NES (Network of Ethiopian Scholars) and its delusional "Ideas for ending endemic governance crisis in Ethiopia"

Adal Isaw
March 26, 2008
In what is utter effrontery to academicians of the world, few realistically challenged asinine Ethiopians are calling themselves the Network of Ethiopian Scholars, to knowingly or unknowingly engage in the art of mass deception and disinformation. On November 2, 2005, NES naively called upon the people of Ethiopia and the world, to unite and topple one of the progressive government in Africa, claiming that, Ethiopia is under sadistic and fascist rule.

On May 22, 2006, the jubilantly excited NES broke the news that, "... a historic meeting convened, by the Coalition for Unity and Democracy Party (CUDP), the Ethiopian People's Patriotic Front (EPPF), the Ogaden National Liberation Front (ONLF), the Oromo Liberation Front (OLF), the Sidama Liberation Front (SLF) and the United Ethiopian Democratic Forces (UEDF), at Utrecht in Netherlands," creating AFD-the step child of a megalomania from Eritrea.

Wounded but not dead, and while debunked for lack of academic sophistication; on March 20, 2008, NES still managed to lift up the heavy brush of deception to denigrate and paint Ethiopia as the land of "endemic governance crisis." The brush stroke from left to right, up and down zigzagging in intervals, painting the feeblest possible images, in an article titled "Ideas for ending endemic governance crisis in Ethiopia."
One needs not to read the article for only part of the title "endemic governance crisis" tells more than what the gist of the presupposition of the article in its totality can ever confess. Meanwhile, and mere academic exercise aside, there is always the need to define key terms of a presupposition if indeed the whole point of an academic argument is to produce a convert out of an Ethiopian reader who may have a stake in what is being argued.

NGOs, the so-called Western nations, opposition groups from the criminal element to the academically dishonest, and the very naive and vocal Ethiopian Diaspora have been using "bad governance," as point of argument against EPRDF almost to the point of making these two words of "bad governance" the cliché of the 21st century. And yet, none of these elements of the opposition, as a matter of fact has made the case that " bad governance" let alone "endemic" one is pervading Ethiopia as NES is claiming.

Endemic is a caustic word that speaks a volume whenever it is used in any order to describe that something extremely undesirable and potent is taking place. It is a word usually used to describe matters of health concern that may afflict a specific region and people, especially disease peculiar to the tropic. In this case, NES is using the word endemic to describe the lack of "good governance" in Ethiopia and have no clue as to how the word is unfitting to describe such a phenomenon.

The state of "good governance" or lack there of cannot be endemic by its very nature. In fact, it’s just the opposite. Good governance may afflict as many regions as bad governance or vice versa, and by deduction, it is indeed pandemic and cannot be attributed as a peculiar enigmatic sign to explain the state of poverty and hunger in the land of Ethiopia. If you doubt my assertion, just read the following evidence about the richest country of the world for a change, and debunk my surmise if you can.

On October 12, 2005, Oprah Winfery had a show unlike any other show she had had in the past. The show featured Anderson Cooper, the host of 360 on CNN and others to talk about destitution, and see with a naked eye the sad-ridden faces of the 43 million Americans that live below the poverty line. Video footage of poverty-stricken Americans disenchanted the audience and also the millions of viewers who were glued to the tube as usual.

It was breathtakingly unbelievable to see the graphic face of destitution and poverty in America-the worlds’ richest country. From that day on, it became apparent to many Americans that, poverty is neither an endemic state of affairs necessarily induced by speculated lack of "good governance" nor it is the sole attribute of all poor and underdeveloped nations of the world, as NES is idiotically suggesting. So, what is the fuss about this recent article by NES? If any, NES is merely engaging itself as usual in what Mathza (one of my favorite writers who also has shared the same story about Oprah show to her readers) calls, " endless variety of devious means of discrediting and demonizing the EPRDF."

The word " governance" has popped out of developmental literature to find itself being used by sectarian groups to bring about their interest to the forefront. Succinctly put, "governance" is defined as the process of decision-making and the process by which decisions are implemented. The whole process is influenced by formal and informal actors. The government is the formal actor and the list of informal actors can be very long to include political and economic Mafias. As you have noticed in our country recently, the economic Mafias may include those "entrepreneurs" who jacked up the price of salt 900% overnight.

The economic Mafias may also venture to ransack the national treasury of Ethiopia, and in no way are attributable only to poor countries who are inured of being condemned for having " bad governance" as NES is suggesting. In fact, responding to the recent gold scandal of Ethiopia, NES idiotically asked the following questions, stretching the incident to mean something that have been caused by the New Federal Democratic Republic System of Ethiopia.

Reaching to the epic of stupidity, NES asked, "What does this fraud show? What is the relationship between the prevailing ethnic governance and such grand theft committed against the nation? Is this colossal theft related to ethnic de-valorization of Ethiopianess and Ethiopian patriotic belonging where those who steal prefer to privilege their private pockets to the decent matter of allegiance to the national well being? How can they imagine they can rob the national treasury for so long undetected, unless they have powerful official and intelligence people backing them? Where did the real gold go? These are indeed trying questions at trying times where this unfortunate nation seems to continue to lurch from one disastrous episode to another? How much has ethnic politics to do with this colossal treachery against the nation?"

How is what it means to be an Ethiopian has got to do with those who stole gold from the national treasury? Is NES about to tell us that some within us-Ethiopians ,including King Haile Selassie and Mengistu Hailemariam, have never been implicated stealing from the national treasury? Is Federalism the culprit in this scandal as NES is suggesting? Oh my! I guess, only the feeblest minds among us Ethiopians render to vitriolic criticism such as this one to consequent havoc and division among people who are otherwise united under one guiding principle-the equality of all peoples of Ethiopia unlike any other time in their history under the supreme law of the land that we often call the constitution. NES, get used to it! Your dog didn’t eat your home work.

It’s baffling that NES is equating the idea of Ethiopiawinet with the recent gold scandal. No Ethiopian needs a lecture on the idea of Ethiopiawinet from anybody including NES in such platitudes and nonsensical manner. If there is a perceived degree of difference about how one feels Ethiopiyawe, it arises from a reason more complex than the gold scandal that NES is eager to equate with. No matter how, NES will never ever rightfully claim to be more of an Ethiopian than any Ethiopiawee since the mechanism to weigh the strength of a conviction of such an idea or lack there of is non existent.

The whole point is that, governance is influenced by economic Mafias of the kinds that have been involved in the recent gold scandal, and to a greater extent, it’s attributed to the culture of greed that a capitalist system brings forth. If EPRDF is influenced to "govern" and acts as the Communist Party of China and executes all those who stole gold from the treasury, I suppose NES would be complaining about cruel, unnecessary, and inhuman punishment. In any case, NGOs of different breed, the international media, both print and TV, inter non-governmental and governmental organizations, treaties, trade laws and agreements, and multi national organizations are some of the actors from the many to impact the nature of "governance" in any type of government.

It is thus very deceptive of NES to imply that, the nature of "governance" is single- handedly influenced by a government. In fact, to a lesser or greater extent, even the behavior of NES as instigator of instability and disorder by having an affiliation with known terrorist organization have an impact on the nature of "governance" in Ethiopia. If NES is to behave in a civil manner and refrains from disseminating lies after lies, it’s very likely that our government would have markedly different mode of "governance" from spending more time on issues of political and economic detractors to spending time developing Ethiopia in full gear.
For some, including NES, EPRDF is the quintessential example of a government that went awry because of how it makes decisions and the way how it carries the decisions for implementation. But, for many Ethiopians who are cognizant of the context under which EPRDF is governing Ethiopia, EPRDF is one of the government that should have received the greatest commendation possible for good governance. It is very apparent that, NES stands to contend this bold assertion by giving us all of the reasons that it has forwarded on March 20, 2008, till I debunk all of the criticisms one criticism at a time.

"Unscrupulous syndicate of foreign and local business" are using Ethiopia’s land to grow "water thirsty rose for cheap export" thereby exposing our people to a protracted "food shortage," reads the introductory criticism of NES. Two untenable evidences are forwarded in support of NES assertions that, how rose production is bad for Ethiopia. The first one is, the fact that nine million people are waiting for food aid, and the second one, the fact that Portugal and Spain have ceased to produce rose, believing that it’s a detrimental venture. The allusion for the latter evidence is that, the Western developed world has abandoned rose production for reasons that NES is claiming about land usage in Ethiopia.

Contrary to NES claim, the Western developed states, particularly the European ones, did not abandon rose production by choice, and particularly not because of the reasons that NES is asserting. Rather, they were simply forced out by competition. In the 1960s and 70s, the Netherlands rose to a domineering stance in the world of cut flowers, but more specifically, roses, and its European developed states were eventually eliminated as competitors in rose production and were transformed into importers of roses. Today, Holland grows one out of every five commercially grown roses. And, for having done that, Holland has yet to create poverty-stricken citizens as NES is eager to point. The facts are not simply there to support that the nine million people in Ethiopia are waiting for " food hand outs" as a result of rose production.

