinary Nigerians are picking up the tab for this. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/inflation-should-be-viewed-as-public-enemy-number-1-heres-why-183193">Inflation should be viewed as public enemy number 1: here's why</a>
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<p>The extent of the naira’s depreciation explains why inflation is higher in Nigeria than other comparable economies. Naira depreciation affects the cost of imported inputs and leads to price increases of goods and services along the production and supply chain.</p>
<p>The exchange rate has worsened under the Buhari administration. This recurring loss in value of the naira in relation to other currencies is reducing the purchasing power of the average Nigerian. This is particularly so for items with imported components in their production and service delivery. </p>
<p>Another factor driving the rise in food prices has been the <a href="https://www.thecable.ng/border-closure-helped-nigeria-tremendously-buhari-tells-queen-of-netherlands#:%7E:text=The%20federal%20government%20had%2C%20in,reopening%20of%20four%20land%20borders">recent closure of borders</a>. Data from the <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28608/9781464811463.pdf?sequence=6&isAllowed=y">World Bank Doing Business Indicators 2018</a> shows that border closures between Nigeria and Benin Republic significantly affected imports and prices. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/why-the-cost-of-food-is-not-yielding-to-nigerias-government-policies-178684">Why the cost of food is not yielding to Nigeria's government policies</a>
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<p>The growing level of money supply in the economy is another factor. While it’s true that inflation has risen in developed economies such as the US and the European Union, the Nigerian situation appears to have its unique peculiarities. Broad money supply – made up of currency in circulation, demand deposits/current accounts and quasi money or the combination of savings, fixed and foreign currency deposits – <a href="https://www.vanguardngr.com/2022/06/inflation-money-supply-hits-n46-5-trn-highest-in-5-years/#:%7E:text=Financial%20Vanguard%20findings%20from%20the,12%20months%20ending%20April%202021.">grew by 21% from April 2021, to N46.5 trillion (about US$111 billion) in April 2022</a>. This is far higher than the 15.3% average growth rate recorded in four years between April 2018 and April 2021. </p>
<p>With money supply increasing at a faster rate than the level of production, food prices are bound to increase.</p>
<h2>What can the government do?</h2>
<p>In <a href="https://nairametrics.com/2022/07/19/central-bank-of-nigeria-raises-monetary-policy-rate-to-14/">July</a> the Central Bank’s <a href="https://www.cbn.gov.ng/Out/2022/CCD/Central%20Bank%20of%20Nigeria%20Communique%20No.%20143%20of%20the%20Monetary%20Policy%20Committee%20Meeting%20Held%20on%20Tuesday%2019th%20JULY%202022.pdf">Monetary Policy Committee</a> meeting tried to address the situation by increasing the monetary policy rate from 13% to 14%. This followed a 1.5 percentage point rise in May. </p>
<p>This was done to address the worsening inflationary spiral and the instability of the exchange rate.</p>
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Read more:
<a href="https://theconversation.com/nigeria-has-just-hiked-interest-rates-why-its-the-wrong-recipe-for-curbing-inflation-184090">Nigeria has just hiked interest rates: why it's the wrong recipe for curbing inflation</a>
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<p>But more work needs to be done by the authorities. First, the growth of money supply needs to be checked by drastically limiting advances or overdrafts the Central Bank issues to the fiscal authorities. </p>
<p>Second, cattle ranching should be promoted so that farmers can safely go to their farms. Third, unnecessary border closures should be avoided and the operating environment should be made more conducive for businesses to thrive.</p><img src="https://counter.theconversation.com/content/188489/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ndubisi Nwokoma 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>Inflation is perhaps the biggest poverty accelerator in the economy due to its weakening effect on people’s purchasing power.Ndubisi Nwokoma, Professor of Economics, University of LagosLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1873732022-07-28T14:38:02Z2022-07-28T14:38:02ZZambia can meet growing food demand: how to fix what’s standing in its way<figure><img src="https://images.theconversation.com/files/475418/original/file-20220721-10361-ayd9br.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lorries blocked at the border between DRC and Zambia. Poor roads are a major stumbling block to trade.</span> <span class="attribution"><span class="source">Lucien Kahozi/AFP via Getty Images)</span></span></figcaption></figure><p>African countries face great challenges in adapting to climate change to meet growing demand for food. The current <a href="https://www.weforum.org/agenda/2022/07/africa-drought-food-starvation/">drought in East Africa</a> is the latest manifestation of changing weather patterns.</p>
<p>But countries such as Zambia, where there is <a href="https://www.ifad.org/en/web/operations/w/country/zambia">good land and water</a>, have major opportunities to meet food demand by growing agriculture exports and processing their produce. Zambian farmers can earn substantial returns from increased production. Their production can also alleviate the pressures in countries such as Kenya.</p>
<p>To realise these opportunities, Zambian products have to reach export markets at good prices. For this, Zambia needs competitive cross-border markets and efficient transport and logistics services. However, regional grain and oilseeds trade is not working for producers in Zambia or for buyers in East Africa, with huge variances in agricultural commodity prices in Kenya and in Zambia.</p>
<p><a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/627b83c72818b8346e9227a0/1652261854313/WP+Assessing+agriculture+food+markets+in+Eastern+and+Southern+Africa+an+agenda+for+regional+competition+enforcement.pdf">Our reality check</a> on the workings of cross-border markets points to regional integration being the key to unlocking massive potential for Zambia to anchor sustainable agricultural growth in Africa. But effective regional integration remains a dream, undermining Zambia’s potential. </p>
<h2>How are markets really working for Zambia?</h2>
<p><a href="https://www.researchgate.net/publication/341904098_Agriculture_as_a_Determinant_of_Zambian_Economic_Sustainability">Zambian agriculture</a> has been a growth story with expanding net exports in important products such as <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/627b83c72818b8346e9227a0/1652261854313/WP+Assessing+agriculture+food+markets+in+Eastern+and+Southern+Africa+an+agenda+for+regional+competition+enforcement.pdf">soybeans</a>. However, this performance is very short of where it should be. Zambia should be the grain basket for the whole region. Malawi has shown what is possible in <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/620fb231a08ee67644acc686/1645195827213/Price+tracker+9+DRAFT+14022022.pdf">soybeans</a>. It almost doubled production in 2019/2020, to <a href="https://www.fao.org/faostat/en/#data">421,000 tonnes</a>, <a href="https://www.fao.org/faostat/en/#data">more than Zambia</a> in that year.</p>
<p>A major issue is how cross-border markets are working, or not working. <a href="https://www.researchgate.net/publication/335912204_Soya_Beans_Production_in_Zambia_Opportunities_and_Challenges">Zambian suppliers report</a> having substantial volumes of soybeans which can meet the huge regional demand. </p>
<p>Market prices for maize in Nairobi climbed to over <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/62cd4f8496b1364d48c7548e/1657622405695/AMO_Price+tracker+14_12072022.pdf">US$500/Mt in June 2022</a>, reaching similar levels in Kampala, Uganda (Figure 1). In early July, prices were reported to have climbed well above <a href="http://kamis.kilimo.go.ke/">US$750/Mt</a> in Kenya. Meanwhile prices in <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/62cd4f8496b1364d48c7548e/1657622405695/AMO_Price+tracker+14_12072022.pdf">Zambia</a> were around US$220/Mt or 3,700 kwacha/Mt.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/475123/original/file-20220720-24-jxsqfz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/475123/original/file-20220720-24-jxsqfz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/475123/original/file-20220720-24-jxsqfz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/475123/original/file-20220720-24-jxsqfz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/475123/original/file-20220720-24-jxsqfz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/475123/original/file-20220720-24-jxsqfz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/475123/original/file-20220720-24-jxsqfz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>Though lower than Kenya’s, Zambian maize prices are still substantially higher than last year’s. This is in line with <a href="https://www.sagis.org.za/swb_2022.html">global trends</a>. With higher input costs, farmers need higher output prices to incentivise production.</p>
<p>The gap between prices in Zambia and those in Nairobi and Kampala is close to US$300/Mt. This is double what would be explained by the efficient cost of transporting maize from Zambia to these countries. Efficient transport costs take account of reasonable trucking, logistics and border costs.</p>
<p>Even with the higher fuel costs, grain should cost around US$150/Mt to be transported from Lusaka to Kampala and Nairobi. Of course, quoted transport rates may be much higher, but this reflects the many problems in cross-border transport which need to be addressed.</p>
<p>The situation is even more extreme in soybeans, which are a much higher value commodity. Zambia’s bumper soybean harvest in 2022 was being sold at prices around US$550/Mt in June, with prices even being quoted as low as US$439/Mt at the end of the month. Prices in East Africa were well over US$1,000/Mt, some US$500-700/Mt above those in Zambia. This is three to four times the transport costs. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/475124/original/file-20220720-9522-pk6d40.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/475124/original/file-20220720-9522-pk6d40.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=438&fit=crop&dpr=1 600w, https://images.theconversation.com/files/475124/original/file-20220720-9522-pk6d40.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=438&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/475124/original/file-20220720-9522-pk6d40.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=438&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/475124/original/file-20220720-9522-pk6d40.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=550&fit=crop&dpr=1 754w, https://images.theconversation.com/files/475124/original/file-20220720-9522-pk6d40.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=550&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/475124/original/file-20220720-9522-pk6d40.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=550&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>In other words, producers in Zambia should be getting more for their crops and buyers in East Africa should be paying less, alleviating the food price spikes there. </p>
<h2>How can this be and what is to be done?</h2>
<p>A combination of factors is undermining the growth of Zambia. </p>
<p>First, reliable market information is required to link buyers and suppliers, and to enable markets to work. In the absence of information, it’s risky to export. This lack of information affects small and medium sized farmers and businesses. Large-scale traders who have operations across the region have an advantage over smaller businesses and farmers because they have private information. </p>
<p>Second, the market players require clear trade policy signals to take advantage of export opportunities. Any hesitation or mixed signals tend to undermine the ability to make deals with confidence. It is therefore important for Zambia’s new government not to impose ad hoc trade restrictions, for example, as the previous government did in August 2021 to restrict maize exports. Such restrictions, imposed and lifted from month to month, mean deals cannot be made with the confidence that they can be fulfilled. </p>
<p>Third, the market opportunities in East Africa require urgent regional co-operation to improve transport corridors on the ground rather than in rhetoric.</p>
<p>Malawian soybean suppliers have shown the value. Small suppliers have already been using the <a href="https://www.competition.org.za/africanmarketobservatory">African Market Observatory data</a> on East African prices in 2022 to negotiate better prices for their exports. This increased realised prices by around <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/62cd4f8496b1364d48c7548e/1657622405695/AMO_Price+tracker+14_12072022.pdf">$200/Mt</a> more than they would otherwise have accepted.</p>
<p>Zambian farmers could reap similar benefits too. This would support a big push in production, enabling Zambian farmers to invest in improved agricultural systems. This is even more essential as next year is likely to be another <a href="https://gro-intelligence.com/insights/la-nina-is-forecast-to-impact-global-agriculture-for-a-third-year-in-a-row">La Niña</a> weather pattern which sees good rains in Zambia and poor rains in parts of East Africa and the Horn of Africa. </p>
<p>The ongoing effects of climate change mean more investment is required to make agriculture resilient. This involves investments in water management, irrigation, storage facilities, advice and information systems. </p>
<p>The vulnerability of the whole of Southern and East Africa as a climate “hotspot” means urgent and coordinated regional action is required. </p>
<p>But Zambia doesn’t have to wait for this action. </p>
<p>It can lead in championing sustainable agricultural growth in the knowledge that this is essential for resilient food supplies across the region. This requires good policies with a longer-term vision. The country needs, without any reservations, to fully back regional integration and competitive regional markets. Excessive margins cannot be captured by connected so-called “middlemen”. </p>
<p>Greater certainty for businesses needs to be accompanied by enforcement of clear rules for company power. Regional competition enforcement by the <a href="https://globalcompetitionreview.com/insight/enforcer-hub/2021/organization-profile/zambia-competition-and-consumer-protection-commission">Competition and Consumer Protection Commission of Zambia</a> together with the <a href="https://www.comesacompetition.org/">COMESA Competition Commission</a> is a key part of fair and competitive markets which work for all.</p>
<p>Investment is required in critical infrastructure such as storage for smaller market participants to use on fair terms. Finance can be mobilised, such as that being made available by the <a href="https://www.afdb.org/en/news-and-events/press-releases/african-development-bank-board-approves-15-billion-facility-avert-food-crisis-51716">African Development Bank</a>.</p>
<p>It is essential to support regional research networks, such as those led by the <a href="https://www.devex.com/organizations/indaba-agricultural-policy-research-institute-iapri-115251">Indaba Agricultural Policy Institute</a> and the <a href="https://www.competition.org.za/africanmarketobservatory">African Market Observatory</a> of the <a href="https://www.competition.org.za/home">Centre for Competition, Regulation and Economic Development</a> and partners.</p><img src="https://counter.theconversation.com/content/187373/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Centre for Competition, Regulation and Economic Development at the University of Johannesburg has received funding for related work from the COMESA Competition Commission and the South African Department of Trade, Industry and Competition. </span></em></p><p class="fine-print"><em><span>Antony Chapoto and Ntombifuthi Tshabalala 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>Producers in Zambia should be getting more for their crops, and buyers in East Africa should be paying less, alleviating food price spikes.Antony Chapoto, Research Director, Indaba Agricultural Policy Research Institute (IAPRI)Ntombifuthi Tshabalala, Economist at Centre for Competition, Regulation and Economic Development, University of JohannesburgSimon Roberts, Professor of Economics and Lead Researcher, Centre for Competition, Regulation and Economic Development, UJ, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1845982022-06-09T12:10:38Z2022-06-09T12:10:38ZFood prices: how countries are using the global crisis to gain geopolitical power<p><a href="https://www.theguardian.com/world/2022/jun/07/how-do-you-get-20m-tonnes-of-grain-out-of-ukraine">Twenty million tonnes of grain</a> are currently stuck in Ukrainian silos, exacerbating the global food crisis sparked by Russia’s invasion of the country. Aside from the need to get the grain onto world markets, freeing up storage space will be crucial to make room ahead of the country’s next harvest season. </p>
<p>Current negotiations between Russia and the <a href="https://www.aljazeera.com/news/2022/6/7/russia-turkey-discuss-grain-exports-corridor-from-ukraine">Turkish government</a> to ensure safe passage of <a href="https://www.reuters.com/world/europe/allegations-russia-is-stealing-ukrainian-grain-must-be-investigated-uk-2022-06-07/">the grain</a> are focused on establishing an export corridor. The aim is to encourage Russia to lift its blockade of Ukraine’s ports, with the Turkish navy providing an escort for ships to transport this grain through the Black Sea. </p>
<p>As with <a href="https://www.theguardian.com/world/2021/feb/19/coronavirus-vaccine-diplomacy-west-falling-behind-russia-china-race-influence">vaccine diplomacy</a> efforts seen during the COVID-19 pandemic, governments are now jostling to satisfy global demand with a limited amount of increasingly expensive food. But some countries are going a step further than ensuring food is available to their own citizens, hinting at a new era of food diplomacy being used to bolster both old and new alliances. </p>
<p><a href="https://graphics.reuters.com/UKRAINE-CRISIS/FOOD/zjvqkgomjvx/">Food prices</a> in May 2022 were down 0.6% from April but still 22.8% above the same month last year, according to the monthly <a href="https://www.fao.org/worldfoodsituation/foodpricesindex/en/">food price index</a> of the UN’s Food and Agriculture Organisation. <a href="https://www.food.gov.uk/research/wider-consumer-interests/uk-publics-interests-needs-and-concerns-around-food">Recent research</a> shows three quarters of people in the UK are worried about the cost of food. </p>
<p>The situation is even worse in many lower-income countries. The war in Ukraine is expected to increase <a href="https://reliefweb.int/report/world/ukraine-war-exacerbates-famine-global-south">existing food insecurity</a> and drive hunger in some parts of the world to the <a href="https://theconversation.com/war-in-ukraine-is-pushing-global-acute-hunger-to-the-highest-level-in-this-century-181414">highest levels this century.</a></p>
<p>Food supply chains have been <a href="https://news.un.org/en/story/2022/05/1118172">severely disrupted</a> by the war because both Russia and Ukraine are large suppliers of key agricultural products like wheat, barley and sunflower oil. It is also expected to have a <a href="https://www.world-grain.com/articles/16778-ukraine-war-to-have-lasting-impact-on-food-inflation-supply-chain">lasting impact</a> on global trade in food. </p>
<p>Moving food supplies out of Ukraine is not easy, however. Prior to the war, 90% of this cargo left <a href="https://www.politico.eu/article/logistics-crunch-derail-eu-ukraine-grain-rescue-mission/">Ukraine by sea</a>, but the Russian occupation of Ukraine’s sea ports has blocked this export route. The EU has <a href="https://www.politico.eu/article/brussels-masterplan-to-get-ukraine-grain-moving/">stepped up support</a> for transport by road, rail, and river barge, but moving 20 million tons of grain would take 10,000 river barges or up to 1 million large trucks. Border crossings by road are slow and moving freight by train is complicated by <a href="https://www.npr.org/transcripts/1102277441">different railway gauges</a> in Ukraine’s neighbouring countries. </p>
<figure class="align-center ">
<img alt="Cranes loading grain on cargo vessels" src="https://images.theconversation.com/files/468007/original/file-20220609-26-yx6u66.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/468007/original/file-20220609-26-yx6u66.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/468007/original/file-20220609-26-yx6u66.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/468007/original/file-20220609-26-yx6u66.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/468007/original/file-20220609-26-yx6u66.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/468007/original/file-20220609-26-yx6u66.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/468007/original/file-20220609-26-yx6u66.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">Grain being loaded into the holds of a sea cargo vessel in Odesa, Ukraine, ODESSA, August 9 2021.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/odessa-ukraine-august-9-2021-loading-2066086010">Shutterstock</a></span>
</figcaption>
</figure>
<h2>Solving the food crisis</h2>
<p>Even if <a href="https://www.theguardian.com/world/2022/jun/07/how-do-you-get-20m-tonnes-of-grain-out-of-ukraine">issues around</a> international agreements, availability and capacity of cargo ships and crew, and insurance issues are solved, a food crisis will not be completely avoided. The Ukrainian Grain Producers Association <a href="https://www.lemonde.fr/en/international/article/2022/06/08/the-grim-future-of-ukrainian-agriculture-now-a-hostage-of-war_5986024_4.html">expects that</a> the 2022 grain and oilseed harvest will be down by nearly 40% from 2021 levels. This, together with the potential impact of drought and high input prices on agricultural production <a href="https://joint-research-centre.ec.europa.eu/jrc-news/agricultural-production-threatened-combination-drought-and-high-input-prices-many-countries-2022-06-07_en">in many countries</a>, will have devastating consequences for the world’s food supply.</p>
<p>Fertilisers and grains are not in shortage, but prices and political, logistical and financial difficulties make it <a href="https://www.gisreportsonline.com/r/grain-fertilizer-prices/">challenging to ship</a> large quantities to low-income importers. In poor countries, grains and fertilisers will become unaffordable for the population and will limit domestic production. The food crisis is also affecting wealthy countries, with the EU reconsidering the timeliness of its ambitious <a href="https://thehill.com/opinion/international/3513831-what-the-u-s-can-learn-from-europes-war-induced-food-crisis/">“Farm to Fork”</a> reform strategy.</p>
<p>In light of these challenges, many producing countries have banned exports of food. In late May, <a href="https://www.economist.com/the-economist-explains/2022/05/25/why-banning-food-exports-does-not-work">10% of calories</a> on the global markets were under export restrictions. This is reminiscent of bans on the export of COVID-19 vaccines in 2021. </p>
<p>Amid a deadly wave of infections, <a href="https://www.bbc.com/news/world-asia-india-56513371">India</a> focused on vaccinating its own population with domestically produced vaccines rather than supplying them to the world. There were also <a href="https://theconversation.com/covid-vaccine-supply-is-causing-an-eu-crisis-so-whats-being-done-to-speed-up-production-154153">tensions between the UK and the EU</a> over disputes about vaccine distribution. </p>
<p>Vaccine nationalism in 2021 might now be followed by food nationalism. The COVID-19 vaccines were distributed <a href="https://www.frontiersin.org/articles/10.3389/fpubh.2022.821117/full">in a very uneven way</a>, with <a href="https://ourworldindata.org/covid-vaccinations">vaccination rates</a> in low-income nations far behind those in the richest countries. As wealthier nations look to shore up their food supplies, <a href="https://economictimes.indiatimes.com/news/india/food-grains-shouldnt-go-the-way-of-covid-vaccines-india-at-un/articleshow/91655419.cms">similar inequities</a> could arise.</p>
<figure class="align-center ">
<img alt="Box printed with COVID-19 vaccine on a factory production line" src="https://images.theconversation.com/files/468010/original/file-20220609-12-84yeyn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/468010/original/file-20220609-12-84yeyn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/468010/original/file-20220609-12-84yeyn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/468010/original/file-20220609-12-84yeyn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/468010/original/file-20220609-12-84yeyn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/468010/original/file-20220609-12-84yeyn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/468010/original/file-20220609-12-84yeyn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Countries exported shipments of vaccines during the COVID-19 pandemic, often to bolster relations with other regions.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/many-boxes-covid19-coronavirus-disease-vaccine-1676451625">Shutterstock</a></span>
</figcaption>
</figure>
<h2>Diplomatic weapons</h2>
<p>In 2021, vaccine nationalism led to vaccine diplomacy. Countries exported their COVID-19 vaccines to bolster relations with certain regions. For example, both <a href="https://www.atlanticcouncil.org/in-depth-research-reports/report/us-china-vaccine-diplomacy-lessons-from-latin-america-and-the-caribbean/">China and the USA</a> implemented extensive vaccine programmes in Central and South America. </p>
<p>Before its ban, India provided vaccinations to regional partners like <a href="https://theconversation.com/what-the-world-can-learn-from-bhutans-rapid-covid-vaccine-rollout-168341">Bhutan.</a> China and Russia showed an <a href="https://bfpg.co.uk/2021/07/the-rise-of-vaccine-diplomacy/">early dominance </a>in vaccine diplomacy, while western nations were accused of hoarding.</p>
<p>Similarly, 2022 has seen the rise of food diplomacy, making agricultural supply chains just as political as those for oil and gas. Restricted supplies and high demand mean that countries and blocs with a food surplus <a href="https://www.theguardian.com/commentisfree/2022/may/22/food-crisis-is-what-happens-when-global-chains-collapse-we-might-need-to-get-used-to-it">must decide</a> where to export vital commodities. India has had <a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/india-asked-to-supply-more-than-1-5-million-tonnes-wheat/articleshow/91894461.cms">requests</a> for its wheat supplies from Bangladesh, Egypt, and the UN’s World Food Programme, for example. </p>