The market for flower cuts, especially of roses has been expanding vastly to Asia, Africa, and south America. The list of countries includes but is not limited to Thailand, Malaysia, Zambia, Tanzania, Mauritius, Colombia, Ecuador, and Peru. For the Third World, roses have been treated by international market analysts and development experts as the "miracle crop" earning up to five times per acre what fruit crops bring in. So, what is the fuss about rose production, if the government of Ethiopia is avoiding banned and unregistered pesticides to avoid risks in health hazard and contamination of the soil? What is the fuss of rose production if the government is making sure that the working force is fit with protective gears even when registered and relatively safer pesticides are applied? What is the fuss about rose production if recycled water is used to harvest them? NES is simply out of gas and can only split hair in matters that have little bearing if any to the over all question of economic development.

By the way, weren’t you scholars supposed to premise your conclusion in solid evidence and trends of data that support your claim? Have you asked yourself how much of Ethiopia’s land is being used for horticulture vis a vi’s food production? How much of water? Are the nine million people waiting for "food hand out" the consequent of rose production? Is hunger the consequent of " bad governance" handing land to "unscrupulous syndicate of foreign and local business," to grow "water thirsty rose for cheap export," thereby exposing our people to a protracted "food shortage" as you are dishonestly suggesting? The answer is no, and here is the reason why.

As I have indicated earlier, good or bad governance is the product of two actors, and government of any kind is not going to be able to make decisions and carry out the decisions for implementation single handedly. Thus, the fact that we have "scrupulous" or "unscrupulous" foreign investors in Ethiopia indicates that, the blame, if there is any, should be attributed to the informal actors. EPRDF is not a mind reader and thus cannot sift the crook and the dishonest, from the honest ones, just by how they sign their lease agreements.

It’s so perplexing why NES is so craven to mention WTO, World Bank, and another international financial institutions, and the existence of an asymmetric political and economic relationship with the so-called Western world. NES is aware of the fact that, Ethiopia is compelled to open up its market and business ventures to foreign investors if it wants to do business with the Big Boys. Market liberalization is what has been required of Ethiopia for some time now, and the Ethiopian government is being pressured day in and day out to open up even those aspects of the economy that would put our country in harms way. In any case, the whole point here is that, poverty or hunger which NES loves to politicize for political expediency, is the function of asymmetric international economic and political relationship that has pervaded the world especially after WWII.

It won’t be surprising if NES is to equate the creation of Food and Agriculture Organization (FAO) of the United Nations (UN) with hunger in Ethiopia and the so-called Third World. But, the fact is, FAO of the UN was created, after hunger became the major concern of the United States and its European allies that had incurred a good deal of damage to their economies during the war. Countries in the South were relatively food self-sufficient before they were colonized by the west. Colonization or interactions with industrialized nations via trade, aid, and investment in least developed countries by Western banks and industries" immiserized" local economies. Those developing nations that overcame poverty and hunger, such as South Korea and Taiwan, were given huge amounts of aid because they were of strategic interest to the Western powers.
David N. Balaam & Michael Veseth

Introduction to International Political Economy

(New Jersey: Prentice-Hall. In., 1996). p. 386-387.
Poverty or Hunger, then, is not endemic to Ethiopia as NES is suggesting, but is a consequent of the asymmetric relationship that Ethiopia is compelled to have with the Big Boy of the so-called Western nations.

The implications of having liberal capitalist market system are many, and for one, it always creates great disparities of wealth and poverty. EPRDF is very cognizant of this fact and acts to restrain the disparities from going over board. The fact that land is apportioned for use via lease system is one good example that shows how EPRDF is putting the cork, to restrain the political and economic control that few may end up having if Ethiopia were to sell its land to Archer Daniel Midland company-a capitalist venture that is claiming of feeding the world. NES has to come out and propose an economic system other than the restrained capitalist system that we have in Ethiopia, and show us exactly how the disparities in wealth and power are going to be avoided. Our stance is that, even in restrained capitalist system, disparities are inevitable but restraining them is possible. NES, are you pondering on shooting your arm with the dose of "good, old, true socialist system?"

Food problems; gold scandal; dispirited sense of self; political and economic power disparities, and all of the complaints, as far as NES is concerned are the creations of "ethnic framed" governance. "Ethnic framed" is a reference given to Kilils that EPRDF has arranged as political units, to fairly and squarely distribute political rights, economic interests, and social benefits among the many people of Ethiopia.

Kilil is one of the issue that can easily be demagoged to mean the dismembering of Ethiopia into ethnic miniature states and anything and everything bad as NES is claiming. Those who oppose Kilil would not badge to claim a patriotic upper hand over those who advocate for it, exactly as NES is hail bent doing. Nonetheless, the principle that should guide our discourse on Kilil has to be the following: There should always be a contest in choosing the way how we live, but never should there be a contest with each other claiming to be more of an Ethiopian than those who stand to challenge the political living arrangement that we’re espousing for.

Neither the living arrangement nor the contest to choose one arrangement from another is immutable. Keep in mind that the fourteen provinces that made up the political unit arrangement of Ethiopia were never meant to stand still for ever. The same is true about Kili; it’s just another changeable political living arrangement being used for now to fairly and squarely distribute political rights, economic interests, and social benefits among the many people of Ethiopia.

Those who are standing to lose from such a political living arrangement in which power, privilege, duties, and rights are distributed are arguing in essence for immutable order of things. The traditional and historical edifice of Ethiopia stood on the premise of royal and aristocratic privileges, and this coercive edifice was imposed on fourteen political provinces. The edifice also was justified through ecclesiastical authority in order to shore and give it the appearance of immutability. Those who dare to challenge the royal and aristocratic living arrangements within the fourteen provinces of Ethiopia were dealt mercilessly. The continuing coercive living arrangement under royal and aristocratic administration brew local resistance and nationalist movements in many parts of the fourteen provinces of Ethiopia paving the path for EPRDF.

Well beyond the histrionics, rhetoric, and the dog eat my home work complaint of NES, Kilil is a political choice that resulted from decades of an Ethiopian struggle for justice, equality, and the right to self-govern oneself locally. It’s a political living arrangement representing the pacts and agreements that the EPRDF made with the peoples of Ethiopia as stipulated in the Constitution, emancipating and empowering the many people of Ethiopia from imposing and oppressing monolithic central government.1 NES, get used to the New Ethiopia, and stop the dereliction of your academic duty.

The Impact of High Oil Prices on African Economies

Hafedh Bouakez
On the one hand the high price of oil is a unique opportunity for African oil producers to use the windfall gains to speed up their development. On the other hand, it is having adverse effects on net-oil importing countries, in particular those which cannot access international capital markets to smooth out the shock. We construct a dynamic stochastic general equilibrium model, which is tailored to reflect the characteristics of African economies, to quantify the effect of the increase in the price of oil on the main macro economic aggregates. The model is general enough that it imbeds both oil producing and oil importing countries. Our results indicate that a doubling of the price of oil on world markets with complete pass through to oil consumers would lead to a 6 per cent contraction of the median net-oil importing African country in the first year. If that country were to adopt a no-pass through strategy, output would not be significantly affected but its budget deficit would increase by 6 per cent. As for the median net oil exporting country, a doubling in the price of oil would mean that its gross domestic product would increase by 4 percent under managed-float and by 9 percent under a fixed exchange rate regime. However, inflation would increase by a much greater magnitude under managed than a fixed exchange rate regime in a median net oil exporting country.
While a barrel of crude oil was trading between $18 and $23 in the 1990s it crossed the $40 mark in 2004 and traded at around $60 from 2005. During the summer and fall of 2007, the price of one barrel of crude oil jumped above the $70 mark and even reached $80. Although, in real terms, the price of oil is still lower than in the late 1970s and early 1980s, the recent upsurge can have dramatic consequences on oil-importing countries. The impact of high oil prices is likely to be even more severe in countries that are overly dependent on oil and/or have limited access to international capital markets. This description characterizes many African economies. Net-oil importing countries have explored a number of policy options to cushion their economies from the adverse impact of the high price of oil. In 2006 the African Development Bank (AFDB) implemented a survey to investigate the extent to which governments of its Regional Member Countries (RMCs) have intervened on the retail market for fuel to limit the pass-through of international oil prices. Out of the 24 RMCs on which we have data, 20 had legislation in place to control the retail price of gasoline and only 4 had full pass-through. As a result, while the price of oil had nearly doubled between 2000 and 2005, domestic prices have increased at a much slower pace. For example, the price of regular gas increased by 65 percent in Benin, 76 percent in Mali and 77 per cent in Mauritius. Interestingly, the retail price of price was even inversely correlated with the world price of crude oil for some period (e.g. Mauritius). Moreover, the survey indicates that governments subsidize, or limit the pass through of, kerosene more than other types of fuel on the grounds that it is consumed by the poor.
Further evidence of government intervention in the fuel market is provided by a 2006 World Bank survey conducted in 36 developing countries. 14 were found to have suspended market based pricing to avoid full pass through of the world price of oil to domestic customers (ESMAP, 2006). In addition, 12 others were already controlling fuel prices which meant that they were pricing fuel below the true international market equivalent. More recently, Baig et. al. (2007) find that only half of 44 developing and emerging market countries have fully passed-through the increase in international fuel prices to consumers between 2003 and 2006. As for oil-exporting countries, they stand to benefit from the significant influx of foreign revenue which they could harness for their development. They are challenged to manage the oil windfalls for the benefit of the whole population, as well as future generations, and cushion their economies against any Dutch disease. However, the benefits of the high price of oil are not evenly spread across Africa. The 5 top oil-producing countries (Nigeria, Algeria, Libya, Angola and Egypt) account for more than 80 per cent of the continent’s production. At approximately $60 dollars per barrel of oil, the average present value of oil reserves is $33,000 for each resident of an oil-producing African country. Oil-producing countries with small population, which in addition are currently quite poor, stand to benefit substantially on a per capita basis. While oil exporting countries obviously benefit from high oil prices, economies that are heavily reliant on oil exports can become vulnerable to the Dutch disease. Again, this is the case of most African oil-exporting countries.
While there is a large macroeconomic effects of oil-price shocks, most are based on vector auto regression (VAR) models (see for example Hamilton (1996) and Bernanke, Gertler and Watson (1997)). Although these models are useful to characterize the statistical relationships between economic variables and to establish relevant stylized facts, they lack economic content and do not reveal mechanisms through which shocks propagate. In addition, the reduced-form nature of VAR models renders them subject to the Lucas critique. To the best of our knowledge, only a handful of studies analyze the effects of oil-price shocks within a dynamic stochastic general equilibrium (DSGE) framework. Notable examples are Rotemberg and Woodford (1996), Backus and Crucini (2000), Leduc and Sill (2004), and Medina and Soto (2005). Moreover, none of these earlier papers is concerned with effects of oil prices or is specific to the context of African economies.
This paper departs from the existing literature by using a DSGE model to study the quantitative effects of oil-price shocks on oil-importing and oil-exporting African economies. Our model belongs to the class of new open-economy macroeconomic models, which have become the main tool used in modern international macroeconomics. The model developed in this paper is more general than these earlier ones and is better suited for the African economies. Our model is one of a small open economy that shares some features with the models developed by Kollmann (2001), Bergin (2003), and Bouakez and Rebei (2005).
Our results indicate that a doubling in the world price of oil can lead to an important loss in output and consumption and to higher inflation in oil-importing countries, especially if these countries operate under a fixed exchange rate regime. The adverse effect on output, however, can be mitigated through government intervention or through foreign aid. More specifically, our results indicate that a doubling of the price of oil with complete pass through would lead to a 6 per cent contraction of the median net-oil importing African country in the first year. If that country were to adopt a no-pass through strategy, output would not be significantly affected but its budget deficit would increase by 6 per cent. As for the median net oil exporting country, a doubling in the price of oil would mean that its gross domestic product would increase by 4 percent under managed-float and by 9 percent under a fixed exchange rate regime. However, under inflation would increase by a much greater magnitude under managed than a fixed exchange rate regime in a median net oil exporting country.
Government intervention limits the degree of pass-through from the world price of oil, which shields the economy from higher input costs. To the extent that the government relies mostly on public debt to finance its expenditures, this policy will translate into a higher budget deficit and a larger consumption loss. As for foreign aid, the model predicts that the amounts needed to offset the output loss associated with higher oil prices are fairly small. In oil-exporting countries, a doubling in the world price of oil generates a sizable increase in output and consumption. The effect on inflation depends on which exchange rate regime is in effect. The expansionary effects of oil-price shocks are accompanied by a sharp appreciation of the real exchange rate, which can be harmful if the economy is heavily concentrated in a few industries. The remainder of the paper is structured as follows. Section 2 describes the model. Section 3 describes the main results regarding the effects of an oil-price shock. Section 4 discusses the policy implications of these results.
There are few studies that analyze the effects of oil-price shocks for African countries. Ayadi, Chatterjee and Obi (2000) study the effects of oil production shocks in Nigeria. A standard Vector Auto-Regression (VAR) process including oil production, oil exports, the real exchange rate, money supply, net foreign assets, interest rate, inflation, and output is estimated over the 1975-1992 period. Empirically, the response of output is positive after a positive oil production shock. Moreover, the impact response of output is less than one fifth of that of oil production, but the response of output after a year is slightly larger than that of oil production. The response of inflation is negative after a positive oil production shock. The impact response of inflation is negligible relative to that of oil production, but the response of inflation after a year is more than two times larger than that of oil production. The response of the real exchange rate is generally positive after a positive oil production shock, indicating a real depreciation of the Naira. The impact response of the real exchange rate is negligible relative to that of oil production, but the response of the real exchange rate after a year is around two times larger than that of oil production. To the extent that an oil price increase leads to an oil production increase, the responses suggest that output increases, inflation decreases, and the national currency depreciates following a positive oil-price shock.
Ayadi (2005) uses a standard VAR process to analyze directly the effects of oil-price shocks for Nigeria over the 1980-2004 period. This VAR process includes the same set of variables as in Ayadi, Chatterjee and Obi (2000), except that the oil production variable is replaced by oil prices. Unfortunately, the responses of the macroeconomic variables to an oil-price shock are not reported. Nevertheless, it is likely that the responses of output, inflation, and the real exchange rate are small following an oil price shock. This can be deduced from the small contributions of the oil price shock to the variance decompositions of output, inflation, and the real exchange rate. More precisely, the contributions of the oil price shock to the variance of output are 1 percent at impact and about 7 percent after a year. The contributions of the oil price shock to the variance of inflation are less than 1 percent at impact and after a year. The contributions of the oil price shock to the variance of the real exchange rate are 0 percent at impact and 5 percent after a year.
In comparison, the contributions of the oil-price shock to the variance of oil prices are 100 percent at impact and about 97 percent after a year.
Finally, Semboja (1994) studies the effects of oil price changes for Kenya, which is a net importer of oil. For this purpose, he calibrates a static computable general equilibrium model to obtain the impact responses, rather than estimating a VAR process to generate the dynamic responses. The impact responses suggest that an increase in oil prices lead to an increase of the trade balance, a decrease of output and of the price index, and a deterioration of the terms of trade.
More recently, international financial institutions and development banks have produced estimates of the impact of high oil prices on the world and regional economies. IMF estimates indicate that highly-indebted oil-intensive and fragile sub-Saharan African countries would suffer the most from higher oil prices. According to its estimates, they would lose more than 3 percent of their GDP following a $5 increase in the price of crude oil (International Energy Agency, 2004).* The World Bank, using the MULTIMOD model, estimates that a $10 increase in the price of oil, from a baseline of $23/bbl, would mean that net-oil importing countries with per capita income below US$ 300 for 1999-2001 would lose 1.47 percent of their GDP. Some of the lowest income countries would be even worse off losing 4 percent of their GDP (ESMAP, 2005 and UNDP/ESMAP, 2005). Were oil prices to increase by US$20 then the effect on GDP would be doubled.
These estimates are however subject to a number of limitations. The World Bank estimate is based on the ratio of the net oil and oil products imports to GDP assuming there is a zero price elasticity of demand for oil and oil products. Under this assumption, following a rise in the oil price, GDP changes by as much as the change in the value of net imports. This linear relation is simple but, as recognized by the authors themselves, is limited (UNDP/ESMAP, 2005). First, it assumes no microeconomic adjustments to the oil shocks, and that the response is entirely by a reduction in oil absorption. Second, economies gradually adjust to large changes and this can offset some of the severity of the initial oil shock.
A few papers have explored the distributional impact of an increase in the price of oil. Nicholson et al. (2003) find that a 100 percent increase of oil prices lead to 2 percent increase of the average household’s expenditure in Mozambique. Coady and Newhouse (2005) using data from Ghana
The countries which fall into this group is not given. report that a 20 percent increase in average oil prices leads to 3.4 percent fall in average real income. In Mali, Kpodar (2006) calculates that a 34 percent rise in the prices of all oil products lead reduces real income of the poorest by to 0.9 percent and the income of richest households by 1 percent.
The impact of a doubling in the world price of oil on main macroeconomic variables both in the case of a median oil-importing economy and a median oil-exporting economy. The variables of interest are output, consumption, inflation, the real exchange rate, the government budget deficit, and foreign debt. The simulations are performed both under a fixed exchange rate regime and a managed float. For each case, two different scenarios are considered: complete and zero pass-through. In all simulations, the oil-price shock is assumed to be persistent, with a first-order autocorrelation coefficient of 0.85, as estimated from the data. This assumption is consistent with the view that the expected durability of the high oil demand from East Asia (especially China) is sustaining the market expectations that oil prices will remain high
Median Oil-Importing Economy
This economy is calibrated such that oil imports represent roughly 13% of total imports and 5% of total GDP in the steady state. Simulation results for this case are shown in Tables 1 and 2. The main conclusions are the following:
• Under fixed exchange rates and complete pass-through, a doubling in the world price of oil leads to a decline in output and consumption, a slight increase in inflation, a small appreciation of the real exchange rate, and moderate changes in public and foreign borrowing. The output loss is about 6 percent during the first year, while the cumulative loss is around 23.5 percent during the five years following the shock. For consumption, the corresponding numbers are 4.5 and 19 percent, approximately.
The drop in output and consumption is attributed to a combination of two effects of high oil prices: a direct income effect, through the resource constraint, and a direct effect on production, through higher costs of inputs. The former decreases consumption and increases labor supply. The latter decreases demand for non-oil inputs and, by extension, demand for labor and capital. The net effect on hours worked is ambiguous, but labor income and investment unambiguously fall (due to lower marginal productivity of labor and capital). The resulting reduction in households’ disposable income further decreases consumption and output.