<p>When jostling for influence in a region, food exports can become a <a href="https://www.jstor.org/stable/2706333">diplomatic instrument</a> in the form of “food power”. Just as the EU is keen to <a href="https://www.aljazeera.com/news/2022/4/12/food-diplomacy-eu-plans-to-counter-russia-in-mena-balkans">address expected shortages</a> in the Middle East and North Africa to shore up its influence in the region, for instance, China is <a href="https://chinaglobalsouth.com/analysis/food-diplomacy-is-the-new-vaccine-diplomacy-in-africa/">supporting African countries</a> facing food crises.</p>
<p>Meanwhile, there is also a battle for control over the narrative on food shortages. Accusations of weaponising food are being levelled at <a href="https://apnews.com/article/russia-ukraine-covid-politics-health-moscow-3c1e956e628cc12685e435ae1c04d518">Russia</a>, while China has been both the <a href="https://www.bloomberg.com/opinion/articles/2022-01-05/one-reason-for-rising-food-prices-chinese-hoarding">accused</a> and <a href="https://www.thestatesman.com/opinion/west-weaponizing-food-shortages-1503077688.html">accuser</a> when it comes to food hoarding fears. The chair of the African Union, Senegalese president Macky Sall, has also <a href="https://www.politico.eu/article/african-union-chief-macky-sall-russia-vladimir-putin-promise-to-free-ukraine-grain/">blamed western sanctions</a> for supply chain issues.</p>
<p>As major world powers <a href="https://apnews.com/article/russia-ukraine-covid-politics-health-moscow-3c1e956e628cc12685e435ae1c04d518">blame each other</a> for their role in driving the current crisis, distributing a limited amount of food to meet global demand will be a defining issue of 2022.</p><img src="https://counter.theconversation.com/content/184598/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>Negotiations between Russia and Turkey to ensure safe passage of Ukrainian grain hint at a new era of global food diplomacy.Sarah Schiffling, Senior Lecturer in Supply Chain Management, Liverpool John Moores UniversityNikolaos Valantasis Kanellos, Lecturer in Logistics, Technological University DublinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1828572022-05-16T23:17:19Z2022-05-16T23:17:19ZThe Russian invasion of Ukraine made everyone nervous, upending trade patterns for exporting countries like New Zealand<figure><img src="https://images.theconversation.com/files/463151/original/file-20220516-65215-j4u4kv.jpg?ixlib=rb-1.1.0&rect=5%2C5%2C3982%2C2622&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Uncertainty in the aftermath of Russia’s invasion of Ukraine has wreaked havoc with the international commodity markets. </p>
<p>In the normal pattern of the global economy, commodity exporting countries like New Zealand benefit from a rise in commodity prices and the subsequent strengthening of their currencies. </p>
<p>But these are not normal times. </p>
<p>In 2022, commodity prices have risen but the New Zealand dollar has failed to strengthen. So what is different and what should consumers expect?</p>
<p>The Russian invasion of Ukraine has contributed to extreme uncertainty in financial markets, including the currency markets. </p>
<p>The war resulted in significant <a href="https://blogs.worldbank.org/developmenttalk/commodity-prices-surge-due-war-ukraine">increases in global commodity prices</a>, particularly for energy and agricultural commodities.</p>
<p>But on May 13, the value of New Zealand’s currency against the United States dollar dropped to its lowest in two years. The New Zealand dollar was buying US<a href="https://www.rbnz.govt.nz/statistics">68.32 cents</a> on January 1, peaked at US69.75c on March 31, and then dropped to US62.39c on May 13. </p>
<figure class="align-center ">
<img alt="Graphic with stock market superimposed over Ukrainian flag." src="https://images.theconversation.com/files/463441/original/file-20220516-24-wt5cvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/463441/original/file-20220516-24-wt5cvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/463441/original/file-20220516-24-wt5cvv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/463441/original/file-20220516-24-wt5cvv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/463441/original/file-20220516-24-wt5cvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/463441/original/file-20220516-24-wt5cvv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/463441/original/file-20220516-24-wt5cvv.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">Uncertainty around Russia’s invasion of Ukraine has caused the price of commodities to increase.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/photo/ukraine-flag-stock-market-exchange-economy-and-royalty-free-image/1160497901?adppopup=true">Getty Images</a></span>
</figcaption>
</figure>
<h2>Historically unusual</h2>
<p>Again, this imbalance between the commodity markets and our currency is not normal.</p>
<p>The New Zealand dollar is classified as a commodity currency, along with the Australian dollar, Canadian dollar and Norwegian krone. Primary commodities (dairy, meat and timber in the case of New Zealand) constitute a substantial part of these nations’ exports. </p>
<p>For countries like New Zealand, the changes in global commodity prices are one of the <a href="https://ssrn.com/abstract=4109718">main drivers</a> of the country’s terms of trade fluctuations and, therefore, the currency value.</p>
<p>Generally, the value of the currency – the exchange rate – increases when export commodity prices increase. The <a href="https://www.cmegroup.com/education/featured-reports/how-commodity-currencies-performed-amid-covid-19.html">New Zealand dollar</a>, for example, tends to increase in value when global dairy prices increase.</p>
<p>But <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4089030">recent research</a> has revealed a blip in the normal pattern. </p>
<p>The authors studied the relationship between the changes in value of 31 currencies (including the New Zealand dollar) and commodity prices over the past ten years. The analysis confirmed the traditional positive relationship between the changes in the currency values and commodity prices. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/boycotting-russian-products-might-feel-right-but-can-individual-consumers-really-make-a-difference-178876">Boycotting Russian products might feel right, but can individual consumers really make a difference?</a>
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<p>However, around the start of the Ukraine war this relationship reversed and became negative. The reversal was particularly evident for commodity currencies.</p>
<p>This study showed that despite the substantial increases in global commodity prices between January and March 2022, the expected corresponding increases in the value of commodity currencies did not occur. </p>
<p>The value of the New Zealand dollar dropped 0.6% from January 18 to March 1, despite sizeable increases in the global commodity index, the <a href="https://www.spglobal.com/spdji/en/indices/commodities/sp-gsci/%23overview">S&P GSCI</a> (Standard & Poor’s Goldman Sachs Commodity Index), and the <a href="https://www.globaldairytrade.info/en/product-results/">global dairy trade index</a>, which increased 17.74% and 13.4% respectively over the same period. </p>
<h2>Negativity driven by uncertainty</h2>
<p>It appears the breakdown in the relationship between the value of the currencies and commodity prices was due to the extreme uncertainties and geopolitical risks during the January to March period.</p>
<p>This global study also found that the closer a currency was to the conflict, the worse it performed. So, New Zealand has been advantaged by its geographic distance from the war. </p>
<p>The New Zealand dollar value held better during the January to March period compared to the value of other currencies. </p>
<p>Currencies of Eastern European countries that border Ukraine (Czech Republic, Hungary, Poland, Slovak Republic) lost, on average, more than 5% from January 18 to March 1. </p>
<figure class="align-center ">
<img alt="Graphic showing the New Zealand dollar rising against the United States dollar" src="https://images.theconversation.com/files/463445/original/file-20220516-16-q84fvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/463445/original/file-20220516-16-q84fvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/463445/original/file-20220516-16-q84fvv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/463445/original/file-20220516-16-q84fvv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/463445/original/file-20220516-16-q84fvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/463445/original/file-20220516-16-q84fvv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/463445/original/file-20220516-16-q84fvv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Commodity currencies like the New Zealand dollar traditionally strengthen on the back of rising commodity prices.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/photo/new-zealand-currency-rising-american-dollar-falling-royalty-free-image/1131200527?adppopup=true">Getty Images</a></span>
</figcaption>
</figure>
<h2>Returning to normal</h2>
<p>Perceived uncertainty due to the conflict has reduced as the war has dragged on and the global commodity markets reversed their upward trend. </p>
<p>During April and May, <a href="https://www.rnz.co.nz/news/country/466401/dairy-prices-tumble-in-biggest-fall-since-2015">global dairy prices</a> decreased 13.1%, potentially due to the expected global economic slowdown and subsequent reduction in consumption, China’s “zero-COVID” policy with lockdowns and the corresponding drop in demand, as well as the <a href="https://teara.govt.nz/en/dairying-and-dairy-products/page-9">seasonal adjustments of dairy prices</a>.</p>
<p>The New Zealand dollar has lost 10.6% of its value since its peak in March. It seems the expected positive relationship between commodity prices and the value of New Zealand dollar is evident again.</p>
<p>That said, a weak New Zealand dollar is bad news for New Zealand consumers as it increases the prices of imported goods, including fuel, further contributing to already high inflationary pressure. </p>
<p>It also makes it more expensive for New Zealanders to travel overseas, something many people were looking forward to after two years of closed borders. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/new-zealand-is-overdue-for-an-open-and-honest-debate-about-21st-century-trade-relations-160922">New Zealand is overdue for an open and honest debate about 21st-century trade relations</a>
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</p>
<hr>
<p>On the flip side, a weaker New Zealand dollar can give a much needed boost to the New Zealand tourist and tertiary education sectors, as it makes New Zealand less expensive and therefore a more attractive travel and study destination.</p>
<p>A weakening New Zealand dollar is also beneficial for exporters of products like wine, as it makes them more competitive in global markets and increases external demand for these products.</p>
<p>While the war in Europe had a global and unexpected impact on New Zealand’s currency, the normal state of play is returning. The reemerging trends can give businesses and consumers a small sense of certainty after months of things being upside-down.</p><img src="https://counter.theconversation.com/content/182857/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Sosvilla-Rivero receives funding from the Spanish Ministry of Science and Innovation.</span></em></p><p class="fine-print"><em><span>Adrian Fernandez-Perez and Olga Dodd 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>Russia’s war has had an unexpected impact on global trade patterns, raising the price on goods but weakening currencies. What’s behind this unexpected blip?Olga Dodd, Senior Lecturer in Finance, Auckland University of TechnologyAdrian Fernandez-Perez, Senior Research Fellow in Finance, Auckland University of TechnologySimon Sosvilla-Rivero, Professor, Universidad Complutense de MadridLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1793522022-04-14T12:14:16Z2022-04-14T12:14:16ZThe information age is starting to transform fishing worldwide<figure><img src="https://images.theconversation.com/files/457990/original/file-20220413-20-ppujj7.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5118%2C3399&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A researcher at the advocacy group Oceana uses GPS data to trace the activity of fishing boats. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/lacey-malarky-an-oceana-campaign-manager-on-illegal-fishing-news-photo/1149646104">Eric Baradat/AFP via Getty Images</a></span></figcaption></figure><p>People in the world’s developed nations live in a post-industrial era, working mainly in service or knowledge industries. Manufacturers increasingly rely on sensors, robots, artificial intelligence and machine learning to replace human labor or make it more efficient. Farmers can <a href="https://theconversation.com/farmers-of-the-future-will-utilize-drones-robots-and-gps-37739">monitor crop health via satellite</a> and <a href="https://www.businessinsider.com/agricultural-drones-precision-mapping-spraying">apply pesticides and fertilizers with drones</a>.</p>
<p>Commercial fishing, one of the oldest industries in the world, is a stark exception. <a href="http://www.oceansatlas.org/subtopic/en/c/1303/">Industrial fishing</a>, with <a href="https://www.britannica.com/technology/factory-ship">factory ships</a> and deep-sea trawlers that land thousands of tons of fish at a time, are still the dominant hunting mode in <a href="http://dx.doi.org/10.1126/science.aao5646">much of the world</a>. </p>
<p>This approach has led to <a href="https://www.fao.org/state-of-fisheries-aquaculture">overfishing, stock depletions</a>, <a href="https://www.amnh.org/explore/videos/biodiversity/will-the-fish-return/trawling-takes-a-toll">habitat destruction</a>, the senseless killing of unwanted <a href="https://www.fisheries.noaa.gov/insight/understanding-bycatch">by-catch</a> and wastage of as much as <a href="https://doi.org/10.1016/j.gloenvcha.2015.08.013">30% to 40% of landed fish</a>. Industrial fishing has <a href="https://www.seaaroundus.org/high-impact-fishing-dominates-catches-in-many-parts-of-the-world/#more-19241">devastated artisanal pre-industrial fleets</a> in Asia, Africa and the the Pacific. </p>
<p>The end product is largely a commodity that travels around the world like a manufactured part or digital currency, rather than fresh domestic produce from the sea. An average fish <a href="https://slowfoodusa.org/slow-fish/">travels 5,000 miles before reaching a plate</a>, according to sustainable-fishing advocates. Some is frozen, shipped to Asia for processing, then <a href="https://www.usda.gov/media/blog/2016/12/05/tale-fish-two-countries">refrozen and returned to the U.S.</a></p>
<p>But these patterns are starting to change. In my new book, “<a href="https://islandpress.org/books/blue-revolution">The Blue Revolution: Hunting, Harvesting, and Farming Seafood in the Information Age</a>,” I describe how commercial fishing has begun an encouraging shift toward a less destructive, more transparent post-industrial era. This is true in the U.S., Scandinavia, most of the European Union, Iceland, New Zealand, Australia, South Korea, the Philippines and much of South America.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/ZizIpLCQ_oM?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Sustainable fishing limits catches at or below levels that fisheries can replace at their natural reproductive pace.</span></figcaption>
</figure>
<h2>Fishing with data</h2>
<p>Changes in behavior, technology and policy are occurring throughout the fishing industry. Here are some examples: </p>
<ul>
<li><p><a href="https://globalfishingwatch.org">Global Fishing Watch</a>, an international nonprofit, monitors and creates open-access visualizations of global fishing activity on the internet with a 72-hour delay. This transparency breakthrough has led to the arrest and conviction of owners and captains of <a href="https://globalfishingwatch.org/transparency/the-capture-of-the-mv-nika-a-case-of-illicit-fishing-and-a-showcase-for-how-to-beat-it/">boats fishing illegally</a>. </p></li>
<li><p><a href="https://traceability-dialogue.org/what-is-the-global-dialogue/">The Global Dialogue on Seafood Traceability</a>, an international business-to-business initiative, creates voluntary industry standards for seafood traceability. These standards are designed to help harmonize various systems that <a href="https://fishchoice.com/traceability-providers">track seafood through the supply chain</a>, so they all collect the same key information and rely on the same data sources. This information lets buyers know where their seafood comes from and whether it was produced sustainably. </p></li>
<li><p>Fishing boats in New Bedford, Massachusetts – the <a href="https://www.wpri.com/news/local-news/se-mass/new-bedford-is-americas-most-lucrative-fishing-port-for-20th-straight-year/">top U.S. fishing port</a>, based on total catch value – are rigged with sensors to develop a <a href="https://www.sphericalanalytics.io/news/2019/5/21/spherical-analytics-launches-marine-databank-with-port-of-new-bedford">Marine Data Bank</a> that will give fishermen data on ocean temperature, salinity and oxygen levels. Linking this data to actual stock behavior and catch levels is expected to help fishermen target certain species and avoid unintentional bycatch.</p></li>
<li><p><a href="https://www.fisheries.noaa.gov/southeast/sustainable-fisheries/frequent-questions-annual-catch-limit-monitoring">Annual catch limits</a>, divvied up through individual quotas for each fisherman, have helped curb overfishing. Imposing catch shares can be <a href="https://www.npr.org/sections/thesalt/2017/04/05/522731573/the-race-to-fish-slows-down-why-thats-good-for-fish-fishermen-and-diners">highly controversial</a>, but since the year 2000, 47 U.S. stocks that were overfished and shut down have been <a href="https://media.fisheries.noaa.gov/2022-01/q4-2021-rebuilt-map.png">rebuilt and reopened for fishing</a>, thanks to policy judgments based on the best available science. Examples include Bering Sea snow crab, North Atlantic swordfish and red grouper in the Gulf of Mexico.</p></li>
<li><p>A growing “fishie” movement that mirrors the widespread “foodie” locavore movement has been gaining steam for more than a decade. Taking a page from agriculture, subscribers to <a href="https://marketyourcatch.msi.ucsb.edu/alternative-market-types/community-supported-fisheries-csfs">community-supported fisheries</a> pay in advance for regular deliveries from local fishermen. Such engagement between consumers and producers is beginning to shape buying patterns and introduce consumers to new types of fish that are abundant but not iconic like the cod of yore.</p></li>
</ul>
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<h2>Growing fish on land</h2>
<p>Aquaculture is the fastest-growing form of food production in the world, led by China. The U.S., which has <a href="https://pubs.usgs.gov/ds/2006/182/basemaps/useez/useezmeta.htm">exclusive jurisdiction over 3.4 million square miles of ocean</a>, has a mere 1% share of the global market. </p>
<p>But aquaculture, mostly shellfish and kelp, <a href="https://www.fisheries.noaa.gov/new-england-mid-atlantic/aquaculture/aquaculture-new-england-and-mid-atlantic">is the third-largest fisheries sector in the Greater Atlantic region</a>, after lobsters and scallops. Entrepreneurs are also raising finfish – including salmon, branzino, barramundi, steelhead, eels and kingfish – mostly in large, land-based <a href="https://www.aquacultureid.com/recirculating-aquaculture-system/">recirculating systems</a> that reuse 95% or more of their water. </p>
<p>Industrial-scale ocean salmon farming in Norway in the 1990s was largely responsible for the perception that farmed fish were <a href="https://www.bbc.com/news/uk-scotland-48266480">bad for wild fish and ocean habitats</a>. Today this industry has moved to less dense <a href="https://www.theexplorer.no/solutions/ocean-farm-1--moving-fish-farms-out-to-sea/">deep-water offshore pens</a> or land-based recirculating systems.</p>
<p>Virtually all new salmon farms in the U.S. – in Florida, Wisconsin, Indiana, and several planned for Maine and California – are <a href="https://www.bbc.com/news/business-56829129">land-based</a>. In some cases, water from the fish tanks circulates through greenhouses to grow vegetables or hemp, a system called <a href="https://www.nal.usda.gov/legacy/afsic/aquaponics">aquaponics</a>.</p>
<p>There is <a href="https://modernfarmer.com/2021/11/offshore-aquaculture-bill/">heated debate</a> over proposals to open U.S. federal waters, between 3 and 200 miles offshore, for ocean aquaculture. Whatever the outcome, it’s clear that without a growing mariculture industry, the U.S. won’t be able to reduce and may even widen its <a href="https://www.fisheries.noaa.gov/national/aquaculture/us-aquaculture">$17 billion seafood trade deficit</a>. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/vsafviTKsqs?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Vancouver, Canada-based Willowfield Enterprises raises coho salmon in recirculating tanks on land.</span></figcaption>
</figure>
<h2>A voracious China</h2>
<p>This kind of progress isn’t uniform throughout the fishing industry. Notably, China is the <a href="https://www.fao.org/documents/card/en/c/ca9229en/">world’s top seafood producer</a>, accounting for 15% of the global wild catch as well as 60% of aquaculture production. Chinese fishing <a href="https://e360.yale.edu/features/how-chinas-expanding-fishing-fleet-is-depleting-worlds-oceans">exerts huge influence on the oceans</a>. Observers estimate that China’s fishing fleet may be <a href="https://www.penguinrandomhouse.com/books/538736/the-outlaw-ocean-by-ian-urbina/">as large as 800,000 vessels</a> and its distant-water fleet may include up to 17,000 vessels, compared to 300 for the U.S.</p>
<p>According to a study by the nonprofit advocacy group <a href="https://oceana.org/">Oceana</a> using Global Fishing Watch data, between 2019 and 2021 Chinese boats carried out <a href="https://usa.oceana.org/blog/far-reaching-fishing-the-global-footprint-of-chinas">47 million hours of fishing activity</a>. More than 20% of this activity was on the high seas or inside the <a href="https://oceanservice.noaa.gov/facts/eez.html">200-mile exclusive economic zones</a> of more than 80 other nations. Fishing in other countries’ waters without authorization, as some Chinese boats do, <a href="https://www.theguardian.com/environment/2020/aug/25/can-anyone-stop-china-vast-armada-of-fishing-boats-galapagos-ecuador">is illegal</a>. Chinese ships often target <a href="https://e360.yale.edu/features/how-chinas-expanding-fishing-fleet-is-depleting-worlds-oceans">West African, South American, Mexican and Korean waters</a>. </p>
<p>Most Chinese distant-water ships are so large that they scoop up as many fish in one week as local boats from Senegal or Mexico <a href="https://www.penguinrandomhouse.com/books/538736/the-outlaw-ocean-by-ian-urbina/">might catch in a year</a>. Much of this fishing would not be profitable <a href="http://dx.doi.org/10.1126/sciadv.aat2504">without government subsidies</a>. Clearly, holding China to higher standards is a priority for maintaining healthy global fisheries.</p>
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<h2>The ocean’s restorative power</h2>
<p>There is no shortage of gloomy information about how overfishing, along with other stresses like climate change, is <a href="https://news.un.org/en/story/2021/01/1081742">affecting the world’s oceans</a>. Nonetheless, I believe it bears emphasizing that over 78% of current marine fish landings <a href="https://www.fao.org/documents/card/en/c/ca9229en/">come from biologically sustainable stocks</a>, according to the United Nations. And overharvested fisheries often can rebound with smart management.</p>
<p>For example, the U.S. east coast scallop fishery, which was essentially defunct in the mid-1990s, is now a <a href="https://www.fisheries.noaa.gov/story-map/atlantic-sea-scallop-fishery-success-story">sustainable US$570 million a year industry</a>. </p>
<p>Another success story is <a href="http://www.cabopulmopark.com/maps.html">Cabo Pulmo</a>, a five-mile stretch of coast at the southeast end of Mexico’s Baja Peninsula. Once a vital fishing ground, Cabo Pulmo was barren in the early 1990s after intense overfishing. Then local communities persuaded the Mexican government to turn the area into a marine park where fishing was barred.</p>
<p>[<em>Over 150,000 readers rely on The Conversation’s newsletters to understand the world.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-150ksignup">Sign up today</a>.]</p>
<p>“In 1999, Cabo Pulmo was an underwater desert. Ten years later, it was a kaleidoscope of life and color,” ecologist <a href="https://www.nationalgeographic.org/find-explorers/enric-sala">Enric Sala</a>, director of National Geographic’s <a href="https://www.nationalgeographic.org/projects/pristine-seas/">Pristine Seas Project</a>, <a href="https://www.scribd.com/podcast/463577688/Let-s-turn-the-high-seas-into-the-world-s-largest-nature-reserve-Enric-Sala-Let-s-turn-the-high-seas-into-the-world-s-largest-nature-reserve-Enri">observed in 2018</a>. </p>
<p><div data-react-class="InstagramEmbed" data-react-props="{"url":"https://www.instagram.com/p/Cb8Lx-nhDiq/?utm_source=ig_web_copy_link","accessToken":"127105130696839|b4b75090c9688d81dfd245afe6052f20"}"></div></p>
<p>Scientists say that thanks to effective management, marine life in Cabo Pulmo has recovered to a level that makes the reserve <a href="https://ocean.si.edu/conservation/solutions-success-stories/cabo-pulmo-protected-area">comparable to remote, pristine sites</a> that have never been fished. Fishing outside of the refuge has also rebounded, showing that conservation and fishing are not incompatible. In my view, that’s a good benchmark for a post-industrial ocean future.</p><img src="https://counter.theconversation.com/content/179352/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicholas P. Sullivan is a member of the national Local Catch Network.</span></em></p>One of the oldest industries, fishing, is entering the world of advanced analytics and data-driven planning. With oceans under stress and key fish stocks dwindling, can precision fishing help?Nicholas P. Sullivan, Senior Research Fellow, Fletcher Maritime Studies Program, and Senior Fellow, Council on Emerging Market Enterprises, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1790152022-03-10T14:30:13Z2022-03-10T14:30:13ZUkraine and the financial markets: the winners and losers so far<figure><img src="https://images.theconversation.com/files/451339/original/file-20220310-23-1tbjhy2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Making sense of the reds and the greens.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/team-stockbrokers-having-conversation-dark-office-1183475005">Standret</a></span></figcaption></figure><p>It’s two weeks since the world woke up to the dreadful news of a Russian attack to Ukraine. Notwithstanding the incalculable costs in terms of human lives, as well as human capital and physical infrastructure, we’ve seen much turbulence in the financial markets. So what has happened so far?</p>