Effects of a 100% increase in the price of oil
(Net-Oil Importing Country, Fixed Exchange Rate Regime)
Impact effect Cumulative effect
(1 year) (5 years)
Complete pass-through -6% -24%
Zero pass-through -1% -5%
Complete pass-through -5% -19%
Zero pass-through -6% -25%
Complete pass-through -11% -39%
Zero pass-through -7% -25%
Complete pass-through 2% 1%
Zero pass-through -4% -4%
Real exchange rate
Complete pass-through -2% -7%
Zero pass-through 4% 22%
Budget deficit
Complete pass-through 4% 7%
Zero pass-through 31% 45%
Foreign debt
Complete pass-through -1% 2%
Zero pass-through 9% 11%
Note: Budget deficit in percentage of steady-state output.

The increase in inflation is due to the fact that the domestic price of oil enters the aggregate price index, and since there is complete pass-through, oil-price inflation contributes to core inflation. The higher inflation explains the appreciation of the real exchange rate (since the nominal exchange rate is fixed).
• Under zero pass-through, the increase in the price of oil still leads to a decline in output and consumption, but the magnitude of the effects differs significantly compared with the complete pass-through case. The decline in output during the first year is less than 1 percent and the cumulative loss during the five years following the shock is roughly 5 percent. Hence, by practicing LCP, the government shields the production sector of the economy, which minimizes the output loss. The cost of this intervention, however, is a dramatic deterioration of the budget deficit (31 percent during the first year and 45 percent after five years), and most importantly, a large decline in consumption, which drops by more than 6 percent during the first year and 25 percent after five years.
• Under zero pass-through, there is a decrease in inflation, which translates into a real exchange rate depreciation of roughly 4.3 percent in the first year and 22 percent after five years.

Effects of a 100% increase in the price of oil
(Net-Oil Importing Country, Managed Floating)
Impact effect Cumulative effect
(1 year) (5 years)
Complete pass-through -6% -23%
Zero pass-through 2% -1%
Complete pass-through -4% -18%
Zero pass-through -5% -25%
Complete pass-through -10% -38%
Zero pass-through -1% -21%
Complete pass-through 5% 4%
Zero pass-through 4% 5%
Real exchange rate
Complete pass-through -1% -5%
Zero pass-through 9% 30%
Budget deficit
Complete pass-through 0% -1%
Zero pass-through 6% 20%
Foreign debt
Complete pass-through 1% 2%
Zero pass-through 16% 12%

Note: Budget deficit in percentage of steady-state output.

Under managed floating, the nominal exchange rate is, to a certain extent, free to adjust, thereby acting as a shock absorber. In principle, therefore, the adverse effects of high oil prices should be less severe compared to the case with fixed exchange rates. A comparison of Tables 1 and 2 confirms this intuition. Under complete pass-through, however, there are only minor differences in the response of output, consumption, inflation, and, to a lesser extent, foreign debt across the two regimes.** The gain from letting the nominal exchange rate float is much more apparent under zero pass-through. For example, output initially increases by almost 2 percent (as opposed to a decline of 1 percent) following the rise in the price of oil, and the cumulative loss after five years is barely over 1 percent (as opposed to a loss of 5 percent). This smaller output loss is due to the larger depreciation of the real exchange rate relative to the case with pegged nominal exchange rates. 4.2 Median Oil-Exporting Economy This economy is calibrated such that oil exports represent roughly 88% of total exports and 35% of total GDP in the steady state.

Effects of a 100% increase in the price of oil (Net-Oil Exporting Country, Fixed Exchange Rate Regime)

Impact effect Cumulative effect
(1 year) (5 years)
Complete pass-through 9% 53%
Zero pass-through 10% 56%
Complete pass-through 42% 152%
Zero pass-through 41% 149%
Complete pass-through 16% 62%
Zero pass-through 16% 62%
Complete pass-through 9% 15%
Zero pass-through 6% 14%
Real exchange rate
Complete pass-through -9% -71%
Zero pass-through -7% -63%
Budget deficit
Complete pass-through -114% -147%
Zero pass-through -108% -139%
Foreign debt
Complete pass-through -33% -47%
Zero pass-through -30% -45%
Note: Budget deficit in percentage of steady-state output.

Under fixed exchange rates and complete pass-through, a doubling in the world price of oil leads to a 9 percent increase in output, a 42 percent increase in consumption, a 9 percent increase in inflation, a 9 percent real appreciation, a 114 percent reduction in the budget deficit, and a 33 percent reduction in foreign debt during the first year. The magnitudes of the cumulative effects after five years indicate that the adjustment of output, the real exchange rate, and foreign debt is non monotonic. For example, the model predicts that the response of output to the 100 percent increase in the price of oil is hump-shaped, attaining its peak of 16 percent during the third year after the shock.
• The increase in the price of oil generates a positive income effect, via the resource constraint, which increases consumption. This rise in consumption translates into higher demand for the final good, which more than offsets the negative effect of the higher price of oil. As a result, the demand for oil and non-oil inputs increases (due to their complementarily), thereby raising the demand for labor and capital. The resulting increase in labor demand and investment further boosts the demand for the final good and, therefore, output.
Under zero pass-through, there is a slightly larger increase in output, a lower inflation, and a smaller appreciation of the real exchange rate compared to the case with complete passthrough. This “gain”, however, comes at the expense of a (marginally) smaller increase in consumption and a smaller improvement in the budget deficit.
Under managed floating, the output and consumption gains induced by the increase in the price of oil are smaller than under fixed exchange rates. This result is mainly due to the larger appreciation of the real exchange rate under the former regime. The smaller increase in consumption implies that the budget deficit narrows less than under fixed exchange rates.
• Under managed floating, the effects of an increase in the price of oil under complete and zero pass-through are strikingly similar.
The above analysis suggests that LCP can cushion the economy from the adverse effects of oil price shocks in oil-importing countries. This policy, however, amplifies the consumption loss and aggravates the government’s budget deficit. Hence, the answer to the question of whether a government should intervene or not depends on its implicit objective function. To the extent that the government is concerned with stabilizing output, choosing LCP proves to be the optimal policy. Alternatively, if the government is a benevolent social planner, then laisser-faire is likely to be the welfare-maximizing policy. For oil-exporting countries, government intervention does not seem to affect in a substantive way the outcome of the economy, especially in the case of a managed floating. This observation implies that both intervention and laisser-faire could be acceptable policy choices in those countries.
Can foreign aid help African oil-importing countries cope with high oil prices? Are the required amounts prohibitive? Table 5 shows the permanent level of overseas development assistance (in percentage of steady-state output) that is required to completely offset the initial output loss associated with a persistent 100 percent increase in the price of oil. The table shows that the largest amount of foreign aid needed is less than 2 percent of steady-state output. This amount is clearly non-prohibitive (foreign aid in a number of African countries represents more than 5 percent of GDP), implying that there is scope for international-community actions to help debt burdened African economies mitigate the adverse effects of high oil prices

ODA to offset Output Loss in the First Year
(% of Steady-State Output)

Fixed exchange rate regime Managed Floating
Complete pass-through 1.60% 1.98%
Zero pass-through 0.23%
Note: ODA: Overseas Development Assistance.
High oil prices can have very harmful effects on African oil-importing countries, especially those with a high debt-burden and those which have limited access to international capital markets.

They lead to a decrease in output and consumption, and to a worsening of the net foreign asset position. For the median oil-importing country, the five-year cumulative output loss resulting from a doubling in the price of oil can be as large as 23 percent under a fixed exchange rate regime. This recessionary effect, however, can be substantially mitigated through LCP or through foreign aid. In this regard, the model can be used to determine the optimal degree of intervention by the government given its objective function.
For the median oil-exporting country, the five-year cumulative increase in output associated with a doubling in the price of oil exceeds 70 percent, regardless of the exchange rate regime under which the country operates. This manna, however, is accompanied by a sharp appreciation of the real exchange rate, which may hinder the competitiveness of the country. It is therefore important that oil-export revenues be spent in a way that favors future growth, and not in wasteful or badly planned projects.
It should be emphasized, however, that while the analysis above focuses on “median” countries, there is a great deal of heterogeneity within the groups of oil-importing countries and oil exporting countries. This means that the effects of oil-price shocks can differ dramatically from one country to the other. As stated above, however, the proposed model can be configured to represent any of these countries.
An important question that the model does not address is the effect of high oil prices on poverty, which is a crucial dimension of the African context. The model could be extended to capture this feature by allowing for heterogeneity across households and by assuming that some of them have liquidity constraints. The model can also be extended to include other types of shocks, such as productivity shocks, monetary-policy shocks, and world-interest-rate shocks. This would allow the model to answer a broader set of questions of relevance to policy makers.

Climate change threatens unprecedented human development reversals

With governments preparing to gather in Bali, Indonesia to discuss the future of the Kyoto Protocol, the United Nations Development Programmer’s Human Development Report has warned that the world should focus on the development impact of climate change that could bring unprecedented reversals in poverty reduction, nutrition, health and education.
The report, Fighting climate change: Human solidarity in a divided world, provides a stark account of the threat posed by global wanning. It argues that the world is drifting towards a "tipping point" that could lock the world's poorest countries and their poorest citizens in a downward spiral, leaving hundreds of millions facing malnutrition, water scarcity, ecological threats, and a loss of livelihoods.
"Ultimately, climate change is a threat to humanity as a whole. But it is the poor, a constituency with no responsibility for the ecological debt we are running up, who face the immediate and most severe human costs," commented UNDP Administrator Kemal Dervi.
The report comes at a key moment in negotiations to forge a multilateral agreement for the period after 2012-the expiry date for the current commitment period of the Kyoto Protocol. It calls for a "twin track" approach that combines stringent mitigation to limit 21 st Century warming to less than 2°C (3.6°F), with strengthened international cooperation on adaptation.
On mitigation, the authors call on developed countries to demonstrate leadership by cutting greenhouse gas emissions by at least 80% of 1990 levels by 2050. The report advocates a mix of carbon taxation, more stringent cap-and-trade programmes, energy regulation, and international cooperation on financing for low-carbon technology transfer.
Turning to adaptation, the report warns that inequalities in ability to cope with climate change are emerging as an increasingly powerful driver of wider inequalities between and within countries. It calls on rich countries to put climate change adaptation at the centre of international partnerships on poverty reduction.
"We are issuing a call to action, not providing a counsel of despair," commented lead author Kevin Watkins, adding, "Working together with resolve, we can win the baale against climate change. Allowing the window of opportunity to close would represent a moral and political failure without precedent

in human history." He described the Bali talks as a unique opportunity to put the interests of the world's poor at the heart of climate change negotiations.
The report provides evidence of the mechanisms through with the ecological impacts of climate change will be transmitted to the poor. Focusing on the 2.6 billion people surviving on less than US$2 a day, the authors warn forces unleashed by global wanning could stall and then reverse progress built up over generations. Among the threats to human development identified by Fighting climate change:
· The breakdown of agricultural systems as a result of increased exposure to drought, rising temperatures, and more erratic rainfall, leaving up to 600 million more people facing malnutrition. Seull-arid areas of sub-Saharan Africa with some of the highest concentrations of poverty in the world face the danger of potential productivity losses of 26% by 2060.
· An additional 1.8 billion people facing water stress by 2080, with large areas of South Asia and northern China facing a grave ecological crisis as a result of glacial retreat and changed rainfall patterns.
· Displacement through flooding and tropical storn1 activity of up to 332 million people in coastal and low-lying areas. Over 70 million Bangladeshis, 22 million Vietnamese, and six million Egyptians could be affected by global warning-related flooding.
• Emerging health risks, with an additional population of up to 400 million people facing the risk of malaria.
Setting out the evidence from a new research exercise, the authors of the Human Development Report argue that the potential human costs of climate change have been understated. They point out that climate shocks such as droughts, floods and stonns, which will become more frequent and intense with climate change, are already among the most powerful drivers of poverty and inequality-and global warming will strengthen the impacts.
"For millions of people, these are events that offer a one-way ticket to poverty and long-run cycles of disadvantage," says the report. Apart from threatening lives and inflicting suffering, they wipe out assets, lead to malnutrition, and result in children being withdrawn from school. In Ethiopia, the report finds that children exposed to a drought in early childhood are 36% more likely to be malnourished-a figure that translates into 2 million additional cases of child malnutrition.
\Vhile the report focuses on the inm1ediate threats to the world's poor, it warns that failure to tackle climate change could leave future generations facing ecological catastrophe. It highlights the possible collapse of the West Antarctic ice sheets, the retreat of glaciers, and the stress on marine ecosystems as systemic threats to humanity.
"Of course there are uncertainties, but faced with risks of this order of magnitude uncertainty is not a case for inaction. Ambitious mitigation is in fact the insurance we have to buy against potentially very large risks. Fighting climate change is about our commitment to human development today and about creating a world that will provide ecological security for our children and their grandchildren," Mr. Dervig said.
Ayoiding dangerous climate change
TI1e authors of the Human Development Report call on governments to set a collective target for avoiding dangerous climate change. 111ey advocate a threshold of2°C (3.6°F) above pre-industrial levels (the current level is 0.7°C, 1.3°F).
Drawing on a new climate model, the report suggests a '21 st Century carbon budget' for staying within this threshold. The budget quantifies the total level of greenhouse gas emissions consistent with this goal. In an exercise that captures the s2ale of the challenge ahead, the report estimates that business-as-usual could result on current trends in the entire carbon budget for the 21 st Century being exhausted by 2032. The authors warn that on current trends the world is more likely to breach a 4°C threshold than stay within 2°C (3.6°F).
The Human Development Report addresses some of the critical issues facing negotiators in Bali. V,11ile acknowledging the threat posed by rising ~'missions from major developing countries, the authors argue that northern
governments have to initiate the deepest and earliest cuts. They point out that rich countries carry overwhelming historic responsibility for the problem, have far deeper carbon footprints, and have the financial and technological capabilities to act.
"If people in the developing world had generated per capita CO2 emissions at the same level as people in North America, we would need the atmosphere of nine planets to deal with the consequences," commented Mr. Watkins.
Using an illustrative framework for an emissions pathway consistent with avoiding dangerous climate change, the Human Development Report suggests that:
• Developed countries should cut greenhouse gas emissions by at least 80% to 2050 and 30% by 2020 from 1990 levels.
· Developing countries should cut emissions by 20 percent to 2050 from 1990 levels. However, these cuts would occur from 2020 and they would be supported through international cooperation of finance and low carbon technology transfer.
Measured against this benchmark, the authors find that many of the targets set by developed country governments fall short of what is required. It notes also that most developed countries have failed to achieve even the modest reductions-averaging around 5 % from 1990 levels-agreed under the Kyoto Protocol. Even where ambitious targets have been set, the report argues, few developed countries have aligned stated climate security goals with concrete energy policies.
Scenarios for future emissions reinforce the scale of the challenge ahead. On current trends, CO2 emissions are projected to increase by 50% to 2030-an outcome that would make dangerous climate change inevitable. "The bottom line is that the global energy system is out of alignment with the ecological systems that sustain our planet," cOlmnented Mr. Watkins, adding: "realignment will take a fundamental shift in regulation, market incentives, and international cooperation."
Fighting climate change identifies a range of policies needed to close the gap between climate security statements and energy policies for avoiding dangerous climate change. Among the most important:
· Pricing carbon. The report argues that both carbon taxation and cap-and-trade schemes have a role to play. Gradually rising carbon taxes would be a powerful tool to change incentive structures facing investors. It also stresses that carbon taxes need not imply an overall greater tax burden because they could be compensated by tax reductions on labour Income.
· Stronger regulatolJI standards. The report calls on governments to adopt and enforce tougher standards on vehicle emissions, buildings and electrical appliances.
Supporting the development of low carbon energy provision. The report highlights the unexploited potential for an increase in the share of renewable energy used, and for breakthrough technologies such as carbon capture and storage (CCS).
· International cooperation on finance and technology transfer. The authors note that developing countries will not participate in
an agreement that provides no incentives
for entry, and which threatens to raise the costs of energy. The report argues for the creation of a Climate Change Mitigation Facility (CCMF) to provide $25-50 billion annually in financing the incremental low-carbon energy investments in developing countries consistent with achieving shared climate change goals.
Drawing on economic modeling work, the Human Development Report argues that the cost of stabilizing greenhouse gases at 450 parts per million (ppm) could be limited to an average to 1.6% of world GDP to 2030. "While these are real costs, the costs of inaction will be far greater, whether measured in economic, social or human terms," warned Mr. Dervi;;. The report points out that the cost of avoiding dangerous climate change represents less than two-thirds of current world military spending.
Adaptation efforts overlooked
While stressing the central medium-term role of mitigation, Fighting climate change warms against neglecting the adaptation challenge. It points out that, even with stringent mitigation, the world is now committed to continued warming for the first half of the 21st Century. The report warms that adaptation is needed to prevent climate change leading to major setbacks in human development-and to guard against the very real danger of insufficient mitigation.
The report draws attention to extreme inequalities in adaptation capacity. Rich countries are investing heavily in climate-change defense systems, with governments playing a leading role. By contrast, in developing countries "people are being left to sink or swim with their own resources," writes Desmond Tutu, Archbishop Emeritus of Cape Town, in the report, creating a "world of 'adaptation apartheid'."
" To body wants to understate the very real long-term ecological challenges that climate change will bring to rich countries," Mr. Watkins commented. "But the near tenn vulnerabilities are not concentrated in lower Manhattan and London, but in flood prone areas of Bangladesh and drought prone parts of sub-Saharan Africa."
The Human Development Report shows that international cooperation on adaptation has been slow to materialize. According to the report, total current spending through multilateral mechanisms on adaptation has amounted to $26 million to date-roughly one week's worth of spending on UK flood defenses. Current mechanisms are delivering small amounts of finance y,:ith high transaction costs, the authors say.
The report argues for reforms including:
· Additional financing for climate proofing infrastructure and building resilience, with northern governments allocating at least $86 billion annually by 2015 (around 0.2% of their projected GDP).
· Increased international support for the development of sub-Saharan Africa's capacity to monitor climate and improve public access to meteorology cal infom1ation.
· The integration of adaptation planning into wider strategies for reducing poverty and extreme inequalities, including poverty reduction strategy papers (PRSPs).
Fighting climate change concludes that "one of the hardest lessons taught by climate change is that the historically carbon intensive growth, and the profligate consumption in rich nations that has accompanied it, is ecologically unsustainable." But the authors argue, "with the right reforms, it is not too late to cut greenhouse gas emissions to sustainable levels without sacrificing economic growth: rising prosperity and climate security are not conflicting objectives."