<p>Since markets tend to react to geopolitical risks, US Federal Reserve economists Dario Caldara and Matteo Iacoviello recently built a <a href="https://www.matteoiacoviello.com/gpr.htm">geopolitical risk index</a> (GPR) to be able to compare events at different points in time. It is based on real-time reports in the news of war threats, terror threats, military build-ups, nuclear threats, acts of terror, beginnings of war and escalations. </p>
<p>You can see below their plot of the daily data, which dates back nearly 40 years. The most remarkable spikes capture the 1991 Gulf war, 9/11, the beginning of the Iraq war in March 2003, the <a href="https://www.bbc.co.uk/news/uk-33253598">London bombings</a> of July 2005, and now the Ukraine invasion. For those looking for some kind of consolation right now, the index reckons that we are still not close to the level of geopolitical risk that we saw in the aftermath of 9/11. </p>
<p><strong>The geopolitical risk index</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Geopolitical risk index" src="https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=256&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=256&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=256&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=322&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=322&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451274/original/file-20220310-21-1wu7zwy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=322&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.matteoiacoviello.com/gpr.htm">Caldara/Iacoviello</a></span>
</figcaption>
</figure>
<p>High geopolitical risk <a href="https://www.matteoiacoviello.com/gpr_files/GPR_PAPER.pdf">has been shown</a> to increase investors’ uncertainty, prompting declines in stock prices and other financial assets. The link with stock market uncertainty is particularly clear in the graph below, which compares the GPR to <a href="https://www.cboe.com/tradable_products/vix/">the VIX</a> indicator of stock market volatility, which is sometimes referred to as the “investors’ fear gauge”. </p>
<p>The GPR daily is in orange, while there are two other versions that track risk of threat (red) and geopolitical acts (green). Essentially they have all been moving in the same direction, with the red risk line leading the way. As you can see, both these lines and the VIX rose in November after <a href="https://www.aljazeera.com/news/2022/2/13/timeline-how-the-ukraine-russia-crisis-reached-the-brink-of-war">satellite imagery</a> first showed build-ups of Russian troops on the border with Ukraine. Other peaks correspond to January 26, which was the date of <a href="https://www.nato.int/cps/en/natohq/opinions_191254.htm">Nato’s written response</a> to the Russians, and the start of the invasion on February 24. </p>
<p><strong>Geopolitical risk vs stock market volatility</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Measure of geopolitical risk index against VIX volatility index" src="https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=469&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=469&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451279/original/file-20220310-23-1pwiac0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=469&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">GPRD (orange) = GPR daily; GPRD_Act (green) = geopolitical acts; GPRD_Threat (red) = geopolitical threats.</span>
<span class="attribution"><span class="source">Authors provided</span></span>
</figcaption>
</figure>
<h2>The commodity surge</h2>
<p>Energy markets, and oil in particular, react to geopolitical risk at the best of times. And given Russia’s huge importance as an oil exporter, energy prices have been particularly affected by this war. Brent crude is currently trading at around US$116 (£88) per barrel, having risen over US$130 a couple of days ago. This will impact everything from firms’ cash flows to consumer petrol prices, creating inflationary pressure that helps to <a href="https://www.federalreserve.gov/pubs/ifdp/2014/1114/ifdp1114.pdf">bring about recessions</a>. </p>
<p>Because Russia and Ukraine are also major exporters of many other important commodities such as wheat, neon gas, palladium and sunflower oil, their prices have been soaring too – and they’re destined to <a href="https://www.ft.com/content/555b7167-eaf2-43a0-a66f-802e39cccf36">keep increasing</a> due to western sanctions. </p>
<p><strong>Commodity and asset prices compared since invasion</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Comparisons of wheat, crude oil, palladium, gold and bitcoin since the invasion" src="https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=328&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=328&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=328&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=412&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=412&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451315/original/file-20220310-21-160j60s.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=412&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Brent crude = blue; wheat futures = cyan; palladium = indigo; gold = orange; bitcoin = yellow; US dollar (DXY) = purple; 10yr US Treasury bonds = green.</span>
<span class="attribution"><span class="source">Trading View</span></span>
</figcaption>
</figure>
<p>On the other hand, safe havens in times of volatility have been doing well. The price of gold is up again after its remarkable uptick in the early months of the pandemic. Bitcoin and other cryptocurrencies have the potential to benefit since they are a possible vehicle for Russians to circumvent sanctions, but they have been more subdued lately. </p>
<h2>Stock markets</h2>
<p>The response of stock markets to the war is more complex, given that different markets have more or less exposure to different commodities than others. They also have different levels of exposure to the Russian stock market (which remains closed after plunging together with the rouble following the invasion). </p>
<p>According to our calculations from <a href="https://www.wsj.com/market-data">data</a> that dates back to 1985, European countries are more correlated to the Russian market and therefore more vulnerable. For example, France, Germany and the UK have a 0.45, 0.42 and 0.47 correlation with Russia, where 1 would mean they moved in lockstep and 0 that they did not influence each other at all. The US, on the other hand, has an 0.26 correlation, while China’s, interestingly, is just 0.1. This all broadly corresponds to how different stork markets have performed since the invasion, as you can see below. </p>
<p><strong>Stock markets compared</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="chart comparing stock market performance since war" src="https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=328&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=328&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=328&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=412&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=412&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451317/original/file-20220310-13-1p259lq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=412&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">FTSE 100 (UK) = blue; S&P 500 (US) = orange; Toronto Stock Exchange (Canada) = cyan; CAC 40 (France) = yellow; DE40 (Germany) = indigo; Shanghai Stock Exchange = green; MOEX (Russia) = purple.</span>
<span class="attribution"><span class="source">Trading View</span></span>
</figcaption>
</figure>
<p>Finally, what about different types of companies? As you can see below in this breakdown of US players, different sectors have performed quite differently in the early stages of this crisis. The black line is the S&P 500, so those below have underperformed and those above have done better. </p>
<p>Energy companies have been doing very well, for example (as have <a href="https://theconversation.com/ukraine-the-worlds-defence-giants-are-quietly-making-billions-from-the-war-178806">weapons makers</a>). Companies that either sell consumer staples or consumer products that are more discretionary, ranging from hifi equipment to cinema tickets, have been losing out amid fears that they will have less to spend because of commodity inflation. </p>
<p>*<em>Sectors compared *</em></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Comparison of different sectors of S&P 500" src="https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=331&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=331&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=331&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=416&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=416&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451330/original/file-20220310-13-1p0psm5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=416&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Communications = blue; consumer discretionary = cyan; consumer staples = yellow; energy = indigo; financials = purple; healthcare = green; industrials = dark red; IT = orange; materials = red; real estate = pink; utilities = lilac; S&P 500 = black.</span>
<span class="attribution"><span class="source">Trading View</span></span>
</figcaption>
</figure>
<p>We shouldn’t be fooled into thinking that some sectors are simply going to benefit from the war, however. There can be short-run winners, but the interconnectedness of economies, the burden of sanctions and the costs of increased uncertainty will eventually bite all markets. It’s going to affect household budgets, wages and also pensions – regardless of the final outcome, which remains largely unpredictable.</p><img src="https://counter.theconversation.com/content/179015/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>Two weeks into the invasion, here’s what’s been happening so far.Gabriella Legrenzi, Senior Lecturer in Economics, Keele UniversityReinhold Heinlein, Senior Lecturer in Economics, University of the West of EnglandScott Mahadeo, Senior Lecturer in Macroeconomics, University of PortsmouthLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1780632022-03-06T08:21:29Z2022-03-06T08:21:29ZGhana’s Cedi is under stress: some long, medium, and short term solutions<figure><img src="https://images.theconversation.com/files/449746/original/file-20220303-23-13d1lw3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Ghanaian currency is facing its worst run of depreciation in years</span> <span class="attribution"><span class="source">MaxpIxel/Wikimedia Commons</span></span></figcaption></figure><p>An economy with strong fundamentals is one that is resilient, has a well-developed exports base, is industrialised, and creates jobs. That kind of economy can mobilise resources domestically, without much reliance on external support, and can even borrow at a lower cost. The citizens of this kind of economy have good roads, good transportation, good health, and good educational systems. They are well-resourced and free from civil unrest.</p>
<p>For decades, African countries have chalked up successes but these have not been significant enough to transform their economies. Most countries on the continent are still far from achieving these indicators of an economy with strong fundamentals. They often export primary commodities and import finished products.</p>
<p>The Ghanaian economy is no exception. It is still very much the Guggisberg economy. Sir Gordon Guggisberg was a British empire colonial administrator in what was then Gold Coast (1919-1927). He designed an economy to focus on the export of raw materials and importation of finished goods. Hence the moniker. </p>
<p>A century later, cocoa and gold are still Ghana’s major exports. Ghana is Africa’s <a href="https://www.forbes.com/sites/greatspeculations/2021/06/23/updated-top-10-gold-producing-countries/?sh=122bfca2ce2e">top gold exporter</a> at 138.7 tonnes. It has since added oil and gas, and some non-traditional commodities. </p>
<p>Ghana’s reliance on exporting raw materials and importing finished products contributed to the country’s persistent demand for, and less supply of, foreign currencies. This is why, for a long time, Ghana’s cedi has been depreciating against the other major trading currencies.</p>
<h2>Why is the cedi depreciating so fast?</h2>
<p>Ghana is an import-dependent economy. Because of this, the country continues to buy foreign currency to meet its import demands, with less supply of foreign exchange from its exports. Sometimes, the country records a net gain with exports earnings exceeding import costs, but these are paper gains. The actual money is repatriated by the foreign companies that operate in the country. The retention law is not effective to restrain them from repatriating all their profits.</p>
<p>The depreciation of the cedi has always been seasonal. It’s at its worst between February to March. This is the period during which Ghana-based multinationals repatriate profits. Also, local businesses that had imported goods on credit ahead of the Christmas season settle their debts. These are the major causes of the cedi depreciation. </p>
<p>And the fundamentals have not improved significantly over the years.</p>
<p>The exchange rate was quite stable, especially during the peak of the COVID-19 period (2020-2021), because imports slowed due to border closures by most countries. But as of 28th February 2022, the Ghanaian cedi was the worst performing currency among 15 top currencies in Africa, depreciating by 7.6% within the first two months of 2022.</p>
<h2>So what has sped up the decline?</h2>
<p>The first reason for the recent depreciation is the increased demand for foreign currencies since most businesses in Ghana are now recovering from the COVID-19 shock. This is not limited to Ghana. Most businesses globally are recovering and getting into serious production.</p>
<p>The second reason is the country’s inability to borrow from the international capital market. Because Ghana isn’t able to generate enough foreign exchange through exports, successive governments have tried to manage the depreciation of the cedi through borrowing from the international capital market, issuing dollar-denominated domestic bonds, and depleting the country’s foreign exchange reserves.</p>
<p>Whenever Ghana’s sovereign bond is no longer profitable and there are not enough reserves to shore up the Cedi, the currency depreciates. The events of March 2019 provide a perfect picture. That month the US Federal Reserve increased its interest rate making it more profitable to attract investors. Investors responded by selling sovereign bonds of developing countries like Ghana.</p>
<p>The world economy is bouncing back after the pandemic, pushing global inflation up. Inflation has moved from 3.1% in 2020 to 3.8% in 2022. The US inflation has risen from 1.35% in December 2021 to 7.46% in February 2022. The US Federal Reserve has responded by increasing the interest rate, making US sovereign bonds very attractive. Many investors are now selling their bonds in developing countries like Ghana to purchase those of advanced-economies like the US. </p>
<h2>Effects of the depreciation</h2>
<p>Depreciation of any currency makes its imports more expensive and exports cheaper. Some countries intentionally devalue their currencies to make their exports cheaper. However, because Ghana‘s export sector is not significantly developed, the country is not able to take advantage of the Cedi’s depreciation by exporting more and earning more foreign exchange. The effect of currency depreciation has been an increase in the cost of imported goods. Most of the imported goods are intermediate goods that are used for local production. This has led to rising inflation.</p>
<p>For example, the ex-pump prices of fuel depend a lot on the exchange rate since a greater part of the refined fuel is imported. Currently, there is increased global demand for crude oil as most industries are now recovering from the effects of COVID. At the same time, the supply of crude oil has slowed down after the <a href="https://theconversation.com/russia-invades-ukraine-5-essential-reads-from-experts-177815">Russian invasion of Ukraine</a>. The international crude oil price is expected to continue increasing for some time. </p>
<p>The combined effect of cedi depreciation and increases in international crude oil prices means that the ex-pump price of fuel in Ghana is expected to keep rising, at least until the end of the year 2022. </p>
<p>In response to high inflation, the Bank of Ghana will increase its policy rate in an attempt to control the growth of credit. This will lead to an increase in the cost of borrowing. Higher borrowing costs will eventually lead to increased costs of production, which will further increase inflation. </p>
<h2>Solutions</h2>
<p>The long-term solution is for the country to industrialise, add value to its exports, increase local production and cut down on imports so that there will be enough foreign exchange in the country. The government’s policy of modernising agriculture, and the one-district-one-factory should be improved to speed up the process of industrialisation.</p>
<p>The medium-term solution is for the government to be able to raise more domestic revenue to be able to service its debts, and finance its development without a heavy reliance on borrowing.</p>
<p>The short-term solution is for the government to borrow externally and bring foreign currency into the country. This can only happen after the government demonstrates to the investment community its ability to mobilise domestic revenue to service debt. </p>
<p>As a matter of urgency, the government must revise the design of the electronic levy (e-levy) and pass it within the shortest possible time to access Eurobonds. According to the international credit rating agencies, the passage of the e-levy and the reversal of the 50% benchmark values at the ports will signal to international investors that government of Ghana is on the fiscal consolidation path and that it can raise domestic revenue to service its debt. </p>
<p>In the short term, government can also demonstrate its ability to mobilise domestic revenue by paying attention to other sources of revenue such as property tax, tax exemptions, and natural resources.</p><img src="https://counter.theconversation.com/content/178063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adu Owusu Sarkodie 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 Ghanaian currency is facing structural hurdles.Adu Owusu Sarkodie, Lecturer, Department of Economics, University of GhanaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1765802022-02-20T05:55:30Z2022-02-20T05:55:30ZGhana’s debt makes development impossible: here are some solutions<figure><img src="https://images.theconversation.com/files/445584/original/file-20220210-27-186mld.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ghana's economy is in dire straits</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p><em>By the year 2000, the government of Ghana had borrowed so much that the country was in <a href="https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr0211">debt distress</a>. It then subscribed to the <a href="https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr0211">Heavily Indebted Poor Countries initiative</a> of the International Monetary Fund and World Bank. Consequently, much of the country’s external debt of over US$4 billion was written off by creditors. By the time the initiative ended in 2006, Ghana’s total public debt stock was US$780 million (25% of GDP). The debt stock has since risen by 7000% to <a href="https://www.ghanaweb.com/GhanaHomePage/business/Ghana-s-public-debt-stock-now-GH-341-8-billion-as-of-September-2021-1406452">$54 billion, which is 78% of GDP</a>. The current debt to GDP ratio is 78%, while the average for developing countries is 60%. Economist, Adu Owusu Sarkodie, explains how this happened, why it’s a problem and what can be done.</em></p>
<h2>How did Ghana get into this situation?</h2>
<p>After the Heavily Indebted Poor Countries initiative ended in 2006, the public debt stock has largely been driven by the continuous accumulation of budget deficits (48.6%), the currency deprecation (28.2%), and off-budget borrowings (23.2%). Between 2017 and 2019, Ghana’s debt stock grew astronomically for three main reasons, beyond the normal drivers. </p>
<p>First was the country’s <a href="https://www.fitchratings.com/research/sovereigns/energy-sector-debt-is-key-risk-to-ghana-post-pandemic-debt-trajectory-03-03-2021">energy sector debt</a>. This is debt owed to the country’s power producers and suppliers. It has been accumulated largely by Ghana’s state-owned enterprises, that struggle to generate enough internal revenue to pay their loans. In 2021, for instance, the government has so far provided a $3 billion bailout. </p>
<p>Second was the financial sector <a href="https://isd.gov.gh/topstories-isdnews-authentic-government-news-at-every-corner-of-the-nation/764/">clean-up exercise</a> undertaken by the country’s central bank. Between 2017 and 2019, the Bank of Ghana revoked the licences of some banks, savings and loans, micro-financial institutions, finance houses, and investment institutions due to their insolvency and financial malpractices. The government had to raise another <a href="https://isd.gov.gh/topstories-isdnews-authentic-government-news-at-every-corner-of-the-nation/764/">$3 billion in bonds</a> to pay customers of the defunct banks and financial companies.</p>
<p>Thirdly, like many countries in the world, COVID-19 has had a <a href="https://www.emerald.com/insight/content/doi/10.1108/IJSE-08-2020-0582/full/html">serious impact</a> on the Ghanaian economy due to lockdowns, border closures, restrictions in movement, and the fall in crude oil prices. The economic restrictions resulted in a fall in revenue of US$2 billion, while COVID-19 expenditures increased total government expenditure by US$1.7 billion, giving a total fiscal impact of almost US$4 billion in 2020.</p>
<h2>How bad is it?</h2>
<p>The current rigidity in the Ghanaian budget makes it impossible for the government to do anything without borrowing. Rigidity refers to those statutory payments in the budget over which the government has no control. Just two of the statutory payments (compensation of employees and debt service) consume the total revenue and grants. In 2020, debt service alone (paying interest plus amortisation) consumed 70% of revenue. That’s close to the level of 72% before the country subscribed to the Heavily Indebted Poor Countries initiative. </p>
<p>Based on the estimated revenue and expenditure figures in the 2021 and 2022 budgets, the debt service burden is expected to worsen in 2021 at 82%, before improving at 45% in 2022. </p>
<p>For the government to be able to meet the remaining statutory expenditure and all other discretionary expenditures, it will have to borrow. If the government does not instil discipline and raise revenue domestically, or cut down some expenditure (or both) to create fiscal space, it will have to seek help in an International Monetary Fund programme.</p>
<p>Recently, some international credit rating agencies have downgraded Ghana’s economy, citing the country’s inability to raise enough revenue to service its debt. The signal this sends to investors is that Ghana’s sovereign bond is not profitable and its default risk is too high. </p>
<p>The implication of this is that the government may not be able to raise money from the international capital market. The options are to either borrow domestically and crowd out the private sector, or borrow from other countries. If this option is exhausted, it will have to seek an International Monetary Fund programme.</p>
<h2>What has been the impact on the economy?</h2>
<p>The impact of the huge public debt and the slowed growth of revenue is that the country has to borrow to finance its spending every time. Until the government borrows it can do virtually nothing. This has slowed down the government’s ability to implement its programmes and policies to grow and transform the economy and create jobs. </p>
<p>Over a 16-year period (2006-2021), the country’s economic growth was largely driven by the extractive sector. This sector is capital intensive: it uses more machines than human beings. The effect is that, though there is some economic growth, the source of growth is not from sectors of the economy that can generate employment. This is why unemployment has <a href="https://www.bloomberg.com/news/articles/2021-12-19/ghana-unemployment-rate-has-tripled-in-10-years-census-shows">increased</a> from 5% to 13%. </p>
<h2>Are there any solutions?</h2>
<p>Ghana finds itself in difficult position. The only way out is to raise enough revenue to finance its development. Even if the government succeeded in borrowing, it would still have to raise revenue domestically to service the debt. Therefore, there is no substitute for domestic resource mobilisation. The projected budget deficit for 2022 is $6 billion. The government will have to raise revenue through taxes (without overburdening the taxpayers) and non-tax sources.</p>
<p>The Institute for Fiscal Studies <a href="https://www.ifsghana.org/the-role-of-the-extractive-sector-in-ghanas-comparatively-low-public-sector-revenue-mobilization-policy-brief-no-11/">researched</a> the sources of revenue to the government in 2018 and made the following recommendations as the possible additional revenue to Ghana’s public finance annually:</p>
<ul>
<li><p>Personal income tax of the workers in the informal sector – $47 million </p></li>
<li><p>Property tax – $157 million</p></li>
<li><p>Tax exemptions – $790 million </p></li>
<li><p>55% share of the extractive sector – $4 billion</p></li>
</ul>
<p>According to the Ghana Statistical Service, there are about <a href="https://statsghana.gov.gh/gssmain/storage/img/infobank/2021%20PHC%20Provisional%20Results%20Press%20Release.pdf">7.7 million workers</a> in the informal sector but it is difficult to measure their incomes. There is a difficulty in taxing incomes that are unknown. That is why there seems to be a good economic justification to tax them using the <a href="https://www.uncdf.org/article/7408/ghana-electronic-levy">proposed e-levy</a>. But the levy must be designed to achieve the objective of taxing the incomes of workers in the informal sector. </p>
<p>In addition to raising revenue, the government must also plug all loopholes, and ensure prudent management of public finance. The Auditor-General department and Public Accounts Committee of Parliament usually identify financial irregularities in their reports. </p>
<p>The recent Auditor-General’s <a href="https://www.myjoyonline.com/12-85bn-irregularities-committed-by-state-institutions-in-2020-auditor-general-report/">report</a> identified about $1.8 billion worth of irregularities in public finance. When these irregularities are checked, the government will gain the confidence and support of the citizens.</p>
<p>If the current growth in the public debt stock continues, then the country is likely to find itself in debt distress, which might lead to seeking an International Monetary Fund bailout.</p><img src="https://counter.theconversation.com/content/176580/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adu Owusu Sarkodie 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>Ghana’s economy is in its most precarious state in decades.Adu Owusu Sarkodie, Lecturer, Department of Economics, University of GhanaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1673972021-10-04T14:13:57Z2021-10-04T14:13:57ZIs the resource curse hard-baked into African economies? China’s approach hints that it may not be<figure><img src="https://images.theconversation.com/files/423845/original/file-20210929-23-coy8u.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Resource rich African countries do not have to fall victim to the resource curse</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>Countries with abundant natural resources – gold, diamonds, crude oil– often fail to transform that advantage into favourable development outcomes. This is known as the <a href="https://resourcegovernance.org/sites/default/files/nrgi_Resource-Curse.pdf">natural resource curse</a>. Countries like Nigeria, Angola and the Democratic Republic of Congo are often cited as <a href="https://academic.oup.com/jae/article-abstract/22/4/570/744831">examples</a>.</p>
<p>Several explanations have been offered for the resource course. These include the lack of government accountability usually associated with large windfalls from natural resources relative to other sources of tax revenues. Others are an increase in the local currency against major currencies such as the US dollar, which makes it difficult for other sectors of the economy to compete globally. This is referred to as the <a href="https://corporatefinanceinstitute.com/resources/knowledge/economics/dutch-disease/">Dutch Disease</a>, named after the economic crisis that hit the Netherlands in the mid-1970s after the discovery of oil in the North Sea.</p>
<p>A related problem, but one that has received less attention, is the fiscal resource curse. It refers to the inability of a country well endowed with natural resources to generate domestic revenue from other sectors of the economy. For example, between 2000 and 2010, resource revenues in Angola stayed above 20% of GDP compared to a non-resource tax level of about 7% on <a href="https://www.wider.unu.edu/project/grd-%E2%80%93-government-revenue-dataset">average</a>.</p>
<p>But the fiscal resource curse need not be a foregone conclusion for developing countries. <a href="https://www.tandfonline.com/doi/pdf/10.1080/02692171.2021.1942438?casa_token=LgLl75MBFgMAAAAA:VJacP1P797RQwR5pt-9AbTGTs-8y03efiVyU03ClcV0GE4FG1Gu4l1ciCTiQ8fQiPfDowRTpXPhdkeE">A recent study</a> finds tentative signs that China’s approach to trade with resource rich African countries might be the answer. </p>
<p>China has been offered bilateral infrastructure investment deals to resource rich countries. For instance, China “pays” for some of the commodities by investing in the supplier country’s infrastructure. This has been a common approach in several African countries, including Angola, Sudan, Nigeria and Ethiopia.</p>
<p>There is no consensus in the economics literature on the relationship between natural resource abundance and domestic revenue mobilisation. Nevertheless many studies suggest a <a href="https://www.sciencedirect.com/science/article/pii/S0301420719309079?casa_token=i6oQ7egMZ70AAAAA:-qLY7cRh1HyejsGiQydv6z6vqHQeHFXnEBZGofR85Z5okQNIqMT20Zhrpd5YxGP2TZuSrcR4_eBN">tradeoff</a> between revenues from the natural resource sector versus those from other sectors. </p>
<p>Our <a href="https://www.tandfonline.com/doi/pdf/10.1080/02692171.2021.1942438?casa_token=LgLl75MBFgMAAAAA:VJacP1P797RQwR5pt-9AbTGTs-8y03efiVyU03ClcV0GE4FG1Gu4l1ciCTiQ8fQiPfDowRTpXPhdkeE">study</a> investigated whether natural resource revenues displace non-resource tax revenues in developing countries. Its novel contribution is that it explores the impact of China. This is specifically about China’s extensive involvement (as a buyer) in the natural resource trade since joining the World Trade Organisation (WTO) in 2001. </p>
<h2>Enter the dragon</h2>
<p>We examined whether China’s entrance into the global trade has affected the relationship between natural resources and domestic revenue mobilisation.</p>
<p>We do not find consistent evidence of a negative relationship between natural resource revenues and tax revenue mobilisation from other sectors. The key implication is that natural resource abundance need not translate into a curse.</p>
<p>In our <a href="https://www.tandfonline.com/doi/full/10.1080/02692171.2021.1942438">study</a> we used a unique global dataset that separates domestic resource revenues and non-resource revenues. The database was developed by the International Centre for Taxation and Development. It is hosted by <a href="https://www.wider.unu.edu/project/grd-%E2%80%93-government-revenue-dataset">the United Nations University</a>. We also used data from the World Bank’s <a href="https://databank.worldbank.org/source/world-development-indicators">World Development Indicators</a> and the <a href="https://www.prsgroup.com/explore-our-products/international-country-risk-guide/">International Country Risk Guide</a>. </p>
<p>We analysed a sample of 45 developing countries with data covering the period 1980-2015. More than half of these countries are African.</p>
<p>The period after 2001 was marked by growing commodity trade and rising commodity prices. These were triggered by China’s rising demand for crude oil and metals. For example, China’s global demand for metals increased to about 40% of total demand after 2001 compared to a paltry 3% <a href="https://www.imf.org/en/Publications/WEO/Issues/2016/12/31/Subdued-Demand-Symptoms-and-Remedies">before</a>. Africa satisfied a third of China’s energy requirements.</p>
<p>This demand shock spurred natural resource exports, resulting in an increase in resource <a href="https://www.imf.org/en/Publications/WEO/Issues/2016/12/31/Subdued-Demand-Symptoms-and-Remedies">revenue growth</a>.</p>
<h2>The China shock</h2>
<p>Without accounting for China’s role, we find that a negative relationship between natural resource revenues and non-resource tax revenues. In other words, developing countries don’t appear to raise taxes outside the resource sector when commodity prices are high and resource revenues are growing. But robust <a href="https://www.tandfonline.com/doi/abs/10.1080/01621459.1995.10476535">statistical analysis</a> suggests that it’s not so simple.</p>
<p>If we take into account the “China shock”, there isn’t consistent evidence of a negative relationship between natural resource revenues and non-resource tax revenues. Our study finds that natural resource revenues could play a complementary role in raising taxes outside the natural resource sector. </p>
<p>On average, a percentage point increase in resource revenues triggers a non-resource tax revenues increase of about 0.3 percentage points for the countries and time period of study. However, the relationship is not strong, statistically.</p>
<p>A plausible explanation could be how developing countries take advantage of China’s demand for natural resources. In return for primary commodities, China offers a bilateral infrastructure investment strategy. This often compensates for the financial market and governance challenges that developing countries face. For instance, China “pays” for some of the commodities by investing in the supplier country’s infrastructure. This has been a common approach in several African countries, including Angola, Sudan, Nigeria and Ethiopia.</p>
<p>China’s development of infrastructure in these countries could be stimulating the growth of their non-resource sectors. Infrastructure is one of the key bottlenecks for private sector growth. In turn, private sector growth can help these economies diversify the economic base and increase non-resource revenues. Thus, increasing natural resource revenues need not displace sound tax policy. Tax revenue mobilisation in the non-resource sector need not suffer.</p>
<h2>Concerns about opacity</h2>
<p>The lack of a highly statistically significant positive relationship deserves comment. First, even if the China shock makes a difference, developing the capacity to tax in developing countries takes time. Moreover, one should not expect China’s natural resource trade model with developing countries to automatically guarantee favourable outcomes in every case. </p>
<p>Indeed, the burgeoning literature on China’s involvement in Africa paints a <a href="https://academic.oup.com/jae/article-abstract/27/suppl_1/i52/5075681">mixed picture</a>. For example, despite the potential benefits of infrastructure projects, there are concerns with the opacity of Chinese contracts and the quality of the <a href="https://chinaafricaproject.com/2020/06/11/south-sudan-closes-a-chinese-built-highway-due-to-poor-quality/">projects</a>. Some governments also worry about the cost of natural resource-backed loans. Furthermore, many developing countries lack the capacity to manage <a href="https://www.ft.com/content/ca4072f6-a79f-11e8-a1b6-f368d365bf0e">infrastructure projects</a> effectively. </p>
<p>Overall, our analysis shows that there isn’t strong evidence that natural resource revenues displace non-resource tax revenues. Investments in infrastructure in developing nations on the back of natural resource windfalls could help diversify economies and government revenue. This offers policymakers an opportunity to broaden the tax base and maintain a relatively stable tax rate. It also puts something in domestic revenue buckets even when the oil wells run dry.</p><img src="https://counter.theconversation.com/content/167397/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>Natural resource abundance in a country should not translate into a curse.Daniel Ofoe Chachu, Research Fellow, Institute of Political Science (Political Economy and Development Group), University of ZurichEdward Nketiah-Amponsah, Associate Professor, Department of Economics , University of GhanaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1690002021-09-30T14:30:23Z2021-09-30T14:30:23ZCoffee bean prices have doubled in the past year and may double again – what’s going on?<figure><img src="https://images.theconversation.com/files/423995/original/file-20210930-12-18pvll8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Beans are booming. </span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/OmOvMdiaZZ0">Robert Shunev/Unsplash</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>International Coffee Day feels very different this year. Introduced by the <a href="https://www.ico.org/">International Coffee Organization</a> (ICO) on October 1 2015 to raise awareness of the product and the challenges faced by producers, the day has usually focused on how low prices paid for unroasted beans barely cover farmers’ costs – let alone support their families. </p>
<p>Not this year, though. In the past 12 months, the C price – the benchmark price for commodity-grade Arabica coffee on the New York International Commodity Exchange – has risen from US$1.07 (£0.80) per pound (454g) to around US$1.95. Back in July, <a href="https://www.macrotrends.net/2535/coffee-prices-historical-chart-data">it touched US$2.08</a>. </p>
<p><strong>Arabica bean prices (US$/lb)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Long-term price chart for Arabica coffee" src="https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=308&fit=crop&dpr=1 600w, https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=308&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=308&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=387&fit=crop&dpr=1 754w, https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=387&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/423998/original/file-20210930-18-1hbqr1t.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=387&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/commodity/coffee">Trading Economics</a></span>
</figcaption>
</figure>
<p>Nearly all contracts for coffee delivery are benchmarked against the C price, with the result that prices for green Arabica (unroasted beans) have risen by over 80% during the past year. Those for Robusta coffee – a cheaper, less palatable alternative – have <a href="https://ycharts.com/indicators/world_coffee_robusta_price">risen over 30%</a>. And there is every chance that these prices will rise higher in the coming months. We may be on the verge of a major price correction that shifts the market upwards for years to come.</p>
<h2>Why coffee got expensive</h2>
<p>The principal reason for surging prices is a series of environmental events in Brazil. By far the world’s leading coffee producer, Brazil accounts for <a href="https://www.ico.org/historical/1990%20onwards/PDF/1a-total-production.pdf">around 35%</a> of global harvest. The volume of production regularly fluctuates between “on” and “off” years, and usually this is not sufficient to greatly affect prices because producers mitigate their risks through stock management and hedging prices using the <a href="https://perfectdailygrind.com/2019/01/what-is-coffee-hedging-how-does-it-impact-producers/">coffee futures market</a>. </p>
<p>However, yields in 2021 are likely to be dramatically lower. This is due to <a href="https://www.npr.org/2021/09/22/1039800090/how-brazils-severe-drought-affects-the-entire-worlds-coffee-supply-chain">a combination</a> of a severe drought earlier in the season, which reduced the numbers of coffee cherries, and recent intense frosts that might further damage the fruit and even the trees. The Brazilian authorities <a href="https://www.comunicaffe.com/brazil-conab-cut-its-official-estimate-for-the-2021-22-coffee-crop-to-46-9-million-bags/">are projecting</a> the lowest Arabica harvest for 12 years.</p>
<p>The big question is how this affects future production. Coffee trees can take up to five years to mature, so it will take a few seasons before the scale of the damage is clear. If, as <a href="http://www.spilling-the-beans.net/">some respected reporters</a> are suggesting, the frost causes maximum damage – potentially <a href="https://stir-tea-coffee.com/tea-coffee-news/brazil-frost-damage-worsens-global-coffee-supply-challenges-/">hitting two-thirds</a> of trees – there may be a long-lasting drop in world supplies. This could see prices breaking through the US$3.00 and even US$4.00 barrier.</p>
<h2>The long coffee cycle</h2>
<p><a href="https://www.amazon.co.uk/Coffee-Global-History-Jonathan-Morris/dp/1789140021/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=&sr=">The history</a> of coffee has been characterised by extreme price volatility. Periods of excessive supplies have progressively driven down prices until a catastrophic event – either environmental or political – results in a correction. </p>
<p>During the 1930s, a combination of bumper harvests and weak consumer demand in the depression era led to a massive supply glut. To reduce excess stock, Brazil resorted to dumping coffee at sea and also converting it into locomotive fuel. At the other extreme, many coffee trees were killed in 1975 when Brazil was struck by a series of “black” frosts. This led to a 60% fall in output in the following harvest, and prices trebling between 1975 and 1977. </p>
<p>In 1962, the ICO introduced producer quotas to try and keep prices buoyant in the face of such highs and lows. This was supported by the United States to avoid communism spreading from Cuba to mainland Latin America, but it was abandoned on American insistence after 1989. This led to an over-supply and ultimately a coffee crisis at the end of the century in which the C price remained under US$1.00 for four straight years. It had tended to trade between about US$1.00 and US$2.00 per pound, and the price crash saw many producers <a href="http://www.ico.org/documents/globalcrisise.pdf">going hungry</a>. </p>
<p>The price only recovered when a <a href="https://www.britannica.com/science/coffee-rust">coffee leaf rust</a> infected a significant portion of Central American and Colombian production. The bitter irony of the coffee market is that prices for producers only improve when many of them suffer unsustainable losses.</p>
<h2>The Robusta problem</h2>
<p>Coffee prices fell in the latter part of the 2010s primarily as a result of the expansion of global production. Most notable <a href="https://farrerscoffee.co.uk/blogs/blog/top-10-coffee-producing-countries-around-the-world">was Vietnam</a>, which is now the world’s second largest coffee producer and accounts for around 18% of total global production. As much as 95% of Vietnamese output is Robusta.</p>
<p><a href="https://www.amazon.co.uk/Coffee-Not-Forever-History-Ecology-ebook/dp/B07ZH85TNK/ref=sr_1_1?dchild=1&keywords=coffee+is+not+forever&qid=1632757826&qsid=257-4439212-9979455&s=books&sr=1-1&sres=0821423878%2CB09FSCKT9B%2C1398703427%2C1529105102%2CB086Y7D5S2%2C1785945149%2C178452087X%2C0008366276%2C0008375526%2C0008422982%2CB092PCTWBG%2C139870167X%2C1648450660%2CB09DTHQHQ7%2CB00VT94WXW%2C1640309470">Robusta was actually</a> first used for coffee cultivation because of an environmental catastrophe, when east Asia’s coffee production was virtually wiped out by coffee leaf rust during the late 19th century. In more recent times, procedures for “cleaning” Robusta to reduce off-flavours have improved to the point that <a href="https://www.thecoffeeguide.org/coffee-guide/coffee-quality/steam-cleaning/">roasters increasingly</a> resort to raising its proportion within a blend. This is particularly done when targeting markets which are primarily driven by price, such as instant coffee.</p>
<p>If prices keep spiking now, using more Robusta in blends could prevent coffee from becoming too expensive for consumers. But this will be difficult to do, at least short-term, because of severe COVID restrictions in Vietnam. This has caused <a href="https://www.comunicaffe.com/supply-concerns-in-vietnam-push-robusta-futures-prices-to-their-highest-levels-since-2017/">considerable disruptions</a> both to transporting coffee from the central highlands to the export hub of Ho Chi Minh city, and then managing the onward shipping logistics. The same issues have arisen in many coffee-producing nations. </p>
<p><a href="https://www.spillerandtait.co.uk/blogs/news/coffee-price-rises-for-small-roasters-imminent">Consequently we have</a> brokers battling to secure sufficient stocks, roasters contemplating how to pass on price rises to their business customers, and consumers facing the prospect of paying higher prices for household coffee products. </p>
<p>But will producers be the winners in this latest price surge? Those Brazilian agribusinesses that survive the immediate impact of the frosts surely will, as too the well-capitalised, medium-sized farms of Latin America. </p>
<p>What, though, of the smallholders and subsistence farmers who make up 95% of coffee farmers? For years, the ICO and its member states have presented these farmers as the victims of global market forces; now we will find out if these players are capable of delivering back to farmers the increased value their coffee is generating. If so, then International Coffee Day will indeed be something to celebrate.</p><img src="https://counter.theconversation.com/content/169000/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Morris 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 black stuff is suddenly much more expensive – the question is whether smallhold farmers will see any of the proceeds.Jonathan Morris, Professor of History, University of HertfordshireLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1575562021-04-19T12:27:21Z2021-04-19T12:27:21ZBrazil’s economic crisis, prolonged by COVID-19, poses an enormous challenge to the Amazon<figure><img src="https://images.theconversation.com/files/394841/original/file-20210413-19-15eq4zg.jpg?ixlib=rb-1.1.0&rect=96%2C37%2C4767%2C3208&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A deforested piece of land in the Amazon rainforest near Porto Velho, in the state of Rondonia, in northern Brazil, on Aug. 23, 2019.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/aerial-picture-showing-a-deforested-piece-of-land-in-the-news-photo/1163385255?adppopup=true">Carl De SouzaA/FP via Getty Images</a></span></figcaption></figure><p>Brazilian President Jair Bolsonaro <a href="https://www.cnn.com/2021/04/15/americas/bolsonaro-biden-amazon-deforestation-intl/index.html">confirmed his country’s participation in a virtual climate summit</a> convened by the U.S. for April 22 and 23, vowing in a recent letter to U.S. President Joe Biden to end illegal deforestation in Brazil by 2030 – a striking about-face from a longtime adversary to the country’s environmental policies. </p>
<p>But Bolsonaro warned that Brazil will need “massive resources”, including considerable financial help, to protect the Amazon. Brazil is currently in the midst <a href="https://www.npr.org/sections/goatsandsoda/2021/03/23/980391847/brazil-is-looking-like-the-worst-place-on-earth-for-covid-19">of a deadly wave of the COVID-19 pandemic</a>, and its economy <a href="https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/BRA?year=2021">shrunk by a record 5.8%</a> last year. The Biden administration, meanwhile, is considering paying <a href="https://www.theguardian.com/environment/2021/apr/11/negotiating-with-your-worst-enemy-biden-in-risky-talks-to-pay-brazil-to-save-amazon">Brazil to protect its environment</a>. </p>
<p>But not so long ago, both Brazil’s economy and its Amazon were prospering.</p>
<p>In 2014, Brazil was closing out nearly a decade of continuous <a href="https://fred.stlouisfed.org/series/NAEXKP01BRQ657S">economic growth</a>. <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=BR">Per capita GDP</a> – the total value of the economy divided among the population – had grown by 400% in just 10 years and economic inequality was falling to record lows in a country that long had the world’s largest gap between rich and poor. Between 2004 and 2014, some 35 million Brazilians <a href="https://www.theguardian.com/global-development-professionals-network/2014/apr/17/brazil-role-model-development-africa">joined the ranks of the middle class</a>.</p>
<p>As Brazil’s economy thrived, <a href="https://science.sciencemag.org/content/344/6188/1118.abstract">deforestation in the Amazon</a> slowed. Deforestation levels in 2012 were <a href="http://www.obt.inpe.br/OBT/assuntos/programas/amazonia/prodes">one-sixth of what they were in 2004</a>. Back then, falling deforestation rates were hailed as a testament to the <a href="https://doi.org/10.1126/science.1248525">country’s prowess</a> in environmental policymaking. </p>
<p>But after nearly a decade of <a href="https://scholar.google.com/citations?hl=en&user=M3iEyN0AAAAJ">researching and writing about Amazon forest loss</a>, I’ve become convinced that Brazil’s successes in reducing deforestation a decade earlier likely had just as much to do with basic economics as environmental policy.</p>
<h2>Rise and fall of deforestation</h2>
<p>Forest loss in the Amazon has long reflected Brazil’s economic health. </p>
<p>For much of the late 20th century, when Brazil’s economy boomed, the federal government redirected public investment to the Amazon. Many of these investments – <a href="https://news.mongabay.com/2012/01/colonization-program-remains-important-driver-of-deforestation-in-brazil/">the massive land distribution programs of the 1980s</a>, <a href="https://doi.org/10.1590/1809-4422ASOC256V1922016">road projects</a> and the enormous public subsidies for farming and ranching – were closely associated with forest loss. </p>
<p>So, in the 20th century, when Brazil’s economy boomed, deforestation often followed. </p>
<p>Today, however, forest loss in Brazil’s Amazon tends to be more closely associated with international demand for commodities like soybeans, beef and gold than with government investments. And for farmers, prices for these commodities don’t just rise and fall with global demand. They also rise and fall inversely to Brazil’s economic health.</p>
<p>The underlying <a href="https://theconversation.com/brazils-thriving-soy-industry-threatens-its-forests-and-global-climate-targets-56973">economic reasons for this connection are complicated</a>. But in short, it has to do with how the value of Brazil’s currency, the real, affects farmers who grow animals or crops for export. </p>
<h2>Of currencies and commodities</h2>
<p>That’s because, historically, when Brazil’s economy struggles, its currency loses value against the U.S. dollar – the currency of international markets.</p>
<p>About 20% of Brazil’s beef and more than 80% of its soybeans are exported. For Brazilian farmers and ranchers who contribute to these export markets – including many who live or operate in the Amazon region – a struggling domestic economy and weak currency is actually a plus. It means that when foreign buyers purchase Brazilian exports in dollars, Brazilian farmers are being paid more in their local currency. </p>
<p>This gives them more money – money that can potentially be used for <a href="https://iopscience.iop.org/article/10.1088/1748-9326/aace8e/meta">purchasing and clearing forested land</a>. A lucrative export market is also a compelling reason to start purchasing and clearing new land. </p>
<p>Conversely, when the economy is strong, so is the Brazilian real. For Amazonian farmers in Brazil, that means less money earned, less to invest in clearing forests and less incentive to clear new land. </p>
<p>A decade ago, when <a href="https://fred.stlouisfed.org/series/NAEXKP01BRQ657S">Brazil’s economy was working well</a> and the real <a href="https://fred.stlouisfed.org/series/DEXBZUS">was particularly strong</a>, economic growth, nationally, was putting a brake on deforestation by <a href="https://doi.org/10.3389/ffgc.2021.613313">suppressing farmers’ and ranchers’ profits</a>. </p>
<h2>Economic crises are environmental crises</h2>
<p>The economic brakes that once guarded against Amazon deforestation have come off. </p>
<p>In 2015 <a href="https://theconversation.com/how-did-brazil-go-from-rising-bric-to-sinking-ship-57029">Brazil entered a severe recession</a>. Now in its sixth consecutive year of slow or even negative economic growth, the Brazilian economy remains beset by <a href="https://www.ecb.europa.eu/pub/pdf/other/eb201601_focus01.en.pdf">lower global commodity prices</a> and a <a href="https://fred.stlouisfed.org/series/GGGDTABRA188N">rising deficit</a>. Poverty is rising. Per capita GDP today is now about US$1,000 less per person than <a href="https://tradingeconomics.com/brazil/gdp-per-capita">it was a decade ago</a>. </p>