Maintaining growth in testing times: consider impact of economic trends on development

Twelfth United Nations Conference on Trade and Development to take place in Accra, Ghana, 20-25 April
Heads of state, ministers, economists to discuss better translation of globalization gains into poverty reduction; nurturing and expanding South-South trade; commodities boom; regional integration; foreign investment for development, debt management; technology; growing impact of creative economy; importance of small firms and entrepreneurship for development.
Geneva, 29 February 2008 - The danger that financial turmoil and an economic slowdown in industrialized countries will derail promising economic growth in the developing world is likely to be at the heart of debate when senior government officials, economists, and development experts gather in Accra, Ghana, in April for the twelfth United Nations Conference on Trade and Development.
UNCTAD XII, to be held 20-25 April, has as its principal theme "addressing the opportunities and challenges of globalization for development." Some
4,000 representatives of UNCTAD's 193 member States − including several Heads of State − and participants from other international bodies, non-governmental organizations, business, and academia are expected.
At the conference, member governments will negotiate and adopt a text assessing the international climate for economic development and defining UNCTAD's work programme for the next four years. Member countries began the process of preparing the UNCTAD XII text in November, and further intense negotiations are expected in Accra. UNCTAD's quadrennial ministerial meetingsi started when the organization was created in 1964. "UNCTAD's mandate is more important than ever in today's context of deepening interdependence," says Supachai Panitchpakdi, UNCTAD Secretary-General.
The conference comes as global uncertainties threaten the most promising economic growth in the developing world in 30 years. During the past half decade, developing countries have averaged economic growth of 5% or more, and the international landscape has tilted with the emergence of economic heavyweights outside the industrialized west, including China, India, and Brazil. The world economic outlook hinges strongly on whether these nations and the developing countries they increasingly trade with have enough momentum to become less vulnerable to downturns in North America and Western Europe.
A related problem to be scrutinized in Accra is the seeming paradox that despite high growth in Asia, Latin America, and Africa, only limited reductions in poverty have been achieved, especially in the world's 49 least developed countries (LDCs). Globalization that does not bring broadly higher living standards − especially during a halcyon period of economic growth has governments and international economists concerned about what will be necessary to tackle the deep poverty in which hundreds of millions continue to live. It also raises questions about the world’s ability to achieve the United Nations Millennium Development Goals, which include halving extreme poverty by 2015.
The conference's high-level discussion on 21 April will accordingly be devoted to Africa ("Trade and development for Africa's prosperity: action and direction"), where most LDCs are located. The session will be chaired by United Nations Secretary-General Ban Ki-moon and moderated by UNCTAD Secretary-General Supachai Panitchpakdi, and will reflect the importance attached to ensuring that African countries benefit more from globalization. Key concerns include an inability among many African nations to create enough jobs, particularly well-paid and productive ones, and a continuing dependency on agriculture and extractive industries.
As recent events in financial markets have shown, countries and economies are more and more interlinked, underlining the need for the kind of global dialogue and debate to be fostered by the conference. Participants will seek to identify policies and strategies that enhance the benefits, and reduce the risks, of globalization for developing countries, all the more necessary given the current economic situation. To this end, in addition to the high-level session, main debate and negotiations, a number of other events will focus on timely themes and trends. These include a series of ministerial roundtables.
The commodities boom and its development importance, for example, will be reviewed at a roundtable on 23 April titled "The changing face of commodities in the 21st Century." Experts will discuss whether burgeoning demand from China and other emerging economies can be expected to keep prices for oil, gas, minerals, metals, and basic agricultural produce at high levels. And they will debate whether income from commodity exports is potentially enough to spur broad development and poverty reduction in the world's poorer nations. UNCTAD's price index for non-fuel commodities recently reached its highest level (in current dollars) since 1960, and commodity dependence in Africa and elsewhere remains intensive: Some 85 developing countries rely on commodities for more than half their export earnings, and for 70 of them, more than half of their exports consist of three or fewer commodities.
The dynamic South
The significance of rapidly expanding South-South trade will be discussed at a 23 April roundtable titled "Emergence of a new South and South-South trade as a vehicle for regional and interregional integration for development." South-South merchandise trade jumped from US$577 billion in 1995 to over $2 trillion in 2006. By 2006, such commercial exchanges between developing countries accounted for 17% of world trade and 46% of developing countries' total merchandise trade.
The type of trade also is significant: manufacturing represented almost half of South-South flows, while for the commodity sector, including fuels, interregional trade among countries of the South has expanded, and developing countries, especially in Asia, have become a vital export market for Africa. Participants in the roundtable are likely to debate whether South-South trade is now so strong and self-reinforcing that it could help sustain global growth in the face of a slowdown in developed countries.
In tandem with trade, South-South foreign direct investment (FDI) has been rising, and transnational corporations (TNCs) based in developing countries have achieved heretofore unseen scale and influence, including through the acquisition of the divisions of well-established global brands. Whether and how FDI from these new sources and from traditional western TNCs can actually lead to broad-based poverty reduction will be discussed at a 22 April roundtable, "Creating an institutional environment conducive to increased foreign investment and sustainable development."
Bringing more countries on board
How poor nations can accomplish greater, more broad-based economic growth is also the topic of a 24 April roundtable on "Harnessing knowledge and technology for development." The debate, based on UNCTAD's Least Developed Countries Report 2007, will centre on the idea that developing countries not only need to import and master up-to-date technology but also to develop it themselves and use it to create innovative products that can be manufactured efficiently and sold around the world. Meeting participants are likely to discuss the significant "spillover" benefits that can result from cross-border flows of knowledge and to review the potential costs of recent trends in which knowledge is increasingly privatized and commercialized.
A roundtable on "Globalization, development and poverty reduction: their social and gender dimensions" (22 April) will consider how increased trade and economic growth affect such matters as income equality and women's roles in society and in national economies. Wide gaps in income have persisted between and within countries even as developing country exports have accelerated in recent years. Participants in the roundtable can be expected to discuss how globalization's benefits can be spread more evenly.
The risk of new debt crises will be weighed at a roundtable on "Debt management solutions supporting trade and development" (24 April). Although external debt in the developing world has declined modestly in recent years − driven in part by climbing trade and commodity prices and international debt-relief programmes − numerous countries still have substantial debt burdens and may be vulnerable to shifts in the global economic picture.
A roundtable on "Developing productive capacities in least developed countries" (24 April) will focus on the continuing difficulties of LDCs in shifting their economies away from dependence on exports of primary commodities − such as crude oil, and metal ores − and simple manufactures to more sophisticated and varied products that promise the creation of greater numbers of jobs at higher rates of pay. Economies based on higher "value added" also are historically less vulnerable to shocks and downturns.