<p>Meanwhile, Brazil is one of the countries worst hit by COVID-19, with <a href="https://www.npr.org/sections/coronavirus-live-updates/2021/04/07/984991377/brazil-tops-4-000-daily-covid-19-deaths-nears-u-s-peak">4,000 people dying on its worst days</a>. The pandemic is prolonged and exacerbating the country’s economic crisis.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Residents receive meals at a soup kitchen in Sao Paulo." src="https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394848/original/file-20210413-21-hhf1cu.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">Residents receive meals at a soup kitchen in the Paraisopolis favela, in Sao Paulo, Brazil, on Jan. 28, 2021.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/residents-receive-meals-at-a-soup-kitchen-of-paraisopolis-news-photo/1230959554?adppopup=true">Nelson Almeida/AFP via Getty Images</a></span>
</figcaption>
</figure>
<p>Today, valued at about 18 U.S. cents, the real sits <a href="https://fred.stlouisfed.org/series/DEXBZUS">at a record low</a>. The last time the real was this low was in 2003 – another year, not coincidentally, that deforestation in the Amazon surged. </p>
<p>The weak Brazilian currency has pushed prices for <a href="https://www.cepea.esalq.usp.br/br/indicador/soja.aspx">soybeans</a>, <a href="https://www.cepea.esalq.usp.br/br/indicador/boi-gordo.aspx">beef</a> and <a href="https://goldprice.org/gold-price-brazil.html">gold</a> to heights which, 10 years ago, would have astounded. Soybean prices are five times higher than they were 15 years ago. Beef and gold prices are more than triple. For the farmers, ranchers and prospectors who work in the Amazon or at its periphery, these are very profitable times.</p>
<p>Last year, deforestation in the Amazon reached <a href="https://www.nature.com/articles/s41559-020-01368-x">its highest level</a> in over a decade. Unless something changes, I expect more land-clearing forest fires this July and August, when the Amazon’s dry season reaches its apex. </p>
<h2>To end deforestation, fix Brazil’s economy</h2>
<p>In today’s globalized economic system, the fates of Brazil’s economy and the Amazon forest are linked. </p>
<p>Brazil’s current economic crisis rewards the Amazon’s ranchers, <a href="https://www.sapiens.org/culture/amazon-gold-mining/">gold prospectors</a> and farmers with higher profits, creating serious financial incentives to clear more land. By some estimates, such fires in Brazil account for <a href="https://www.edf.org/sites/default/files/10333_Measuring_Carbon_Emissions_from_Tropical_Deforestation--An_Overview.pdf">70% of the country’s total greenhouse gas emissions</a>.</p>
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<p>The global debate about how to best protect the Amazon has largely focused on concerns over the <a href="https://theconversation.com/amazon-deforestation-already-rising-may-spike-under-bolsonaro-109940">state of Brazilian environmental policy</a> under President Bolsonaro. My research suggests the need to strengthen Brazil’s economy should be a critical part of these discussions. </p>
<p>When Brazil’s economy struggles, its farmers and ranchers will reap – and the Amazon will suffer.</p><img src="https://counter.theconversation.com/content/157556/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Richards has previously received funding for his work from the National Science Foundation and the National Geographic Society. Currently, he also serves as a Senior Economist with the U.S. Agency for International Development (USAID). The views and opinions expressed in this article are his and do not necessarily represent USAID.</span></em></p>Because Brazil’s economic prosperity in the last two decades is increasingly linked to the Amazon’s good health, restoring the country’s economy is a critical first step toward ending deforestation.Peter Richards, Adjunct Professor, George Washington UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1557992021-03-14T09:09:26Z2021-03-14T09:09:26ZHow commodity exporting countries like Ghana have been hit by COVID-19<figure><img src="https://images.theconversation.com/files/387699/original/file-20210304-23-1m39wl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many countries in Africa are dependent on commodities export. </span> <span class="attribution"><a class="source" href="https://creativecommons.org/licenses/by/4.0/">Synergos/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Ghana generates over <a href="https://oec.world/en/profile/country/gha">80% of its export revenues</a> from three primary commodities - gold, crude oil and cocoa exports. It is <a href="https://unctad.org/system/files/official-document/ditccom2019d1_en.pdf">classified by UNCTAD</a> as commodity dependent, making it vulnerable to sharp drops in commodity prices.</p>
<p>Since the <a href="https://theconversation.com/africa/covid-19">COVID-19 pandemic</a> demand for oil dropped precipitously due to a sudden reduction in industrial production, trade, travel, and movement of freight. <a href="https://www.worldoil.com/news/2020/10/13/iea-forecasts-a-serious-ongoing-oil-demand-hit-from-covid-19">Prices fell</a> dramatically as a result. </p>
<p>Revenues from the newly established oil and gas industry have had a profound impact on Ghana’s macroeconomy, even though oil and gas accounted for <a href="https://www.worldbank.org/en/country/ghana/overview">just 3.8% of Ghana’s GDP</a> in 2018. </p>
<p>Cocoa, a key ingredient in chocolate, a luxury food product, has also seen a decline in demand. Ghana is the <a href="https://www.statista.com/statistics/497844/production-of-cocoa-beans-in-ghana/">second largest cocoa bean supplier</a> globally, with an estimated <a href="https://www.worldcocoafoundation.org/wp-content/uploads/files_mf/laven201297.pdf">1 million Ghanaian smallholder farmers</a> and their communities depending directly on cocoa for their livelihoods. </p>
<p>The only commodity that did well of Ghana’s main exports was gold. The country is the <a href="https://www.miningglobal.com/automation-and-ai/ghana-beats-south-africa-continents-gold-production-crown">largest gold producer in Africa</a>. Demand – and the price – of gold increased. </p>
<p>Ghana achieved strong economic growth in terms of real GDP in the 2000s and reached lower middle-income status in November 2010. Middle-income countries generally have a diversified economic structure but Ghana remains heavily dependent on primary commodity exports for foreign exchange earnings. </p>
<p>As a result the impact of the fall in the price of oil and cocoa has been severe. Ghana’s credit rating was downgraded to <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-cuts-ghana-on-mounting-fiscal-challenges-amid-covid-19-60311142">B- in September 2020</a> and the International Monetary Fund approved the <a href="https://www.imf.org/en/News/Articles/2020/04/13/pr20153-ghana-imf-executive-board-approves-a-us-1-billion-disbursement-to-ghana-to-address-covid-19#:%7E:text=IMF%20Executive%20Board%20approves%20a%20US%241%20billion%20disbursement%20to,address%20the%20COVID%2D19%20Pandemic&text=On%20April%2013%2C%202020%2C%20the,is%20already%20impacting%20Ghana%20severely.">disbursement of US$1 billion</a> to improve confidence of the country’s creditors. At the end of 2020, GDP growth was confirmed at <a href="https://www.imf.org/en/Countries/GHA">0.9%</a>. </p>
<p>The COVID-19 crisis hit Ghana and other commodity dependent economies through <a href="https://unctad.org/system/files/official-document/gdsinf2020d3_en.pdf">three mutually reinforcing impact channels</a>:</p>
<ul>
<li><p>A price channel: the collapse of commodity prices in the wake of a global recession.</p></li>
<li><p>A supply chain channel: disruptions of global commodity-based supply chains.</p></li>
<li><p>A financial channel: the overlap of financial and commodity price cycles resulting in procyclical capital flows and debt servicing costs.</p></li>
</ul>
<p>In <a href="https://www.tandfonline.com/doi/full/10.1080/02255189.2020.1857225">our paper</a>, we looked at how the interplay of these three channels can be particularly damaging. And how this played out in the case of Ghana.</p>
<p>None of these channels is unique to the COVID-19 pandemic. However, the size and the speed with which the demand for commodities collapsed was unique, as was the simultaneous shock to demand and disruptions to global supply chains. </p>
<h2>What’s different this time round?</h2>
<p>The pandemic caused a massive and instant reduction of global economic activity. Between February and March 2020, <a href="https://www.wto.org/english/news_e/pres20_e/pr858_e.htm">global merchandise trade shrank by 8%</a>. Between January and April 2020, industrial production dropped by 30% in the EU and and 20% in the US – two major trading destinations for Ghana. </p>
<p>The significant decline in economic activity led to reduced demand for commodities, representing a substantial demand shock, and leading to a sharp drop in commodity prices. This wasn’t true for all commodities. But supply chain disruptions due to hold ups at ports when importers or exporters went into lock down disrupted commodity exporters’ revenues streams.</p>
<p>The squeeze in revenue streams reduced commodity dependent economies’ access to foreign exchange and made debt servicing and financing of essential imports (including medical supplies) difficult. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/covid-19-further-exposes-inequalities-in-the-global-financial-system-150792">COVID-19 further exposes inequalities in the global financial system</a>
</strong>
</em>
</p>
<hr>
<p>These dynamics were accompanied by an unprecedented <a href="http://www.oecd.org/investment/COVID19-and-global-capital-flows-OECD-Report-G20.pdf">net-portfolio outflow</a> in March 2020 as financial investors moved their assets to safety and a downgrading of credit ratings for many commodity exporters. <a href="https://mofep.gov.gh/press-release/2020-09-14/global-ratings-lowers-ghanas-long-term-rating-to-b-with-a-stable-outlook">Ghana</a> was one such country. </p>
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Read more:
<a href="https://theconversation.com/african-countries-need-reliable-and-accessible-economic-data-recent-ratings-show-why-146693">African countries need reliable and accessible economic data: recent ratings show why</a>
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</em>
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<p>As market-based credit became unavailable or unaffordable, sovereign wealth funds suffered a triple-drain: a decline in value of financial assets that the funds had invested in, a commodity price slump squeezing funding allocation, and a liquidation of assets by governments to increase their fiscal space. Ghana, running out of fiscal space, was forced to tap into its <a href="https://www.reuters.com/article/idUSL8N2G05I9">Petroleum Fund and indicated a planned liquidation of US$0.2 billion</a>.</p>
<h2>Mitigation strategies</h2>
<p>The COVID-19 pandemic is likely to have a long-term negative effect on commodity dependent countries’ finances in two ways. </p>
<p>First, there is likely to be a reduction of productive capacity of primary commodities. This could be either due to a loss of existing productive capacity or due to lack of investments and key inputs as suppressed prices make investments unattractive. <a href="https://www.rystadenergy.com/newsevents/news/press-releases/covid-19-and-low-oil-prices-could-cancel-more-than-half-of-2020s-licensing-rounds-globally/">Planned oil explorations</a> in Ghana are now unlikely to proceed. The result is a reduction of future revenue streams.</p>
<p>Second, there is likely to be an increase in the debt burdens of countries. This results in an increasing outflow of revenue dedicated to debt servicing in the future. In 2019, a staggering <a href="https://www.oxfamitalia.org/wp-content/uploads/2020/07/Passing-The-Buck-On-Debt-Relief.pdf">39% of Ghana’s revenues</a> were spent on debt servicing. This has <a href="https://www.devex.com/news/opinion-how-debt-burdens-could-cripple-africa-s-covid-19-response-96821">increased to 55%</a> over the COVID-19 crisis. </p>
<p>Based on our findings we suggest a number of strategies for commodity dependent countries like Ghana.</p>
<p>One, a long-term resilience strategy would be to create local clusters of production and processing to make supply chains more resilient to disruptions. It would also contribute to promoting export diversification towards higher value products. </p>
<p>But restructuring supply chains and economies requires large-scale investments and capacity building, so this will take time.</p>
<p>In the short-term, the ability of the Ghanaian economy to cushion the impact of the crisis, mitigate the risk of long-term adverse consequences, and preserve the ability to invest for future generations, depends on the availability of loans. </p>
<p>Because credit ratings and credit availability move in lockstep with global commodity cycles, market-based sources of credit are unavailable in times of crisis. Hence, commodity dependent economies like Ghana are particularly reliant on concessional loans – and on the international financial institutions such as the International Monetary Fund (IMF) providing them.</p><img src="https://counter.theconversation.com/content/155799/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>Ghana remains heavily dependent on primary commodity exports for foreign exchange earnings.Sophie van Huellen, Lecturer,Department of Economics, SOAS, University of LondonNana Amma Asante-Poku, Research Fellow, Institute of Statistical, Social and Economic Research, University of GhanaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1510602020-12-17T10:38:00Z2020-12-17T10:38:00ZDemand for meat is driving deforestation in Brazil – changing the soy industry could stop it<figure><img src="https://images.theconversation.com/files/375414/original/file-20201216-13-8q9u27.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6969%2C3044&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Amazon rainforest meets soybean fields in Mato Grosso, Brazil.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/panoramic-drone-aerial-view-xingu-indigenous-1574596693">Paralaxis/Shutterstock</a></span></figcaption></figure><p>Soy may have a pretty innocuous reputation thanks to its association with vegan food and meat alternatives. But don’t be fooled – crops of this pale legume are behind much of <a href="https://news.mongabay.com/2019/04/brazil-soy-trade-linked-to-widespread-deforestation-carbon-emissions/">Brazil’s epidemic of deforestation</a>. Since 2000, Brazil has doubled its total area of soy plantation to <a href="https://www.statista.com/statistics/740030/area-planted-soybean-brazil/#:%7E:text=Brazil%3A%20hectarage%20of%20planted%20soybean%202010%2D2020&text=During%20the%202019%2F20%20crop,percent%20in%20comparison%20to%202010">36 million hectares</a> and become the world’s largest <a href="https://www.reuters.com/article/us-brazil-soy-usa-idUSKBN1IC2IW">producer</a>. This expansion has <a href="https://iopscience.iop.org/article/10.1088/1748-9326/ab6497">erased vast swathes of forest</a> and other habitats in some of the country’s most biodiverse regions.</p>
<p>About 75% of the soy produced globally is used as <a href="https://news.mongabay.com/2020/06/china-and-eu-appetite-for-soy-drives-brazilian-deforestation-climate-change-study/">animal feed</a>, and a large proportion of soy imported to Europe goes to <a href="https://www.theguardian.com/environment/2020/nov/25/revealed-uk-supermarket-and-fast-food-chicken-linked-to-brazil-deforestation-soy-soya?CMP=share_btn_tw">chicken</a> and pig farms. As a result, the future of the rainforest and savannas of Brazil – not to mention the biodiversity and carbon storage they support – depends on the contents of dinner tables worldwide.</p>
<p>The connection between meat, soy and deforestation might be invisible to consumers, but that link is well known by those in the business of producing and trading both products. Together with colleagues, we <a href="https://www.sciencedirect.com/science/article/pii/S1462901120313654">investigated this supply chain</a> to find out what’s preventing businesses from halting habitat destruction in the Cerrado of Brazil, a tropical savanna where soy agriculture is making inroads. </p>
<figure class="align-center ">
<img alt="Two trucks on a motorway pass pastures." src="https://images.theconversation.com/files/375415/original/file-20201216-21-1amo2la.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375415/original/file-20201216-21-1amo2la.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375415/original/file-20201216-21-1amo2la.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375415/original/file-20201216-21-1amo2la.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375415/original/file-20201216-21-1amo2la.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375415/original/file-20201216-21-1amo2la.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375415/original/file-20201216-21-1amo2la.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trucks transporting soy pass denuded land in Brazil.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/drone-aerial-view-trucks-transporting-soy-1664965060">Paralaxis/Shutterstock</a></span>
</figcaption>
</figure>
<h2>A lucrative industry</h2>
<p>The savannas of the Cerrado surround the westerly borders of the Amazon rainforest. Much of the ongoing deforestation and habitat clearing here is legal – landholders are permitted to deforest <a href="https://news.mongabay.com/2017/07/is-brazils-forest-code-failing-to-reduce-deforestation/#:%7E:text=Under%20the%20Forest%20Code%2C%2080,native%20vegetation%20constitutes%20illegal%20deforestation.">up to 80% of their land for agriculture</a>. Clearly, solving this problem isn’t a matter of weeding out offenders. </p>
<p>When we spoke with a local association of soy producers, they said that regulation compels them to reserve between 20% and 35% of the Cerrado for nature, but that it’s hard to achieve. Asking them to improve on this without compensation would apparently only elicit complaints, and could make landholders more likely to clear habitats from their property while the law still allowed them.</p>
<p>Making demands on Brazilian producers to stop deforesting their land because it troubles European consumers evoked Brazil’s colonial past, some argued, and threatened their rights. Soy is seen as a path to national development. Any rules imposed from abroad that threaten this are likely to make matters worse.</p>
<figure class="align-center ">
<img alt="A tropical savanna habitat with shrubs and trees." src="https://images.theconversation.com/files/375383/original/file-20201216-19-9264go.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375383/original/file-20201216-19-9264go.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375383/original/file-20201216-19-9264go.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375383/original/file-20201216-19-9264go.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375383/original/file-20201216-19-9264go.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375383/original/file-20201216-19-9264go.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375383/original/file-20201216-19-9264go.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Cerrado features tropical savanna replete with wildlife.</span>
<span class="attribution"><span class="source">Angela Guerrero</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Why not compensate people in the Cerrado for producing soy without deforestation? Well, it’s not clear who should pay for it. Separating deforestation-free soy from other products would increase the cost for companies sourcing and exporting the soy. </p>
<p>While European retailers <a href="https://cerradostatement.fairr.org/">sign agreements</a> to end deforestation in their supply chains, implementing them depends on producers and traders cooperating. Retailers argue that passing the cost onto consumers by increasing the price of products like pork is a dead end too. Soy’s role in the meat industry is unfamiliar to most people browsing supermarket aisles, so how can consumers be convinced to pay more for a sustainable product they might not understand the benefit of?</p>
<p>Growing soy on deforested land is a very profitable business for those involved, from land speculators looking for cheaper plots at the forest frontier, to the growers and distributors of soy, to the banks financing it. The indigenous communities displaced by expanding farmland are the clear losers. If they fight back, they <a href="https://www.theguardian.com/world/2018/dec/18/indigenous-leader-urges-eu-to-impose-sanctions-on-brazil">might be killed</a>.</p>
<p>Such a lucrative business can only be made sustainable if there is a financial case for it. Right now, there isn’t. Soy producers are well organised with political clout, and they demand equal partnership in the transition to sustainability, rather than having green rules imposed on them.</p>
<figure class="align-center ">
<img alt="A row of caged hens peck at feed from a trough." src="https://images.theconversation.com/files/375421/original/file-20201216-15-oksqql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375421/original/file-20201216-15-oksqql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375421/original/file-20201216-15-oksqql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375421/original/file-20201216-15-oksqql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375421/original/file-20201216-15-oksqql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375421/original/file-20201216-15-oksqql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375421/original/file-20201216-15-oksqql.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">Much of the chicken sold in European markets was fed on Brazilian soy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hen-chicken-eggs-chickens-eating-food-657381514">BG-Studio/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Global cooperation for local solutions</h2>
<p>Commodities pass between countries and markets in a dense web of exchanges. <a href="https://trase.earth/">Data tools</a> are getting better at separating these to reveal the companies and consumer countries linked to deforestation. This recently helped <a href="https://news.mongabay.com/2020/12/as-amazon-deforestation-hits-12-year-high-france-rejects-brazilian-soy/">France to reject Brazilian soy</a>, a move which increases pressure on Jair Bolsonaro’s government but might mean producers simply supply other markets with lower standards.</p>
<p>Helping soy producers comply with national laws, such as preserving habitats on at least 20% of their property, could help <a href="https://goodgrowthpartnership.com/http-goodgrowthpartnership-com-wp-content-uploads-ggp_brazil-project-final-pdf/">build trust</a> between producers and the people and organisations demanding deforestation-free soy.</p>
<p>This might not sound very ambitious, but even small improvements have been difficult in Brazilian soy agriculture. The Bolsonaro government has <a href="http://amazonia.org.br/2020/05/exercito-vai-gastar-em-um-mes-de-acao-na-amazonia-o-orcamento-anual-do-ibama-para-fiscalizacao/">slashed the budget</a> for environmental inspectors and signalled to some producers that it’s <a href="https://theconversation.com/brazils-jair-bolsonaro-is-devastating-indigenous-lands-with-the-world-distracted-138478">reluctant to enforce national laws</a>. Supporting partnerships between national and state government, and local and international organisations who want to uphold Brazil’s own standard could create the necessary trust for enabling bigger changes.</p>
<figure class="align-center ">
<img alt="A vast green soybean crop under a blue sky." src="https://images.theconversation.com/files/375382/original/file-20201216-15-1eos491.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375382/original/file-20201216-15-1eos491.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375382/original/file-20201216-15-1eos491.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375382/original/file-20201216-15-1eos491.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375382/original/file-20201216-15-1eos491.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375382/original/file-20201216-15-1eos491.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375382/original/file-20201216-15-1eos491.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Brazil is now the world’s largest producer of soy.</span>
<span class="attribution"><span class="source">Angela Guerrero.</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Another option is encouraging farmers to produce on degraded land, rather than seek to convert new forest. Research shows that the amount of land where forest has been cleared could be used to <a href="https://conbio.onlinelibrary.wiley.com/doi/10.1111/conl.12671">double current soy production</a>. But growing crops on degraded land is actually more expensive than starting it on forested land. </p>
<p>This is where international initiatives can help. The UN Environment Programme and other partners have launched the <a href="https://www.reutersevents.com/sustainability/how-investors-can-help-prevent-brazils-soy-farmers-cutting-down-forests">Responsible Commodities Facility</a> to provide low-interest credit lines to Brazilian soy and corn farmers who commit to using degraded pasture and avoid clearing forests and native grassland for agriculture.</p>
<p>Solutions like this require people in Europe to think beyond their needs – a juicy chicken leg produced without the guilt of deforestation – to consider the values and priorities of people who work to put that chicken on the table in the first place.</p><img src="https://counter.theconversation.com/content/151060/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Angela Guerrero received funding from the Luc Hoffmann Institute.</span></em></p><p class="fine-print"><em><span>Malika Virah-Sawmy received funding from the development organisations UNDP and WWF.</span></em></p>Deforestation in Brazil recently reached a 12-year high, prompting France to cut soybean imports from the country.Angela Guerrero, Postdoctoral Researcher in Environmental Governance, Stockholm UniversityMalika Virah-Sawmy, Visiting Scientist, Humboldt University of BerlinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1507922020-12-15T13:20:55Z2020-12-15T13:20:55ZCOVID-19 further exposes inequalities in the global financial system<figure><img src="https://images.theconversation.com/files/373627/original/file-20201208-21-18ted22.jpg?ixlib=rb-1.1.0&rect=65%2C59%2C3856%2C2389&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A grant from the Chinese government will make way for a multimillion-dollar fishing port complex in Accra, Ghana.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/residents-and-traders-from-the-james-town-community-are-news-photo/1215198855?adppopup=true">Nipah Dennis/AFP via Getty Images</a></span></figcaption></figure><p>To stem the <a href="https://unctad.org/news/covid-19s-economic-fallout-will-long-outlive-health-crisis-report-warns">economic fallout from COVID-19</a>, developed countries have injected an unprecedented <a href="https://blogs.imf.org/2020/05/20/tracking-the-9-trillion-global-fiscal-support-to-fight-covid-19/">US$9 trillion into their economies</a>. </p>