India and Africa: Towards an Ending Partnership

In the recent years Africa has become the centre of word’s attention. This began with the former British Prime Minister’s defining speech on the “state of Africa being a scar on the conscience of the world” and his attempt to erase the scar through the lofty promises of high powered Blair commission towards debt relief and increase in aid for Africa. President Bush also discovered that Africa has entered the strategic space as far as the United States was concerned. The establishment of the US military’s Africa Command (AFRICOM) is an indication of the merging importance of Africa from Washington’s perspective. The Chinese have been engaging African countries in a big way, the November 2006 Sino-Africa summit that brought together 47 African presidents to Beijing indicated that Chinese were very serious about doing business with the continent In February 2007 the Chinese President Hu Jintao wrapped up a tour of eight countries in Africa promising enormous aid packages. This Chinese interest in Africa is reflected in the phenomenal growth of trade with Africa from &6.5 billion in 1999 to $40 billion in 2005.
This renewed interest towards the African continent, that has been in past been viewed through the prism of conflict, poverty, disease and corruption is due to a combination of factors. First, on the political front there has been an end in sight of some of the debilitating conflicts that have ravaged the continent. The conflict in Democratic Republic of Congo often referred as Africa’s world war, has abated considerably with new government in place after UN supervised elections. Similarly Rwanda, Sierra Leone, Liberia and Ivory Coast have moved out of the conflict zone. In Sudan after years of negotiations the comprehensive Peace Agreement (CPA) was signed between southern rebels and the Sudanese government in 2005. Currently a government of national Unity (GUN) is in place. At the same there is a move towards Africans taking charge of their own destiny. This is reflected in the African Union’s steps towards conflict resolution. The continent is also embracing the value of democracy and good governance. Around two thirds of the African states have conducted multi-party elections in the recent years. Similarly 24 countries have taken their promises of good governance seriously and signed up for the African Peer Review Mechanism (APRM) that is an offshoot of the new partnership for Africa’s Development (NEPAD) initiative launched by the African countries in 2001.
Second, economically there is a transformation underway in the continent. Around 20 countries have averaged a growth rate over five per cent during that past decade. According to the latest IMF World Economic Outlook the average growth rates for Sub Saharan Africa are poised to accelerate to 6.1 percent in 2007. While the rising crude oil and other non-fuel commodity prices may explain the high growth rates of some of the economies, the implementation of radical structural adjustment programmes mandated by the IMF may be the real factor for the steady performers.
India-Africa Ties
In this backdrop what is happening on the India Africa front? India’s ties with Africa were rejuvenated with the recent high level visits to Africa. External Affairs Minister Pranab Mukherijee visited Ethiopia in August 2007 followed by the visit by leader to the burgeoning trade between the two regions. India’s bilateral (non-oil) trade with Africa has grown from &967 million almost 10 fold in 1990-91 to 9.14 billion in 2004-05. Exports during this period have increased form a mere $394 million to $5.4 billion, while imports have risen from $573 million to 3.8 billion. What is important to note is that Africa’s share in India’s total exports has trebled from 2.2 percent to 6.8 percent while continent’s share of our total imports has also gone up form 2.4 percent to 3.5 percent yielding a substantial balance of trade surplus in the process. Equally encouraging is the sharp acceleration in India’s exports in the last few years, growing by 23.2 percent in 2003-04 and by as much as 39.1 percent in 2004-05. These positive trends continued during the first quarter of 2005-06, with India’s exports to Africa rising by as much as 63 per cent and imports by 35.5 per cent. More importantly, during 2005-06, India’s exports to Africa grew at a faster pace than that to other regions of the world. South Africa and Nigeria are our largest trading partners in Africa, followed by Egypt, Kenya, Sudan, Togo, Mauritius, Algeria, Ghana and Tanzania.
The expanding Chinese presence in Africa has led to speculation in some quarters that India has lost the race in Africa. In fact there is a growing discourse on the ‘competition between India and China’ in Africa, a scramble primarily for Frican resources. However, this attempt to relate India’s relations with Africa through Chinese prism is somewhat problematic.
India and Africa have a relationship that can be traced back to the ancient times. The contact and trade between the people of the eastern seaboard of Africa of the western seaboard of the India has been going on for centuries. During the colonial period, colonial India was allotted the role of supplying middle level services such as ‘duka’ trading and junior level technical, clerical and administrative services apart from providing indentured labour. The arrival of Mohan Das Karamchand Gndhi in South Africa in 1893 and his subsequent launching of innovative instruments of liberation struggle like “Satyagraha” placed India-Africa linkages into an a binding bond of special relationship. Right form the sixties the effort has been to assist African countries in their development through capacity building. In the post independence period there have been two main strands of India’s policy towards Africa. First was that of showing solidarity with the anti apartheid struggle in Africa. Successive Indian governments form the days of Jawaharlal Nehru have consistently championed the cause of Africa’s liberation in various international for a a like the United Nations, the commonwealth and the Non-Aligned Movement. Apart from diplomatic support, India also provided financial and material aid to the liberation struggles in Africa. Though not directly but through multilateral institutions like the OAU, UN fund for Namibia, UN Educational and Training programme for South Africa and finally through the Action for Resisting Invasion, Colonialism & Apartheid (AFRICA Fund). AFRICA Fund was established by NAM under Prime Minister Rajiv Gandhi’s leadership in 1986 to assist the frontline states and liberation movements in South Africa and Namibia. Second and more important was to forge technological cooperation with the Africans. The foundation of this policy was laid with the launching of Indian Technical and Economic Cooperation programme (ITEC programme) in 1964. The South-South cooperation encouraged by this programme was based on the philosophy that India could provide the intermediate technology “the missing middle” to the African and other developing countries. India has the advantage to providing technology that was affordable, adaptable and easily accessible to the African countries.
In the post cold war era with the end of apartheid in South Africa, one of the major rationales of solidarity no longer exists. The shared ideologies of Non Alignment and disarmament through still advocated are no longer the rallying points of interaction. In the current era India’s ties with the African countries appear to be composed of following mantras:
Promoting techno – economic partnership
Preserving Peace
Promoting Techno-Economic partnership
One of the important pillars of India’s techno economic partnership with Africa is capacity building. India recognizes Africa’s focus on human resources development on overcome the gap for development in indigenous capacities. Africa today is the largest recipient of India’s technical cooperation programmes and we have so far extended more than US$ 1 billion worth of such assistance including training, deputation of experts and implementation of projects in African countries. Over 1,000 officials form Sub Saharan Africa receive training, deputation of experts and implementation of projects in African countries. Over 100 officials form Sub Saharan Africa receive training annually in India under the ITEC programme. Annually over 15,000 African students study in India and Indian engineers, doctors, accountants and teachers are present all across Africa. India is also the member of the African Capacity Building foundation (ACBF). In 2005, India became the first Asian country to become the full member of the ACBF with a contribution of US $1 million for building capacity for sustainable development and poverty elevation in Africa. India has also offered capacity building support to the African Union and to regional communities with several of whom we have MOUs for cooperation. India has allocated 10 slots in the year 2006-07 of the ITEC programme to the AU personnel.
Apart from offers of transfer of technology and management skills, India also provides confessional credit to the African countries. Many India initiatives to enhance economic cooperation have been through the extension of lines of credit at bilateral, regional and Pan-African level.
AT present, nearly $2 billion in Indian lines of credit is operating in Africa either through bilateral, regional or Pan African institutions. In 2006, EXIM bank, which is the main functionary for Indian lines of credit in Africa, has extended 46 lines of credit to various countries and institutions in Africa.
At the Pan African level India is a member of the African Development Bank and the Afri-EXIM bank through whish an Indian Trust fund, and an Indian line of Credit, respectively operates to achieve developmental goals in Africa. At the regional level, India has lines of credit available with the East Africa Development Bank, the PTA Bank for the COMESA region, West African Development Bank (BOAD) and most recently a line of credit of $250million to the Economic Community of West African States (ECOWAS) Development Bank in West African region. Further India launched the Techno-Economic Approach for Africa India Movement (TEAM 9) between India and eight West African countries in 2003. This initiative was launched primarily to cover the gap that India has traditionally have with certain West African countries. Under this initiative US$ 500 million was committed for project partnership with countries in Central and West Africa. At the bilateral level lines of credit have been extended to Kenya, Tanzania, Mozambique, Zambia, Namibia, Ethiopia and others. These lines of credit have focused on project partnership and have let to the development of entrepreneurship and employment opportunities in several African countries. These have included projects in telecommunications, railways, transport, power, food processing, pharmaceuticals and related sectors.
Information and communication technology (ICT) is another area of Indian partnership with Africa. Software production is the new mantra of Indian excellence. Only half million Africans have access to the net, and therefore there is a pressing need to narrow the “digital divide”. The Economic Commission of Africa (ECA) has launched an initiative to accelerate the adoption of information systems in Africa. There is limited pool of expertise in this area in Africa. India has provided assistance to countries like Mauritius and South Africa to develop their software hubs.
The Pan-Africa e network costing about $100 million is a project that adds anew dimension to the partnership between India and Africa. The initiative for setting up this initiative was announced by then president A P J Abdul Kalam during as address to the Pan African parliament in South Africa in September 2004. This project aims to provide prototypes for tele-education and tele-medicine in all 53 members of African Union. It would also set up a network providing video conferencing facilities for the 53 heads of states/governments. The AU has designated Senegal to be the satellite hub for the entire project.
Energy cooperation is a prominent area of partnership between India and Africa. In words of former President Kalam: “Energy independence has to be our nations’ first and highest priority.” At preset India is the sixth largest energy consumer in the world and is projected to emerge as the fourth largest consumer after the United States, China and Japan, by 2010. its economy is projected to grow 7%-8% over the next two decades, and in its wake will be a substantial increase in demand for oil. For more than a decade, India’s energy consumption has grown at a faster pace than its economy and it appears this trend will continue. Moreover even if India reduces the use of oil in the transport sector shows no sign of abating. Due to stagnating domestic crude production, India imports approximately 70% of its oil. Its dependence is growing rapidly. The world Energy Outlook, published by the International Energy Agency (IEA), projects that India’s dependence on oil imports will grow to 91.6% by the year 2020. India’s growing energy imports. Recently Oil Natural Gas Commission (ONGC) has identified 22 countries across the world to pursue exploration, production, pipeline transpiration and refining hydrocarbons.
India has recognized the energy potential of the African countries and has therefore worked towards cooperation in this vital area. Around 24% of India’s crude oil imports are sourced form Africa (including the North African countries). The Oil and Natural Gas Corporation Videsh Limited (OVL) has invested in assets in Sudan, Ivory Coast, Libya, Egypt, and Nigeria, Nigeria-Sao tome Principle Joint Development Area and Gabon. The OVL invested $750 million to acquire the 25 percent partnership in the Greater Nile Petroleum Company (GNOP) in Sudan in March 2003. As of now, India gets 3.23 million tones of equity oil in Sudan. India has recently completed a 200 million dollar pipeline project to lay a pipeline from Khartoum to Port Sudan on the Red sea. It is also negotiating with Chad, Niger and Angola. Recently in a strategic move to achieve down stream assets abroad, the Reliance industries acquired a majority stake in management and control in an East Africa based oil retail distribution company Gulf Africa Petroleum Corporation (GAPCO). GAPCO owns storage depots all over East and Central Africa and operates terminals in Kenya, Tanzania and Uganda.
Agriculture is an important area of cooperation between India and Africa. African leaders often quote the example of India’s green revolution and its self sufficiency in food production. India success in agricultural sector can help in developing the African potential. Opportunities of collaboration between India and Africa exist in agricultural research, crop varieties that require less water, eco-friendly fertilizers, high tech agricultural and soil and water management. In March 2007 India organized an India-Africa Agro food summit. The main aim of this summit was to enhance the partnership between India and Africa in the field of agriculture through trade, joint ventures and investments. Apart from joint ventures the Africans have also expressed interest in inviting Indian farmers to till the lands in Africa particularly Kenya and Uganda. The African leaders have realized that India’s skilled and innovative farmers can contribute to the prosperity of the region.
Preserving peace
India a has supported peace in Africa through contribution to UN Peacekeeping during the last fifty years. Presence of Indian peacekeepers in Africa indicates India’s commitment to support any process aimed at bringing peace and development to the continent. India has a long and distinguished record in United Nations (UN) peace keeping, participating in most of such missions since 1950, in Africa under in the last decade.
Mozambique (ONUMOZ, 1992) India provided a large contingent of staff officers, military observers, independent headquarters company and engineer and logistics company
Somalia (UNOSOM, 1993-95, UNOSOMII), Considered one of the most challenging UN Peacekeeping Operation Indian Naval Ships and personal were involved in patrolling duties off the Somali coast, in humanitarian assistance etc. UN SOM II operation involved peace enforcement.
UNAMIR (Rwanda, 1994), provided an infantry battalion and support element to the UN assistance mission in Rwanda to help ensure security for the refugees and to create conditions for free and fair elections.
UNAVERM, MONUA (Angola, 1995) India has provided contingents for successive Angolan UN peacekeeping missions. We had contributed one infantry battalion, and engineering company and military observers.
Sierra Leone (UNAMSIL, 1999-2000) India contributed largest number of troops till date, a very challenging operation as was witnessed under “Operation Khukri”.
Ethiopia-Eritrea (UNMEE): India contributed 1, 300 troops
Democratic Republic of Congo, Liberia and Sudan: Presence of Indian peace-keepers.
Another plank of India’s Africa policy has been providing military to officers of the African defense forces. The motive was not purely engaging the African armed forces, but as a symbol of brotherhood with the African nations. Most of the African countries lack military training institutions and therefore the officers are often sent abroad either to the military colleges of the former colonial powers or friendly countries in the developing world. Since the 1960s, India has provided military training to number of Africans primarily form the Anglophone Africa. During the last decade and a half around 1000 officers from 13 African countries were provided training by the Indian army.
India’s support to the NEPAD initiative is another step indicative of its efforts to assist Africa achieves its target of sustainable peace. The NEPAD initiative promotes a new partnership in which African leaders accept responsibility and accountability for doing what is right to restore peace and political stability on the continent.
Finally, in the recent years there has been an upswing in Chinese interactions and trade with Africa. Nevertheless, while admitting the gains of trade with Africa, the African nations are gradually realizing that China is both an opportunity and threat. A threat particularly to the local industries that have been hard hit by the flood of cheap Chinese imports particularly in the textile sector. Across the continent traditional products and retailers have been edged out by the Chinese businesses. Also the use of Chinese contract labour rather than local Africans has sparked anger in Africa. Thus China’s mercantilist approach has left many Africans disenchanted.
In comparison to China, India’s interaction with Africa, in quantitative terms is quite low. The bilateral trade between India and Africa stood at $9.14 billion in 2005 while with China it was $40 billion. However India scores better in terms of the image and goodwill it generates through its capacity building programmes which focus on development of indigenous human resources and institutions on the African continent. India has shared a special relationship with the Africans. Africans acknowledge that India’s all round development is a source of inspiration for them. Within the last decade India has emerged as the fourth largest economy of the world after the US, China and Japan in the purchasing power parity terms. In more absolute terms, as the national Intelligence Council (NIC) in the US underlined recently, India will begin to overtake all the Western nations except the US and China by 2020 in economic size. The African countries want to emulate the Indian model of development. Thus there is a lot of goodwill for India in Africa, clearly the responsibility lies with India that this partnership is an enduring one.