<p><a href="https://www.msn.com/en-xl/news/other/imf-chief-urges-g20-leaders-to-maintain-policy-support-as-global-economy-not-out-of-the-woods/ar-BB1bfXaZ">The International Monetary Fund</a> has recommended sustained fiscal support, emphasizing greater spending on <a href="https://www-ft-com.eur.idm.oclc.org/content/9dd38ca3-a07b-4905-813d-39261dbc3c91">health care and environmental protection projects</a>.</p>
<p>Meanwhile, countries in the “global south” – broadly, low- and middle-income countries in Latin America, Asia and Africa – face <a href="https://blogs.imf.org/2020/08/27/covid-19-without-help-low-income-developing-countries-risk-a-lost-decade/">more dire circumstances</a>. They don’t have the ability to inject that level of cash into their economies. </p>
<p>And it’s not only because their economies are poorer. </p>
<p>As an <a href="https://stockton.academia.edu/RamyaVIjaya">economics professor</a>, I focus on the systemic <a href="https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html">inequalities in the global financial system</a> that block such access in developing economies. </p>
<p>With a greater public awareness of soaring <a href="https://www.weforum.org/agenda/2020/10/covid-19-is-increasing-multiple-kinds-of-inequality-here-s-what-we-can-do-about-it/">inequality within countries</a>, it is also important to recognize the deep <a href="https://www.brookings.edu/research/the-international-monetary-and-financial-system-how-to-fit-it-for-purpose/">imbalances across the global financial system</a>. </p>
<h2>Inaccessible financing</h2>
<p>Fiscal support in developed economies is often financed by deficit spending and government borrowing. Countries like the United States finance a major part of deficits by borrowing from companies and central banks within their own countries. Such borrowing remains in the countries’ own currency, making them less risky.</p>
<p>The <a href="https://www.imf.org/en/Publications/FM/Issues/2020/09/30/october-2020-fiscal-monitor">fiscal deficit</a> in advanced economies – a <a href="https://www.imf.org/en/Publications/WEO/weo-database/2020/October/select-aggr-data">group of 39 nations</a> including the U.S., European countries and Japan – is projected to expand to 14.4% in 2020 from 3.3% in 2019, according to the IMF.</p>
<p>This deficit financing is practically inaccessible to developing economies, given the extreme inequalities in <a href="https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html">global wealth</a>. These nations secure most of their deficit financing through lending from multilateral agencies like the International Monetary Fund. Or they borrow dollars in international capital markets. They then have to pay back the debt in dollars, which makes the loans more expensive if the value of their own currency drops.</p>
<h2>Not all debt is equal</h2>
<p>During the <a href="https://www.brookings.edu/research/is-sub-saharan-africa-facing-another-systemic-sovereign-debt-crisis/">2008 financial crisis</a>, the limited availability of multilateral lending forced low-income countries – <a href="https://www.odi.org/blogs/10680-africa-10-years-after-global-financial-crisis-what-we-ve-learned">particularly in Africa</a> – to fund recovery efforts and infrastructure expansion by borrowing dollars in private markets. </p>
<p><a href="http://speri.dept.shef.ac.uk/2013/10/28/caribbeans-silent-debt-crisis/">Caribbean nations</a> also relied on private loans to recover from the financial crisis and <a href="https://www.reuters.com/article/us-climate-change-islands-covid-trfn-idUSKBN265327">multiple hurricanes</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/373649/original/file-20201208-14-h3ifjm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Low-income countries like Guatemala rely heavily on private loans to recover from natural disasters like Hurricane Eta and Hurricane Iota.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/aerial-view-of-a-flooded-town-on-november-09-2020-in-san-news-photo/1284741280?adppopup=true">Jouse Decavele/Getty Images</a></span>
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</figure>
<p>To reimburse these loans, low-income countries <a href="https://jubileedebt.org.uk/countries-in-crisis/ghana-debt-crisis-rooted-colonialism">depend on money they make</a> from the exportation of raw materials, or commodities, and tourism, which are paid in U.S. dollars.</p>
<p>Dependence on the sale of commodities, an outcome of trade patterns established by the European colonization of the global south in the 19th century, is often associated with <a href="https://unctad.org/system/files/official-document/cimem2d37_en.pdf">economic instability</a>. </p>
<p>The <a href="https://www.un.org/africarenewal/magazine/december-2016-march-2017/commodity-prices-crash-hits-africa">2014 crash in commodities prices</a>, for example, caused big declines in dollar earnings in the global south. It also led to a fall in the currency values of commodities exporters.</p>
<p>Consequently, interest payments and the value of dollar-denominated debt increased in countries like <a href="https://jubileedebt.org.uk/history-of-debt">Ghana and Mozambique</a>. The commodities crash also increased debt burdens in such countries as <a href="https://blogs.ei.columbia.edu/2020/03/18/covid-19-oil-price-war-latin-america/">Brazil and Mexico</a>. Facing a sudden devaluation of their currencies and lower export earnings, many countries had to borrow more to continue to service previous loans.</p>
<p>Payments on external debt as a percentage of government revenues also ballooned. </p>
<p>Though low-income economies borrow less compared with their GDPs – <a href="https://theconversation.com/the-us-economy-produced-about-21-7-trillion-in-goods-and-services-in-2019-but-what-does-gdp-really-mean-130685">an estimate of the value of the goods produced by their economies</a> – payment burdens are greater because most payments are external and have to be made in dollars.</p>
<p>Ghana’s debt-to-GDP ratio in 2018, for example, was <a href="https://www.imf.org/external/datamapper/CG_DEBT_GDP@GDD/SWE">59.3%</a> compared with 90.5% for the United States. As a group, the debt-to-GDP ratio in low-income economies – usually defined as countries with per capita income of <a href="https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups">less than $1,000</a> – averaged about 20%, <a href="https://www.imf.org/en/Publications/FM/Issues/2020/04/06/fiscal-monitor-april-2020#Chapter%201">according to the IMF</a>. That compares with 105% in advanced economies. These numbers contradict the view that low-income countries tend to overborrow. </p>
<p>Yet because of exchange rate risks and dollar payments, Ghana’s ratio of external payments to revenue, for example, rose from 10% in 2014 to <a href="https://data.jubileedebt.org.uk">40%</a> in 2018. </p>
<p>These rising ratios also led to downgrades in credit ratings by private rating agencies and classifications of high risk status by the IMF’s Debt Sustainability Framework.</p>
<p><a href="https://www.brettonwoodsproject.org/2017/12/debt-sustainability-review-tinkering-around-edges-crises-loom/">Critics have denounced the Debt Sustainability Framework</a> for focusing on payment capacity and viewing all debt equally. They say that the IMF should distinguish between debt that is wasteful, such as recurring administrative expenses, and debt that funds crucial <a href="https://sites.law.duke.edu/thefinregblog/2020/08/05/between-the-devil-debt-and-the-deep-blue-sea-why-the-global-south-needs-reparations-for-the-climate-crisis/">infrastructure, health and climate crisis projects</a>.</p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>Meanwhile, ratings downgrades led to higher costs for the new loans, as lenders sought <a href="https://www.brettonwoodsproject.org/2017/12/debt-sustainability-review-tinkering-around-edges-crises-loom/">higher rates</a> to mitigate greater perceived risk. </p>
<p>This, in turn, set off a new cycle of higher debt burdens. </p>
<h2>Calls for debt relief</h2>
<p>Amid COVID-19, key dollar-earning sectors in developing countries – <a href="https://www.un.org/development/desa/dpad/publication/world-economic-situation-and-prospects-may-2020-briefing-no-137/">tourism, commodities exports and remittances</a> – are projected to take deep hits. <a href="https://www.group30.org/">Group of 30</a>, a research forum of prominent economists, expects a <a href="https://group30.org/publications/detail/4799/">$150 billion</a> decline for low-income countries. </p>
<p>This has set off another wave of credit rating downgrades that will make borrowing prohibitively expensive. </p>
<p>The African Peer Review Mechanism, a <a href="https://www.aprm-au.org/page-about/">panel set up by the African Union</a>, recently <a href="https://www.bloomberg.com/news/articles/2020-10-29/african-review-panel-slams-ratings-firms-for-covid-19-downgrades">protested</a> these downgrades for blocking efforts to mobilize fiscal resources amid the pandemic. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/373630/original/file-20201208-24-1fsbvfb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&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 credit rating downgrade may force the Moroccan government to abandon plans to expand health care spending during the pandemic.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/workers-from-the-moroccan-ministry-of-health-demonstrate-news-photo/1228009293?adppopup=true">Fadel Senna/AFP via Getty Images</a></span>
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<p>In <a href="https://www.moroccoworldnews.com/2020/10/324188/credit-rating-firms-worsen-africas-economic-crisis-damage-morocco/">Morocco</a>, for example, the credit rating downgrade may force the government to scrap plans to expand health care spending during the pandemic. </p>
<p>So while advanced countries <a href="https://blogs.imf.org/2020/08/27/covid-19-without-help-low-income-developing-countries-risk-a-lost-decade/">have spent about 8% of GDP</a> on recovery efforts in 2020, low-income countries have managed an average of 1.4% of GDP. And only 0.6% of GDP has been spent in the health sector, according to the IMF.</p>
<p>Amid the pandemic, some <a href="https://www.cgdev.org/publication/plan-address-covid-19-debt-crises-poor-countries-and-build-better-sovereign-debt-system">economists have called for debt relief</a> and an expanded allocation of the IMF’s global reserve currency unit, known as Special Drawing Rights. </p>
<p>Proposed expansions of Special Drawing Rights would be allocated to each member country of the IMF. That would allow increased <a href="https://group30.org/images/uploads/publications/G30_Sovereign_Debt_and_Financing_for_Recovery_after_the_COVID-19_Shock_1.pdf">access to a global currency unit</a> and therefore reduce the need for dollar earnings.</p>
<p>I believe such measures are a necessary corrective to the disparate burdens and systemic inequalities in the global financial system.</p><img src="https://counter.theconversation.com/content/150792/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ramya Devan 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>Global economic policy excludes low-income countries from the spending options that developed nations use to buffer their economies in times of crisis, and the pandemic has inflamed that inequality.Ramya Devan, Professor of Economics, Stockton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1445672020-09-13T19:50:08Z2020-09-13T19:50:08ZIn gold we trust: why bullion is still a safe haven in times of crisis<figure><img src="https://images.theconversation.com/files/357569/original/file-20200911-21-nk2wy8.jpg?ixlib=rb-1.1.0&rect=0%2C113%2C5050%2C2963&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>“Gold” said famed investor <a href="https://quoteinvestigator.com/2013/05/25/bury-gold/">Warren Buffett in 1998</a>, “gets dug out of the ground in Africa or someplace, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”</p>
<p>Yet for all that, we remain in love with gold – especially in times of uncertainty.
With the COVID-19 crisis, interest in gold has soared, driving its price to historic highs (eclipsing its past record set <a href="https://money.cnn.com/2011/08/22/markets/gold_prices/index.htm">back in August 2011</a>).</p>
<p>Even Buffett seems to have softened his longstanding antipathy, with his company Berkshire Hathaway <a href="https://www.wsj.com/articles/warren-buffetts-berkshire-hathaway-joins-the-gold-rush-11597682998">acquiring</a> a US$565 million stake in the world’s second-largest gold miner, Canada’s <a href="https://www.barrick.com/English/home/default.aspx">Barrick Gold Corporation</a>. </p>
<p>Owning shares in a gold-mining company, though, is not the same thing as owning actual gold. Since gold shares are linked both to gold prices and to the broader share market, they tend to move with the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3677925">market when it falls sharply</a>. That deprives gold shares of a key feature of gold bullion – its safe haven property.</p>
<h2>What is a safe haven?</h2>
<p>A safe haven is an asset that holds its value in extreme, unexpected events.</p>
<p>It is different from a “safe asset” that provides a guaranteed return, such as government bonds. In buying such a bond you effectively lend money to the government in return for a promise it will repay that money (with interest) in the future.</p>
<p>Safe assets, in other words, are “fixed income” assets, and their prices are relatively stable.</p>
<p>The price of a safe haven asset, on the other hand, will fluctuate, rising in periods of heightened uncertainty, when other investments suffer extreme losses, but may also fall when the uncertainty reverts to more normal levels.</p>
<p>We can see this in the price of gold over the past two decades, both in the wake of the Global Financial Crisis beginning in 2008 and now with the COVID-19 crisis. </p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/356481/original/file-20200904-18-l8hxik.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&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="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
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<p>The only deviation from gold’s traditional role as a safe haven asset was a price fall over March, as global stock markets crashed. This deviation underlines the uncertainty that gripped investors that month, with some gold owners presumably selling bullion to cover losses or to increase cash holdings.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-sandp-500-nears-its-all-time-high-heres-why-stock-markets-are-defying-economic-reality-142707">The S&P 500 nears its all-time high. Here's why stock markets are defying economic reality</a>
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<h2>Why is gold a safe haven?</h2>
<p>The simple answer is that it has worked in the past. Based on past experience in a crisis, people believe in the safe haven feature of gold and it works because they believe in it.</p>
<p>Gold has been used since ancient times as a store of value. Helping it achieve this status is its aesthetic appeal, malleability (with a relatively low melting point making it easy to produce coins or jewellery), virtual indestructibility (almost all the gold that has ever been found or mined is still around) and, most importantly, rarity. Though hundreds of thousands have dug and panned for it over history, the amount of gold mined has never been enough to devalue it. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/from-medicine-to-nanotechnology-how-gold-quietly-shapes-our-world-110515">From medicine to nanotechnology: how gold quietly shapes our world</a>
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<p>Because of these features, gold became the basis for money and played a formal monetary role during the gold standard, which required nations to hold gold reserves as a backing of their currency. </p>
<p>Central banks still hold huge gold reserves. Of 197,576 tonnes of gold mined throughout history, the <a href="https://www.gold.org/goldhub/data/above-ground-stocks">World Gold Council</a> says 17.2% is held (as bullion or coins) by governments and central banks, 21.6% by private investors, about 47% as jewellery, and 14.2% has gone to other uses (such as in electronics).</p>
<p>So while gold, silver, palladium and platinum are all “precious metals” the latter three are not commonly accepted safe havens because they played a different monetary and investment role in the past.</p>
<h2>‘Nobody understands gold prices’</h2>
<p>Gold may also be a safe haven because it is simple and well-known, the first thing that comes to mind when investors are faced with extreme uncertainty.</p>
<p>This apparent simplicity, paradoxically, does not mean easy-to-understand gold prices. </p>
<p>Some factors influencing its price are tangible, such as physical supply and demand. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-the-coronavirus-pandemic-has-disrupted-the-global-mining-industry-137384">How the coronavirus pandemic has disrupted the global mining industry</a>
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<p>But many factors influencing gold’s price are less tangible, such as changing perceptions, preferences and market sentiment. </p>
<p>As then US Federal Reserve chairman Ben Bernanke said <a href="https://www.cnbc.com/id/100898244#:%7E:text=%22Nobody%20really%20understands%20gold%20prices,gold%20prices%20have%20been%20volatile.&text=%22Lower%20gold%20prices%20have%20spurred%20even%20stronger%20demand%20by%20Asian%20investors">in 2013</a>: “"Nobody understands gold prices, and I do not pretend to understand it either.”</p><img src="https://counter.theconversation.com/content/144567/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>In times of trouble people still turn to gold. What makes it a safe haven? Largely perceptions, based on its historical mystique.Dirk Baur, Professor of Finance, The University of Western AustraliaAllan Trench, Professor, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1448872020-08-24T12:46:40Z2020-08-24T12:46:40ZThe weak dollar: why it won’t be replaced as global reserve currency<figure><img src="https://images.theconversation.com/files/354140/original/file-20200821-14-1pn7xn2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Busted Benjamin. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/us-hundred-dollar-bill-beaten-ben-134970227">Bruce Rolff</a></span></figcaption></figure><p>Stock markets have been very strange this year. We witnessed the <a href="https://www.cnbc.com/2020/03/23/this-was-the-fastest-30percent-stock-market-decline-ever.html">fastest sell-off</a> in history between February and March, with the S&P 500 falling more than 30%, only to enjoy the best recovery ever, reaching an <a href="https://www.cbsnews.com/news/stock-market-sp500-all-time-high-2020-08-18/">all-time high</a> on August 21. </p>
<p>Institutional investors and especially pension funds have gone from panicking to completely reconsidering their long-term asset allocations. What we thought would be the biggest stock market crash in history has led to a fundamental reconsideration of the key risks around financial investments.</p>
<p>For international investors in general, currency risk – above all the weakening of the US dollar – has become the most important financial risk of the year. In spite of the pandemic, it has even overshadowed their considerations about specific firms and sectors. </p>
<p>For a European investor, for example, US markets <a href="https://lipperalpha.refinitiv.com/2020/08/sp-500-17q1-earnings-dashboard/">have yielded</a> about 5% in US dollar terms) in the first eight months of 2020. Translated back into euros, however, that return is 0.5% because of the <a href="https://uk.tradingview.com/symbols/USDEUR/?exchange=FX_IDC">depreciation of</a> the US dollar over the past two months. </p>
<p><strong>US dollar vs euro</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph of US dollar vs euro" src="https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=308&fit=crop&dpr=1 600w, https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=308&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=308&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=387&fit=crop&dpr=1 754w, https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=387&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/354089/original/file-20200821-22-zy72er.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=387&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://uk.tradingview.com/symbols/USDEUR/?exchange=FX_IDC">Trading View</a></span>
</figcaption>
</figure>
<p>Some commentators have <a href="https://www.livemint.com/market/stock-market-news/is-us-dollar-s-reign-as-world-s-reserve-currency-is-under-threat-11596175872376.html">even been wondering</a> whether the US dollar might be in danger of losing its privileged place as world reserve currency. Thanks to this status, the dollar is used in most international financial transactions. This gives the US certain economic advantages, such as being able to borrow cheaply and having more leeway with its national balance sheet.</p>
<h2>Why so soft?</h2>
<p>For the dollar, 2020 has been the perfect storm. The pandemic has taken a particularly heavy toll on America. The sudden stop of the economy resulted in a massive drop in consumption and production, disrupting global supply chains and affecting commodity prices worldwide. </p>
<p>The Baltic Dry Index, often used as a <a href="https://finanzmarktwelt.de/baltic-dry-index-sub-faellt-von-5-000-auf-21-coronavirus-stoppt-den-welthandel-155825/">measure of</a> global trade and economic activity, fell 6% between January and May. This meant that <a href="https://tradingeconomics.com/commodity/crb">the prices</a> of many commodities <a href="https://www.worldbank.org/en/news/press-release/2020/04/23/most-commodity-prices-to-drop-in-2020-as-coronavirus-depresses-demand-and-disrupts-supply">have fallen as well</a>, as can be seen in the CRB Commodities Index below. </p>
<p><strong>Global commodities 2019-20</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="CRB Commodities Index" src="https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=333&fit=crop&dpr=1 600w, https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=333&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=333&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=419&fit=crop&dpr=1 754w, https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=419&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/354131/original/file-20200821-14-11sbw74.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=419&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 Commodities Research Bureau Index reflects the overall value of 19 world commodities, including gold, aluminium, hogs, coffee and cocoa.</span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/commodity/crb">Trading Economics/CRB</a></span>
</figcaption>
</figure>
<p>For example, the World Bank <a href="https://www.worldbank.org/en/news/feature/2020/04/23/coronavirus-shakes-commodity-markets">expects oil demand</a> to have fallen by an unprecedented 9.3 million barrels a day in 2020 from the 2019 level of 100 million barrels per day. Because oil and many other commodities are priced in dollars, weaker demand has meant a drop in demand for dollars too. </p>
<p>On top of this, the health crisis caused by COVID-19 was not confronted properly by the US authorities, so the country recorded the <a href="https://coronavirus.jhu.edu/data/mortality">fifth highest</a> death rate after Peru, Spain, Chile and Brazil. This has eroded consumer confidence and extended the prospect of a severe recession, with recovery delayed until 2022. The OECD estimates that, at best, the <a href="https://www.oecd.org/economic-outlook/">US economy will contract</a> by 7.3% (and 8.5% if there is a second wave of pandemic).</p>
<p>Finally, the US dollar has been penalised by the presidential election. Financial markets like stability, so the prospects of a change in the presidency make the recovery more uncertain. Historically, volatility in the stock market rises in the months leading up to an election (albeit less so <a href="https://www.cnbc.com/2020/05/07/heres-how-dow-sp-do-in-six-months-before-presidential-election.html">in recent years</a>), and this weakens investors’ demand for dollars. Investors also fear that Donald Trump is not coping with the COVID-19 crisis, especially on the health front. </p>
<p>A cheaper currency has made imports more expensive for the US and has therefore further worsened the domestic economy. Yet it has also affected many other variables of the world economy. As other currencies have appreciated, exporting economies such as Brazil and India have suffered a lot. Consequently international investors have re-oriented their portfolios towards other developed economies, particularly European ones. </p>
<p>On the other hand, all countries with their currencies pegged to the dollar (especially those in the Middle East) have become more competitive. This has offset the damage from both the pandemic and declining oil prices. </p>
<h2>The longer view</h2>
<p>On the whole, we shouldn’t worry too much about the weaker dollar. It is still relatively strong, having appreciated 17% against the euro between 2010 and 2020 even allowing for its current weakness. On the whole, <a href="https://www.reuters.com/article/us-usa-markets-dollar-analysis/as-dollar-slides-some-investors-fret-about-its-status-as-worlds-reserve-currency-idUSKCN2511ID">the concerns</a> about the future of the dollar as the world’s reserve currency are probably unfounded. </p>
<p>The dollar will probably rise as the political uncertainties are resolved, and this will happen sooner rather than later. I think we have seen the worst already. The greenback has already risen slightly in the past couple of days, although there could always be further slight depreciation to come. </p>
<p>For the next year, the financial markets now expect only mild adjustment: the US$ to euro 12-month <a href="https://www.barchart.com/forex/quotes/%5EEURUSD/forward-rates">forward rate</a> – what the euro will be worth in US$ a year from now – is 1.19553 as of August 21, only 0.7% lower than the current trading rate. And 24 months from now, the dollar is expected to be 1.5% higher against the euro than at present. </p>
<p>Gold prices are another signal of comfort. When the dollar falls, gold rises. As of mid-August, gold prices had risen by around 30% since January 1. In five years, gold <a href="https://uk.tradingview.com/symbols/TVC-GOLD/">has appreciated</a> by almost 80%, equivalent to 12% on an annualised basis. </p>
<p>By comparison, in the same period the S&P 500 has returned 10% on an annualised basis, and only 5% since the beginning of the year. However, <a href="https://www.marketwatch.com/investing/future/gcq21">gold forward prices</a> – what the market thinks gold will be worth in future – are coming down now: they peaked in early August, and are now back to the levels of one month ago.</p>
<p>In conclusion, we should not expect a completely new financial order where, perhaps, a basket of global currencies or the Chinese yuan or Swiss franc take over from the US dollar as the world’s reserve currency. Most global trade transactions will still be denominated in the US currency; oil and other commodity prices will be in dollars; US stock markets will for a long time be the largest and prices of securities will be mostly dollar-denominated. The dollar may be soft, but not for long.</p><img src="https://counter.theconversation.com/content/144887/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Arturo Bris 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 greenback has taken a pounding in 2020, but it’s about to make a comeback.Arturo Bris, Professor of Finance, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1110132019-02-08T11:35:55Z2019-02-08T11:35:55ZWhy Venezuela’s oil money could keep undermining its economy and democracy<figure><img src="https://images.theconversation.com/files/257799/original/file-20190207-174864-1lv7iyh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A sculpture of an oil pump held by a human hand stands outside the headquarters of Venezuela's state-owned oil company.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Venezuela-Political-Crisis/4cea3d41d8bf46f5b6ad2704d5d74e4d/2/0">AP Photo/Fernando Llano</a></span></figcaption></figure><p>As <a href="https://theconversation.com/venezuela-power-struggle-plunges-nation-into-turmoil-3-essential-reads-110419">political and economic crises</a> threaten to topple Venezuela’s President Nicolás Maduro, <a href="https://scholar.google.com/citations?user=xTPiDbAAAAAJ&hl=en&oi=ao">political scientists</a> <a href="https://scholar.google.com/citations?user=K_jCvj8AAAAJ&hl=en&oi=ao">like us</a> are not surprised that he has run into trouble.</p>
<p>Instead, we see Venezuela as another example of what scholars call the “<a href="https://doi.org/10.1007/978-1-349-13460-1_4">resource curse</a>.” That’s the unfortunate correlation first described by the British economic geographer <a href="https://www.researchgate.net/profile/Richard_Auty">Richard M. Auty</a> between nations with vast wealth from oil or other natural resources and political instability.</p>
<p>Venezuela is a textbook case of the curse, since nearly 90 percent of its people are now <a href="https://www.caracaschronicles.com/2018/02/21/encovi-2017/">living in poverty</a> in the country with the world’s <a href="https://www.opec.org/opec_web/en/about_us/171.htm">largest oil reserves</a>. After decades of leaders who failed to harness this commodity for peace and prosperity, it is questionable whether a new government can do a better job.</p>
<p>Only a few oil- and natural gas-rich countries, such as the <a href="https://www.investopedia.com/investing/worlds-top-oil-producers/">United States, Canada</a> and <a href="https://www.norskpetroleum.no/en/production-and-exports/oil-and-gas-production/">Norway</a> have <a href="http://dx.doi.org/10.1080/13510347.2014.964216">avoided this curse</a> – in part because they built solid institutions and diverse economies before their petroleum drilling began. </p>
<h2>The resource curse</h2>
<p>The resource curse has afflicted <a href="https://www.cfr.org/backgrounder/perus-mineral-wealth-and-woes">many Latin American countries</a> with profligate and populist elected leaders who succumbed to the temptations of corruption and reckless spending when easy money poured in, followed by right-wing dictatorships imposing repressive technocracies. Oil and wealth from other commodities like <a href="https://www.theguardian.com/global-development/2012/oct/25/natural-resources-blessing-curse-developing-countries">gold and copper</a>, and <a href="https://www.cambridge.org/core/books/nontaxation-and-representation/E619CF597D11E7537105A09A7FEA85C4">foreign aid</a>, have also supported kleptocrats and dictatorships who have often used their fortunes to retain power in <a href="https://www.theatlantic.com/international/archive/2012/04/why-natural-resources-are-a-curse-on-developing-countries-and-how-to-fix-it/256508/">other regions</a>. </p>
<p>The scholars <a href="https://cddrl.fsi.stanford.edu/publications/the_paradox_of_plenty_oil_booms_and_petrostates">Terry Karl</a> and <a href="https://www.cambridge.org/core/books/crude-democracy/B395DB32CA754E7517A42499BF87C409">Thad Dunning</a> have persuasively argued that oil export revenue helped sustain Venezuelan democracy from the 1950s to the early 1980s. The government, they explained, could buy support from the elite with lower taxes and from the poor with social programs.</p>
<p>Oil money, in short, can sustain whatever government is in power, be it <a href="https://www.cambridge.org/core/books/democracy-and-development/4A5F43C449ADA81BDB9293D5B10D27C1">dictatorship or democracy</a>. </p>
<p>But when <a href="https://www.erlacs.org/articles/abstract/10.18352/erlacs.9666/">crude prices fall, the loss of revenue polarizes</a> politics as the wealthy and the poor fight over the reduced proceeds. And when these countries not only rely on one export but also very limited markets, that adds to their vulnerability.</p>
<p>Oil sales constituted <a href="https://www.opec.org/opec_web/en/about_us/171.htm">98 percent</a> of Venezuela’s export earnings in 2017, with the <a href="https://www.eia.gov/beta/international/analysis.php?iso=VEN">U.S. buying nearly half</a> of the country’s exported crude.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=527&fit=crop&dpr=1 754w, https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=527&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/257800/original/file-20190207-174867-zup6i9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=527&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Anti-government protesters are demanding that President Nicolás Maduro step down.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Venezuela-Political-Crisis/29d287efbe534e9d860fec83debe9f79/1/0">AP Photo/Juan Carlos Hernandez</a></span>
</figcaption>
</figure>
<h2>Boom and bust</h2>
<p>After several decades of strong economic performance backed by comparatively impressive social programs, Venezuela’s economy started to <a href="https://www.jstor.org/stable/165748?seq=1#metadata_info_tab_contents">sputter in the 1980s</a>. The vast sums of money it had <a href="https://www.doi.org/10.3406/ecofi.2009.5489">borrowed a decade earlier</a>, backed by future oil revenues, were coming due by that time.</p>
<p>President <a href="https://www.britannica.com/biography/Carlos-Andres-Perez">Carlos Andrés Pérez</a>, who had presided over strong economic growth between 1974 and 1979, returned to power in 1989. However, this time the country faced a <a href="https://ideas.repec.org/p/tor/tecipa/tecipa-614.html">weak currency, rising poverty rates, and increased foreign and public debt</a> in combination with low oil prices. </p>
<p>To stabilize the economy, Pérez implemented <a href="https://www.jstor.org/stable/2634107?seq=1#metadata_info_tab_contents">austerity policies</a> that deregulated capital markets and reduced price controls on gasoline and other products. </p>
<p>These measures exacerbated economic hardships for the poor, and Venezuelans took to the streets to protest in <a href="https://www.jstor.org/stable/3875580">deadly riots known as the Caracazo</a>. Pérez survived two coup attempts in 1992 only to be impeached and <a href="https://www.theguardian.com/world/2010/dec/26/carlos-andres-perez-obituary">forced out of office</a> for embezzlement in 1993.</p>
<p>Popular anger against economic conditions and the dominant political class led voters to back more polarizing politicians. The <a href="https://www.theguardian.com/world/2016/feb/05/hugo-chavez-venezuela-failed-coup-1992">first coup attempt against Pérez</a> in 1992 was organized by Hugo Chávez, then a lieutenant-colonel, who famously exclaimed to the nation that he had failed “<a href="http://www.ipsnews.net/2012/02/a-turbulent-twenty-years-for-venezuelan-democracy/">for now</a>.”</p>
<p>He was right. Just six years later, in 1998, he ran for president and <a href="http://www.cnn.com/WORLD/americas/9812/06/venezuela.results/index.html">won an overwhelming victory</a>. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=750&fit=crop&dpr=1 600w, https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=750&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=750&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=943&fit=crop&dpr=1 754w, https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=943&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/257801/original/file-20190207-174857-g4cmwb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=943&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Hugo Chávez, the late president of Venezuela, wearing a hardhat bearing the national oil and gas company’s logo.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Associated-Press-International-News-Venezuela-V-/c878a0b104f2da11af9f0014c2589dfb/2/0">AP Photo/HO-Miraflores Palace</a></span>
</figcaption>
</figure>
<h2>Building support</h2>
<p>Luckily for Chávez, oil prices had started to rise again, eventually <a href="https://www.macrotrends.net/1369/crude-oil-price-history-chart">reaching record levels</a> while he was in power. Aside from a brief downturn brought on by the Great Recession, those high oil prices raised enough revenue to help sustain his support.</p>
<p>He gained extra revenue by <a href="https://www.ogj.com/articles/2000/10/venezuelan-oil-strike-ends-chavez-names-new-pdvsa-president.html">restructuring Petróleos de Venezuela</a> (PDVSA), the country’s <a href="https://www.vox.com/world/2019/1/28/18201115/venezuela-ofac-sanctions-pdvsa-oil">state-owned oil and natural gas company</a> that now faces <a href="https://www.state.gov/e/eb/tfs/spi/venezuela/">U.S. sanctions</a>, to increase his control and to direct a bigger percentage of its export earnings into government coffers.</p>
<p>With that money, he <a href="https://www.reuters.com/article/us-venezuela-oil-idUSTRE73P6Z920110426">built popular support</a> by paying for <a href="https://doi.org/10.1111/j.1557-203X.2013.01193.x">dozens of safety net programs</a>, such as the “<a href="https://www.jstor.org/stable/30130824">Barrio Adentro</a>” health initiative for the poor and the “Misión Robinson” literacy program, starting <a href="https://www.reuters.com/article/us-odebrecht-venezuela/stalled-brazilian-odebrecht-projects-decay-in-venezuela-idUSKBN18R2N1">massive infrastructure projects</a>, and continuing to <a href="https://sg.news.yahoo.com/far-venezuela-raising-price-worlds-cheapest-gas-012101104.html">subsidize the world’s cheapest gasoline</a>.</p>
<p>When Chávez appointed allies to prominent posts at PDVSA in 2002, dissident members of the military and radicalized leaders of the Venezuelan Federation of Chambers of Commerce <a href="http://news.bbc.co.uk/2/hi/americas/2303199.stm">staged a coup attempt</a> that ultimately failed to oust him.</p>
<p>Meanwhile, the government <a href="https://www.pri.org/stories/2018-01-04/understaffed-and-overextended-how-venezuela-s-oil-industry-fell-apart">invested too little in the oil industry</a> and <a href="https://www.cigionline.org/publications/venezuela-after-fall-financing-debt-relief-and-geopolitics">mismanaged it</a>. At the same time, it did too little to prepare for the possibility of lower revenue from oil, to boost other exports or to stop depending on the United States as its biggest customer. Following a big decline, Venezuela remained <a href="https://www.eia.gov/beta/international/analysis.php?iso=VEN">America’s third-largest source</a> of foreign oil as of October 2018.</p>
<h2>Maduro’s staying power</h2>
<p>Maduro arrived to power in 2013, after the 58-year-old <a href="https://abcnews.go.com/International/hugo-chavez-dead-president-venezuela-58-died-cancer/story?id=16198379">Chávez died from cancer</a>. By then, <a href="https://www.eia.gov/beta/international/analysis.php?iso=VEN">Venezuelan oil production had declined</a>, and just one year later global <a href="https://www.weforum.org/agenda/2016/03/what-s-behind-the-drop-in-oil-prices/">oil prices began to collapse</a>.</p>
<p>Maduro’s <a href="https://www.cnbc.com/2019/02/02/venezuelas-nicolas-maduro-proposes-early-parliamentary-election.html">popularity collapsed too</a>, although he did get <a href="https://www.theguardian.com/world/2018/may/21/venezuela-elections-nicolas-maduro-wins-second-term">re-elected in 2018</a> in a race <a href="https://www.cnn.com/2018/05/20/americas/venezuela-elections/index.html">without any independent international electoral observers</a> that was marked by boycotts, accusations of repressing the opposition, and vote-rigging.</p>
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<p>On top of his misfortune to be leading Venezuela during an oil price slump, Maduro has turned out to be even worse at managing the oil industry than Chávez. He <a href="https://www.reuters.com/article/us-venezuela-oil/new-venezuela-oil-boss-to-give-military-more-pdvsa-posts-idUSKBN1DR1T2">installed military cronies as managers</a>, led by Manuel Quevedo, a major general in Venezuela’s National Guard.</p>
<p>Since his rise, there have been more <a href="https://uk.reuters.com/article/us-venezuela-pdvsa-military-specialrepor-idUKKCN1OP0RZ">purges of PDVSA executives</a>, and many reports that lower-level workers are staying home since they can no longer afford the commute on their wages. Adding even further to the commotion, <a href="https://www.bbc.com/news/world-latin-america-47036129">corruption has run rampant</a>. </p>
<p>The increased social and economic upheaval has even led many poor people to <a href="https://www.reuters.com/article/us-venezuela-chavistas/venezuelas-poor-sour-on-maduro-as-prices-shortages-sting-idUSKBN0JO1C820141210">withdraw their allegiance to Maduro</a>. Amid the turmoil, the U.S. and many other countries are recognizing opposition leader <a href="https://www.cnn.com/2019/02/04/americas/europe-guaido-venezuela-president-intl/index.html">Juan Guaidó</a>, as the nation’s legitimate president. </p>
<p>Whether or not Guaidó manages to dislodge Maduro’s grip on power, the country’s turbulent history suggests that long-term success will require much more than removing its current embattled leader. Any future leaders must also build the coalitions and institutions necessary to break the resource curse and thus empower Venezuela to finally draw social and economic stability from its oil wealth.</p><img src="https://counter.theconversation.com/content/111013/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 organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Can a new government, perhaps by shoring up democracy and oversight, harness this commodity for peace and prosperity?Scott Morgenstern, Professor of Political Science, University of PittsburghJohn Polga–Hecimovich, Assistant Professor of Political Science, United States Naval AcademyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1041662018-10-08T12:38:11Z2018-10-08T12:38:11ZAfrica can get more from its minerals by building industries to service mines<figure><img src="https://images.theconversation.com/files/239478/original/file-20181005-72113-1fypkga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">EPA/Aaron Ufumeli</span></span></figcaption></figure><p>Multinational firms from Europe, North America and more recently China still <a href="https://www.fin24.com/Companies/Mining/africa-needs-to-extract-more-value-from-mining-20180330">dominate the extraction</a> and refining of most of minerals mined in Africa with minimal roles for African firms. From these minerals, foreign manufacturing firms produce consumer and industrial goods for sale in global markets at much higher prices than what’s paid for the raw materials. This is a source of lots of <a href="https://theconversation.com/all-bets-are-off-as-magufulis-resource-nationalism-moves-up-a-gear-in-tanzania-81632">angst</a> among policymakers and economists who are calling for increased local participation in the mining industry.</p>
<p>African governments are routinely advised to add value to their own natural resources to drive economic development. This is presented as a way of getting a slice of the huge returns enjoyed by others at the expense of countries in which the minerals are mined. This seemingly obvious reasoning is the basis of a growing policy focus on mineral beneficiation which involves improving the economic value of a mineral by turning it into a final or intermediate product. </p>
<p>The argument sounds logical. But accessing the rewards of this approach isn’t that simple. Those in favour of beneficiation tend to ignore the complexity of industry and markets of beneficiated products and the rules and regulations of supply chains. Most products, components and operations of the beneficiation industry and markets are currently alien to many African economies. </p>
<p>This means that, for the moment, beneficiation remains out of reach. </p>
<p>Take the case of steel. To use steel to manufacture washing machines for global markets, a country would need to either establish its own brands and outcompete established ones, such as Samsung, Defy and Hisense, or, alternatively, supply these popular producers with components. In Africa, this is unlikely to happen immediately because of
small markets and brand loyalty among other challenges.</p>
<p>This is not to say that adding value to mineral resources shouldn’t be part of the agenda for African countries. But the focus should be elsewhere – the production of input goods like machinery, spares and services that support processes that precede beneficiation – exploration, mine construction and extraction itself. These are known as <a href="https://theconversation.com/what-africa-can-learn-from-chinas-special-economic-zones-51517">backward linkage</a> industries and are ready for picking. This <a href="http://ccsi.columbia.edu/files/2016/07/Linkages-to-the-resource-sector-GIZ-CCSI-2016.pdf.pdf">approach</a> served countries such as the US and Norway where they gave rise to globally competitive manufacturing and services industries serving the mining and oil industries. </p>
<h2>What’s missing in Africa</h2>
<p>A critical hurdle to Africa developing a strong industrial base – a prerequisite for any beneficiation – is the <a href="https://www.fin24.com/Companies/Mining/africa-needs-to-extract-more-value-from-mining-20180330">dominance</a> of China and other Asian countries in the labour intensive manufacturing sector. </p>
<p>So why can’t African countries simply emulate China? </p>
<p>A number of factors aided China in its industrialisation drive. Firstly, China is one country with a huge unified market that can produce and consume its own manufacturing output in addition to exporting the same goods. </p>
<p>Africa, for its part, is a continent made up of many countries. This market is fragmented which limits inter and intra country production.</p>
<p>Secondly, China has invested heavily in human capital and well as hard infrastructure such as bridges and roads. All these factors are critical for any major industrialisation drive – and beneficiation – but are lacking in the majority of African countries. </p>
<h2>Refocusing</h2>
<p>A greater focus on the production of input goods could yield better results. This is because it offers an easier development path that’s within technical grasp of many African countries. </p>
<p>The scale of Africa’s mining industry means that it has a ready made market for input goods and services. This includes the supply of heavy mining spares and consumables, contract mining as well as security and catering services.</p>
<p>It makes business sense to have the input goods and services of these activities close to where they are needed. Close proximity gives African companies an advantage over multinational mining firms. Even more critical, proximity reduces the need for the mining industry to hold huge inventories of imported spares and consumables – a nightmare for cash flow. </p>
<p>Industries developed to support mines isn’t alien to the continent. For example the supply of ball-mills that crush the ore-bearing rock in the ore processing plants is established in some Africa countries i.e. South Africa, Zambia and Zimbabwe. This small start could be expanded, in both scope and magnitude relatively easily.</p>
<p>Recommending that African countries focus on the processes that precede mineral beneficiation isn’t hypothetical. The historical experiences of the US and Norway, for example, confirm the positive stimulus that these processes had for the overall industrialisation journeys of these countries. The two countries <a href="http://ccsi.columbia.edu/files/2016/07/Linkages-to-the-resource-sector-GIZ-CCSI-2016.pdf.pdf">transformed</a> within 30 years to be leading suppliers of mining inputs that include mine dump trucks and drill rigs. </p>
<p>African states can follow the same strategy, with the necessary adjustments, and harvest the low hanging fruits of resource endowment, leap-frogging to achieve the same over a shorter period.</p><img src="https://counter.theconversation.com/content/104166/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vuyo Mjimba has done World Bank sponsored research for the Oxford Policy Management from the United Kingdom. I have also researched under the Exxaro Chair at the University of South Africa</span></em></p>African economies could benefit more from backward linkages to the mining industry than from beneficiation.Vuyo Mjimba, Chief Research Specialist, Human Sciences Research CouncilLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/998972018-07-13T10:24:50Z2018-07-13T10:24:50ZWhen Trump calls Russia a ‘competitor’ for the US, he might be talking about natural gas exports<figure><img src="https://images.theconversation.com/files/227512/original/file-20180712-27015-1hujvzs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Vladimir Putin, autographing a natural gas pipeline in Vladivostok</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Russia-Putin-Gazprom/db3ae48907c0499ca5db72a7b3bfc3c8/63/0">AP Photo/RIA Novosti, Alexei Druzhinin</a></span></figcaption></figure><p><a href="https://www.cnbc.com/2018/07/11/behind-nord-stream-2-the-russia-to-germany-gas-pipeline-that-fueled-t.html">President Donald Trump complained</a> during recent NATO meetings and through <a href="https://twitter.com/realDonaldTrump/status/1017093020783710209">Twitter</a> about how, in his opinion, Germany is “captive to Russia” because of that country’s reliance on Russian energy, especially natural gas. </p>
<p>This grievance may seem odd, given Trump’s often warm comments regarding Russian leader <a href="https://www.cnn.com/politics/live-news/trump-rally-montana-07-05-18/index.html">Vladimir Putin</a>. But it makes sense in light of how Trump keeps insisting that the U.S. and Russia are “<a href="https://www.reuters.com/article/us-nato-summit-trump-putin/trump-says-putin-competitor-not-enemy-idUSKBN1K21GD">competitors</a>” rather than adversaries.</p>
<p>As a <a href="https://www.bakerinstitute.org/experts/anna-mikulska/">scholar of European natural gas markets</a>, I can see how Trump might consider the country he leads to be Russia’s main competitor in that industry and that region. I also believe that even if Europe ends up buying relatively little natural gas from American companies, the mere existence of the competition could help reduce Russia’s ability to use its natural gas to exert political pressure in Europe. </p>
<h2>US natural gas exports</h2>
<p>Because of the spread of hydraulic fracturing and the directional drilling of shale rock formations, commonly called “fracking,” the <a href="https://www.eia.gov/todayinenergy/detail.php?id=31532">U.S. is now the world’s top natural gas producer</a>.</p>
<p>Abundant natural gas has not only kept <a href="https://www.eia.gov/dnav/ng/hist/rngwhhdM.htm">prices historically low for U.S. consumers</a> as more of the country’s <a href="https://www.eia.gov/todayinenergy/detail.php?id=35792">electricity has been generated with natural gas</a>, it has also made it possible for the nation to <a href="https://www.energyindepth.org/its-official-united-states-natural-gas-net-exporter-first-time-60-years-2017/">export more natural gas than it buys from other countries</a>. That is what happened in 2017 for the <a href="https://www.reuters.com/article/us-usa-natgas-lng-analysis-idUSKBN1700F1">first time in 60 years</a>.</p>
<p>In addition to selling natural gas to Mexico and Canada, which gets transported by pipeline, the <a href="https://www.eia.gov/todayinenergy/detail.php?id=35512">U.S. is now exporting liquefied natural gas</a>, commonly called LNG.</p>
<p>Only two LNG facilities – one in Louisiana and one in <a href="http://www.naturalgasintel.com/articles/114804-with-cove-point-shale-gas-exports-underway-ices-updated-product-reflects-shifting-market">Maryland</a> – are operating today in the U.S., with total capacity of about 5 billion cubic feet per day. But <a href="https://www.eia.gov/todayinenergy/detail.php?id=34032">at least four more are on the way</a> and a <a href="http://mustreadalaska.com/this-changes-everything-lng-imports-ahead-kenai/">shuttered plant in Alaska could be revived</a> soon. Additional U.S. LNG capacity of up to 25 billion cubic feet per day could become available before long, depending on how many of the many LNG terminals being considered are ultimately built. </p>
<p>As American production and its capacity to liquify natural gas grows, the U.S. government’s Energy Information Administration is <a href="https://www.eia.gov/todayinenergy/detail.php?id=36632">forecasting that China and other Asian countries</a> will buy most of this fuel due to their <a href="https://www.imf.org/en/Publications/REO/APAC/Issues/2017/10/09/areo1013">swift economic growth</a> and their <a href="https://www.scmp.com/news/china/policies-politics/article/2126645/china-gas-imports-soar-amid-pollution-crackdown-use">efforts to slash pollution</a>.</p>
<p>But surely European countries will buy some of America’s exported LNG, <a href="https://oilprice.com/Energy/Natural-Gas/Can-The-US-Break-Russias-Gas-Monopoly-In-Europe.html">reducing Russia’s dominance of that market</a>.</p>
<h2>Russia’s European dominance</h2>
<p>In recent years, <a href="http://ec.europa.eu/eurostat/statistics-explained/pdfscache/46126.pdf">Europe has imported about 20 percent of the natural gas it consumes</a>, mostly from Russia and Norway. </p>
<p>Even as the region began to import liquified natural gas from the U.S., Europe’s Russian gas imports <a href="https://af.reuters.com/article/africaTech/idAFL8N1OY2I2">hit record highs in 2017</a>. Demand was higher than usual thanks to the region’s <a href="https://www.euractiv.com/section/energy/news/eu-more-dependent-on-russian-gas-than-ever-despite-bid-to-diversify/">economic recovery and extremely cold winter</a>.</p>
<p>Several factors buttress Russia’s dominance of this market. First, many countries have signed long-term contracts, locking in their purchases of Russian gas for years to come.</p>
<p>Second, Russia can produce natural gas very cheaply and it costs little to bring it to Europe using <a href="https://pgjonline.com/magazine/2017/august-2017-vol-244-no-8/features/russia-s-pipeline-play-keeps-eastern-europe-on-edge">pipelines, many of which have already been built</a>. In contrast, U.S. producers spend money liquefying natural gas – even if it costs relatively little to drill – and ship it across the Atlantic Ocean. As a result, the price of the gas when it lands in Europe is more than double the price in the U.S.</p>
<p><a href="https://oilprice.com/Energy/Natural-Gas/Can-The-US-Break-Russias-Gas-Monopoly-In-Europe.html">U.S. LNG currently costs about US$6</a> per million British Thermal Units in Europe, about $1 more than the average price of Russian gas in that market. </p>
<p>Third, Russia has embarked on new pipeline projects that include the controversial Nord Stream 2, the <a href="https://www.cnbc.com/2018/07/11/behind-nord-stream-2-the-russia-to-germany-gas-pipeline-that-fueled-t.html">$11 billion natural gas pipeline</a> that is supposed to be completed next year. It will deliver Russian gas directly to Germany, <a href="https://www.theguardian.com/us-news/2018/jul/11/germany-and-russia-gas-links-trump-questions-europe-nord-stream2">bypassing Ukraine</a> – which has sparred with Russia over what it should collect for serving as a transit country repeatedly since 2005. In addition, <a href="https://www.independent.co.uk/news/world/europe/ukraine-steals-gas-owned-by-eu-says-russia-1223061.html">Russia accuses Ukraine of siphoning of gas</a> destined for Europe, allegations Ukraine denies. </p>
<h2>Diluting Russia’s political leverage</h2>
<p>The problems with Ukrainian transit gave Europeans an incentive to import natural gas using <a href="https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/energy-security-strategy">different routes and suppliers</a>. Countries in Central and Eastern Europe, in particular, have been trying to minimize not only supply disruptions but also – and even more importantly – the geopolitical and economic pressure that Russian has exerted in exchange for access to its gas imports.</p>
<p>The region experienced at least <a href="https://www.bakerinstitute.org/media/files/files/ac785a2b/BI-Brief-071817-CES_Russia1.pdf">17 disruptions in its natural gas flows</a> or price manipulations that were either definitely or probably politically motivated between 1990 and 2015, according to my colleague Gabriel Collins, who studies geopolitics and commodity markets.</p>
<p>This kind of intervention has made countries such as <a href="https://en.delfi.lt/eu/lithuania-joins-polands-appeal-in-eu-court-over-nord-stream.d?id=74285838">Poland and Lithuania</a> highly critical of the Nord Stream 2 pipeline. While Western Europe sees in that project a potential end to supply disruptions, Eastern Europe and the Baltic countries see the potential for the region to become even more dependent on Russian gas. If that happens, they fear, Russia could gain more geopolitical influence that goes beyond the post-Soviet bloc to include Germany, Austria and the rest of Western Europe.</p>
<p>As such, their concerns match the consternation that Trump has expressed to a great degree. </p>
<p>Even so, the U.S. government cannot guarantee that U.S.-produced LNG will be shipped to Europe or anywhere else. Private companies, which make their own decisions, do not need to heed the federal government’s geopolitical goals. And the initial U.S. natural gas <a href="http://www.politifact.com/truth-o-meter/statements/2017/jul/17/pat-robertson/us-liquefied-natural-gas-game-changer-russia-europ/">exports to Europe have proven very modest</a>.</p>
<p>The U.S. government can, however, facilitate U.S. exports with policies that encourage them. </p>
<p>In addition, I believe that U.S. natural gas exports can make a difference in Europe, even if Europe never buys very large volumes of American LNG.</p>
<p>That’s because, U.S. natural gas can dampen Russia’s geopolitical influence and economic rents as long as it poses a <a href="https://www.forbes.com/sites/thebakersinstitute/2014/03/10/a-credible-threat-approach-to-long-run-deterrence-of-russian-european-hegemony/">credible threat</a> to Russian gas. For that to happen, all of Europe – not only the Western countries – needs the <a href="https://www.bakerinstitute.org/research/gas-geoeconomics-europe/">infastructure required to handle, move and store imported liquified natural gas</a>. Simply having the ability to access U.S. gas can potentially diminish some of the political leverage Russia now wields in Europe.</p><img src="https://counter.theconversation.com/content/99897/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Mikulska receives funding from the Rice University's Baker Institute for Public Policy and the University of Pennsylvania. She is affiliated with Rice University's Baker Institute for Public Policy, the University of Pennsylvania's Kleinman Center for Energy Policy, and the Foreign Policy Research Institute. She also is on the editorial board of the Adam Mickiewicz University Law Review. </span></em></p>Even if Asia buys most of the natural gas the U.S. will be exporting soon, America’s growing role in that market could wind up reducing Russia’s political influence in Europe.Anna Mikulska, Nonresident Fellow in Energy Studies, Baker Institute for Public Policy, Rice UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/944762018-04-05T10:46:29Z2018-04-05T10:46:29ZWhy China’s soybean tariffs matter<figure><img src="https://images.theconversation.com/files/213298/original/file-20180404-189798-f7e7ym.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A farmer harvest his soybean field in Loami, Ill. </span> <span class="attribution"><span class="source">AP Photo/Seth Perlman</span></span></figcaption></figure><p>China’s <a href="https://www.politico.com/story/2018/07/06/china-retaliation-us-tariffs-672127">25 percent retaliatory tariffs</a> on imports of U.S. soybeans may come as something of a surprise to most Americans. But to a <a href="https://scholar.google.com/citations?user=2B5IAEgAAAAJ&hl=en&oi=ao">professor of agricultural economics</a> who studies international commodity markets for a living, this was not at all unexpected. </p>
<p>Even before the conclusion of the 2016 presidential race, <a href="https://piie.com/publications/piie-briefings/assessing-trade-agendas-us-presidential-campaign">trade analysts were already weighing</a> the possibility that China might impose an embargo on U.S. soybean imports based on protectionist rhetoric from both candidates.</p>
<p>And now that risk of a trade war is reality, and American soybean farmers may be among the biggest losers.</p>
<p>Soybeans are a crucial part of the global food chain, particularly as a source of protein in the production of hogs and poultry. </p>
<p>In 2016, the <a href="http://farmpolicynews.illinois.edu/2018/03/wall-street-journal-china-prepares-tariffs-targeting-agricultural-exports/">U.S. accounted for US$22.8 billion</a> worth of global soybean exports, the most of any country. Its nearest competitor is Brazil, which exported $21 billion. </p>
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<p>Meanwhile, China accounts for the lion’s share of global soybean imports at $34 billion, or two-thirds of the total. </p>
<p><a href="https://piie.com/blogs/trade-investment-policy-watch/more-soybeans-trumps-section-301-tariffs-and-chinas-response">American exports made up about a third of that</a>, or $12.4 billion, making soybeans the United States’ second-most valuable export to China after varieties of airplanes.</p>
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<p>The <a href="https://ussec.org/wp-content/uploads/2018/02/2017-Annual-Report-final-low-res.pdf">importance of China</a> as a market for soybeans has been driven by an explosion in demand for meat as consumers switch from a diet dominated by rice to one where pork, poultry and beef play an important part. Chinese production of meat from those three animals <a href="http://www.scmp.com/business/commodities/article/1516060/chinas-soaring-demand-meat-change-face-global-trade-feed-grains">surged 250 percent</a> from 1986 to 2012 and is projected to increase another 30 percent by the end of the current decade. However, China is unable to produce enough animal feed itself, hence the need to import soybeans from the United States and Brazil.</p>
<p>That’s why the tariffs <a href="https://www.ers.usda.gov/data-products/state-export-data/annual-state-agricultural-exports/">have tremendous potential</a> to hurt farmers here in Ohio, where soybeans are the number one agricultural export at $1.4 billion. China is the state’s largest export market. </p>
<p>And Ohio is just the sixth-largest exporter of soybeans, after Illinois, Iowa, Minnesota, Indiana and Nebraska, all of which will suffer from the tariffs. </p>
<p>Not only do farmers stand to lose out by giving up market share to Brazilian farmers, but soybean prices will probably fall as well, hurting incomes and creating a double whammy for Midwest farms. </p>
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<p>This is of course why the Chinese chose to place a tariff on U.S. soybeans in the first place. Farmers will hurt a lot, and soybeans are produced in states where many of them voted for Donald Trump. China’s hope, presumably, is that farmers will lobby the administration to step back from the brink of a trade war.</p><img src="https://counter.theconversation.com/content/94476/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Sheldon receives funding from USDA and the NSF. </span></em></p>There’s a good reason China took aim at US soybean exports when it announced its latest list of retaliatory tariffs.Ian Sheldon, Chair in Agricultural Marketing, Trade and Policy, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/883382018-02-23T13:12:08Z2018-02-23T13:12:08ZMcMindfulness: Buddhism as sold to you by neoliberals<figure><img src="https://images.theconversation.com/files/207549/original/file-20180222-152357-g9yciw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-calm-businessman-working-laptop-yoga-582569848?src=Bb7WQhjHclnx6QTUUwltjw-1-33">fizkes/Shutterstock.com</a></span></figcaption></figure><p>Mindfulness is big business, worth in excess of <a href="https://collectivehub.com/2017/04/meditation-is-becoming-a-billion-dollar-industry/">US$1.0 billion</a> in the US alone and linked – somewhat paradoxically – to an expanding range of must have products. These include downloadable apps (1300 at <a href="https://www.nytimes.com/2016/03/20/opinion/sunday/the-hidden-price-of-mindfulness-inc.html">the last count</a>), books to read or colour in, and online courses. Mindfulness practice and training is now part of a global wellness industry worth <a href="https://www.globalwellnessinstitute.org/press-room/statistics-and-facts/">trillions of dollars</a>. </p>
<p>Mindfulness has its origins in Buddhist meditation teachings and encourages the quiet observation of habituated thought patterns and emotions. The aim is to interrupt what can be an unhealthy tendency to over-identify with and stress out about these transient contents of the mind. By doing so, those who practice mindfulness can come to dwell in what is <a href="https://onbeing.org/programs/jon-kabat-zinn-opening-to-our-lives/">often described</a> as a more “spacious” and liberating awareness. They are freed from seemingly automatic tendencies (such as anxiety about status, appearances, future prospects, our productivity) that are exploited by advertisers and other institutions in order to shape our behaviour. In its original Buddhist settings, mindfulness is inseparable from the ethical life.</p>
<p>The rapid rise and mainstreaming of what was once regarded as the preserve of a 1960s counterculture associated with a rejection of materialist values might seem surprising. But it is no accident that these practices of meditation and mindfulness have become so widespread. Neoliberalism and the associated rise of the “attention economy” are signs of our consumerist and enterprising times. Corporations and dominant institutions thrive by capturing and directing our time and attention, both of which appear to be in ever-shorter supply.</p>
<h2>The attention economy</h2>
<p>The celebrated French activist philosopher and psychotherapist Félix Guattari <a href="https://books.google.co.uk/books/about/Molecular_revolution.html?id=IOQcAAAAMAAJ&redir_esc=y">observed</a> some time ago that contemporary capitalism had begun to determine who we think we are. The power of corporate media, advertising, video games, Hollywood and the rise of social media condition how we present and think about ourselves. And in turn, our visions of ourselves participate in the production of all other commodities. </p>
<p>As we have come to identify with our lives as consumers, our lives have been reduced to an infinite series of choices and transactions. At the same time, our relationships with a once flourishing biodiversity – both natural and cultural – atrophy and recede behind a series of screens, preserved only as televisual spectacle to salve our blighted collective sense of unease.</p>
<p>So there is a great deal at stake for companies competing to commodify and colonise our attention. We are no longer mere consumers captured by chance by skillful marketing. We have become subjects and products formed in the interplay of algorithms, technology and newly minted corporate tools that mine our relationships, tastes, moods and intimate preferences. These are then fed back into the system in a perfect loop on platforms developed by Facebook, Apple, Netflix and a host of others now busily turning our attention into a tradeable commodity.</p>
<p>But as our enclosure in this “attention economy” accelerates, our vulnerability to addiction, loneliness, depression and alienation is entrenched. The more we buy into a disenchanted world bereft of complexity, care and meaning, nature and other people appear to retreat behind a series of screens. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/207636/original/file-20180223-108134-1ak2osl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/207636/original/file-20180223-108134-1ak2osl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/207636/original/file-20180223-108134-1ak2osl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/207636/original/file-20180223-108134-1ak2osl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/207636/original/file-20180223-108134-1ak2osl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/207636/original/file-20180223-108134-1ak2osl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/207636/original/file-20180223-108134-1ak2osl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&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">Screen life.</span>
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<h2>McMindfulness</h2>
<p>Meanwhile mindfulness, a practice with its roots in Buddhism, has mushroomed in popularity. This may seem odd. But the popular, secular variety of “mindfulness” – or “<a href="https://www.huffingtonpost.com/ron-purser/beyond-mcmindfulness_b_3519289.html">McMindfulness</a>”, as it has been dubbed – can appear to offer a tailored, therapeutic response to many of the features of contemporary neoliberalism and the demands of the attention economy. </p>
<p>Indeed mindfulness-based practices are merging with the neoliberal logic of “self care”. They seem to be consistent with the imperative that we increasingly take responsibility for our own individual fates as they are set adrift from community. This is a logic that has become pervasive across our public and private institutions, where “self regulation” in pursuit of resilience is the new watchword. Adapt – or perish.</p>
<p>And so mindfulness is being sold as a respite from hyper-consumerism, or as support for our struggle to comply with pressures to enhance productivity in the workplace. It is being used, for example, <a href="http://mindfulnessintheworkplace.org/uk-parliamentary-report-recommends-mindfulness-workplace/">as a form of self-discipline</a> in the service of enhanced productivity in corporate and institutional settings. Equally, the practice is being deployed by institutions to <a href="http://www.huffingtonpost.co.uk/entry/redundancy-mental-health-and-managing-money-how-to-look-after-yourself-after-job-loss_uk_5a5f2089e4b096ecfca8d8d8">help mitigate consequences</a> at heightened moments of distress such as when staff are being prepared to adapt to news of their imminent redundancy.</p>
<h2>Back to Buddhism?</h2>
<p>So called secular therapeutic mindfulness practices, then, can operate on the same register as neoliberalism and the “attention economy”. That’s why the philosopher Slavoj Žižek <a href="https://mitpress.mit.edu/books/looking-awry">once described</a> Buddhism as the perfect supplement for a consumerist society. Žižek was only half right. The real problem is the selective appropriation of Buddhist practices, stripped of their ethical and philosophical insights. As a result, mindfulness practices are too often presented and taught without adequate acknowledgement of the power structures that are themselves an important source of our distress. </p>
<p>Buddhist scholarship differentiates between “right mindfulness” and “wrong mindfulness”. Mindfulness must be practised with attention to the operation of power and context if it is to generate useful and liberating insights. It is irreducible to exclusively personal or individual experience. Rather, it must be practised as a gateway to an ethics of care and community – the “mindful commons”. As the philosopher of care, María Puig de la Bellacasa, <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-954X.2012.02070.x/abstract">reminds us</a>, all knowledge is situated: knowing and thinking are inconceivable without attention to relations. These including relations of power, which can bear down on and move through our bodies, minds and places, influencing the way we think. </p>
<p>Stripped of its ethical and contextual roots, mindfulness-based practices borrowed from Buddhist and Zen lineages risk shoring up the very sources of suffering from which the Buddha <a href="https://zenpeacemakers.org/the-three-tenets/">set out to liberate himself</a> and others. But practised correctly, mindfulness – aligned with and informed by acknowledgement of powerful institutional sources of suffering – can be a pathway to critical engagement and resistance.</p><img src="https://counter.theconversation.com/content/88338/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Doran has received funding from the Carnegie United Kingdom Trust for work on well-being and governance in Northern Ireland. He is the author of A Political Economy of Attention, Consumerism and Mindfulness: Reclaiming the Mindful Commons (Routledge, 2017). He is an active member of Sinn Fein.</span></em></p>It is no accident that practices of meditation and mindfulness have become so ubiquitous in our neoliberal times.Peter Doran, Lecturer in Law, Queen's University BelfastLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/911682018-02-11T08:17:05Z2018-02-11T08:17:05ZWhy it would be in everybody’s interests to regulate cryptocurrencies<figure><img src="https://images.theconversation.com/files/205238/original/file-20180207-74506-nil6pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There are growing <a href="http://www.wired.co.uk/article/six-ways-to-regulate-cryptocurrency-without-destroying-its-future">calls</a> for regulation of the cryptocurrency market, which is rapidly approaching a market capitalisation of <a href="https://www.cnbc.com/2017/12/18/cryptocurrencies-could-be-worth-1-trillion-in-2018-blockchain-ceo.html">$1 trillion</a>. But there’s little agreement about the forms this should take.</p>
<p>If the case for government regulation is strong, the case for a clear, coordinated regulatory approach is even stronger. It would increase the flow of institutional capital into cryptocurrency markets. And that would further strengthen corporate governance in cryptocurrency companies.</p>
<p>The trick for regulators is to balance investor protection and systemic stability with the need to protect innovation and encourage capital formation in different legal systems.</p>
<p>At present the regulatory environment is a muddle because there’s rapid divergence in the regulation of cryptocurrencies across jurisdictions. Countries like Japan, while thorough, have a more open approach. China is more strict. </p>
<p>Sovereign governments need to develop coherent frameworks for cryptocurrency oversight. But solutions will only be found through international cooperation in this cross-border market.</p>
<h2>Growing concerns</h2>
<p>Cryptocurrencies <a href="https://cointelegraph.com/bitcoin-for-beginners/what-are-cryptocurrencies">originated</a> as an alternative payment mechanism to traditional currencies. But they are now also <a href="http://www.cftc.gov/bitcoin/index.htm">traded</a> on spot exchanges as highly speculative investment assets. </p>
<p>Recent spin-off crowd funding opportunities such as <a href="http://bitcoinafrica.io/2017/09/08/sarb-says-no-protection-for-ico-investors/">initial coin offerings</a> have become a particular cause of concern. These involve startup cryptocurrency companies offering initial investment stakes in new token issues. China and Vietnam have <a href="https://www.ft.com/content/05b2748c-c903-11e7-aa33-c63fdc9b8c6c">banned</a> them. Japan has taken a friendlier <a href="https://www.wsj.com/articles/regulators-are-looking-at-cryptocurrency-1516836363">attitude</a> while the UK and the US have adopted a wait and see approach. South Africa, like many other developing countries, offers zero protection to investors in initial coin offerings.</p>
<p>These different responses are due to different legal definitions of cryptocurrencies. The rapidly evolving technology behind them doesn’t help the situation either.</p>
<p>The precise nature of an initial coin offerings depends on its structure as well as its context which can change quickly and have hybrid characteristics of financial instruments. </p>
<p>The definition, and hence legal treatment, of the tokens issued under an initial coin offering can be as diverse as a currency, commodity, security, property, loan, deposit, derivative or forex contract. Agreeing a taxonomy of cryptocurrencies defined by how they’re used is clearly one of the most urgent tasks facing regulators.</p>
<h2>Towards a taxonomy of cryptocurrencies</h2>
<p>Cryptocurrency expert <a href="https://new.innovatefinance.com/news/lawrence-wintermeyer-steps-ceo-innovate-finance/">Lawrence Wintermeyer</a> has argued that distributed ledger technology powered digital assets could be organised into three potential buckets: cryptocurrencies, cryptocommodities, and <a href="https://www.forbes.com/sites/lawrencewintermeyer/2018/01/07/my-2018-crypto-predictions/#6294e3976b71">cryptotokens</a>. </p>
<p>But the lack of harmonisation across jurisdictions is a wider problem than nomenclature.</p>
<p>Cryptocurrency companies sometimes use the distributed nature of these assets – which sit on digital ledgers held by multiple token holders – to argue that there is no issuer. They also sometimes argue that these assets are not securities, and that they should therefore not be subjected to a particular jurisdiction’s securities laws.</p>
<p>There are also clear cross border regulatory <a href="https://www.ft.com/content/32315636-cb01-11e7-ab18-7a9fb7d6163e">gaps</a>. What makes it difficult to reconcile these is that the assets can easily be transferred and their origins are difficult to trace. Tokens could be issued in a more token-friendly jurisdiction like Japan. The same tokens could land up in the hands of unassuming retail investors in stricter jurisdictions such as the US. </p>
<h2>Avoiding money laundering and financial crime</h2>
<p>This cross border confusion allows token companies to pick and choose jurisdictions with favourable rules. This could make money laundering easier.</p>
<p>There are a few steps governments can take to close these gaps.</p>
<p>They should support investment in technology that makes the provenance of tokens clearer while preserving their encryption. Regulators could then enforce an “indicator of origin” as a standard. This would make it less easy for the assets to be transferred illegally.</p>
<p>Offshore centres like Jersey <a href="https://www.ft.com/content/e591541e-007e-11e6-99cb-83242733f755">have got a lot of bad press</a> in the recent backlash against international financial centres. But there’s a great deal to learn from well-regulated offshore jurisdictions. They are beginning to take the lead with potential applications of international best practice and corporate governance for cryptocurrencies. They offer investors in digital assets an extra set of gatekeepers’ eyes, and potentially, a more calculated risk. </p>
<p>In jurisdictions like Jersey issuers of initial coin offerings have to jump through quite a few hoops. This includes using a regulated service provider which has to make an application to the Jersey companies registry for a consent. The service provider is among a number of <a href="https://www.gov.je/News/2017/Pages/InitialCoinOfferings.aspx">requirements</a> that provide checks in relation to anti-money laundering and countering the financing of terrorism.</p>
<h2>Current frameworks and global co-ordination</h2>
<p>But what could a coordinated global regulatory approach to cryptocurrencies look like?</p>
<p>Harmonisation via a code of conduct or voluntary signatory to a global compact could certainly stop token companies from cherry picking jurisdictions to their advantage. Not being signatories to the codes would place token companies outside the market. </p>
<p>A multilateral code of conduct or global convention or compact, such as those administered by the inter-governmental <a href="http://www.fatf-gafi.org/">Financial Action Task Force on Money Laundering</a>, or a United Nations co-ordinated approach could be model solutions. </p>
<p>Standard regulatory codes are particularly critical for some pockets of the investment community. For example, there has been a significant <a href="https://cointelegraph.com/news/institutional-investors-will-bet-big-on-cryptocurrencies-in-2018">surge</a> in the establishment of investment funds looking to invest in initial coin offerings on behalf of sophisticated investors. </p>
<p>Standard codes for institutional investors in the first instance, could help both regulation as well as innovation. Institutional investors, unlike retail investors, can withstand, and even benefit from, the upside of volatility over time. </p>
<p>For now, the poorly regulated speculative hoarding of cryptocurrencies reduces the potential of assets like this to become a public good. This ultimately affects the potential value of the tokens by amplifying volatility.</p>
<p>Paying attention to this is important for investors and regulators as well as issuers. There will also have to be a degree of self regulation by issuers as global regulators get up to speed.</p><img src="https://counter.theconversation.com/content/91168/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Desné Masie 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>While sovereign governments need to develop coherent frameworks to regulate cryptocurrency, permanent solutions will be found through international co-operation.Desné Masie, Visiting Researcher in International Political Economy, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.