Inflation Changes How Americans Shop

Steadily rising food costs aren't just causing grocery shoppers to do a double-take at the checkout line - they're also changing the very ways we feed our families.
The worst case of food inflation in nearly 20 years has more Americans giving up restaurant meals to eat at home. We're buying fewer luxury food items, eating more leftovers and buying more store brands instead of name-brand items.

For Peggy and David Valdez of Houston, feeding their family of four means scouring grocer ads for the best prices, taking fewer trips as a way to save gas and simply buying less food, period.

"We do more selecting, looking around, seeing which prices are cheaper," said David Valdez. "We are being more selective. We have got to find the cheapest price."

Record-high energy, corn and wheat prices in the past year have led to sticker shock in the grocery aisles. At $1.32, the average price of a loaf of bread has increased 32 percent since January 2005. In the last year alone, the average price of carton of eggs has increased almost 50 percent.

Ground beef, milk, chicken, apples, tomatoes, lettuce, coffee and orange juice are among the staples that cost more these days, according to the federal Bureau of Labor Statistics.

Overall, food prices rose nearly 5 percent in 2007, according to the U.S. Department of Agriculture. That means a pound of coffee, on average, cost 57 cents more at year's end than in 2006. A 12-ounce can of frozen, concentrated orange juice now averages $2.53 - a 67-cent increase in just two years.

And a carton of grade A, large eggs will set you back $2.17. That's an increase of nearly $1 since February, 2006.

"The economy is having a definite impact on shopper behavior," said Tim Hammonds, president and chief executive officer of the Food Marketing Institute, a retail trade group. "People are significantly changing what they do."

Soaring prices are causing shoppers to rethink long-held habits such as store loyalty.

Wal-Mart and other supercenters that sell food now account for 24 percent of the market, according to the most recent annual survey of shopping habits by Hammonds' organization.

Gina Pierson, a music teacher in Columbia, Mo., buys her family's staples at local grocery stores but makes regular trips to Wal-Mart to supplement the weekly shopping list. Like many families struggling to get by, Pierson and her husband, a public school teacher, are adjusting their approach to buying, cooking and eating food. Restaurant meals are now almost a luxury.

"Between food and gas, it's just cheaper to stay home," she said.

In 2007, the FMI survey showed the average number of weekly shopping trips falling below two per household for the first time.

Paula Curtis, a mental health worker in Montpelier, Vt., said her grocery bill has been steadily climbing by $10 to $20 a week. She has cut back on meat, fruit, vegetables and snack food, and buys milk at the gas station, where she said it's cheaper.

"Every time I go, it's more and more," she said. "I make a list, but I don't necessarily get everything on it because I can't afford everything."

Nationwide, a family of four on a moderate-cost shopping plan now spends an average of $904 each month for groceries, an $80 increase from two years ago, according to the USDA.

Those who can't absorb the added expenses are increasingly seeking help from food pantries. America's Harvest, which distributes nearly two billion pounds of food and grocery products each year to more than 200 food banks across the country, estimates that its overall client load increased by 20 percent in the fourth quarter of 2007.

The jump has been even higher at the Central Missouri Food Bank's pantry in Columbia, a college town halfway between Kansas City and St. Louis.

The food pantry served 7,200 people in 2007, an increase of more than 50 percent over two years, said executive director Peggy Kirkpatrick.

Columbia used to be considered inflation-proof because of its high-paying university jobs and proximity to the state capital, 30 miles away in Jefferson City.

"That's not the case anymore," she said.

Shary Auer visits the Columbia food pantry once a month to help extend the family's $800 monthly food budget. The mother of five children, ages 9 to 19, is buying more canned food instead of fresh produce. Portions are smaller around the Auer dinner table, and salads are added regularly to stretch the servings of meat and poultry.

Auer, a part-time postal worker and supermarket cashier, said she fastidiously tracks food prices.

"I watch for sales, save my receipts and highlight what I save," she said.

Not all shoppers are struggling with the changes. At the Whole Foods Market in downtown Seattle, Beth Miller didn't think twice about paying $6.39 for a gallon of organic orange juice, or $4 for a dozen eggs at the store, which specializes in organic and natural foods.

"I'm used to having a small gasp at the cash register," said Miller, who favors local produce and organic food for her husband and 12-year-old son. "We try to be really careful about what we eat."

Among retailers, the surge in commodity prices - from corn, now in high demand because of increased ethanol production, to wheat that has tripled in price over the past 10 months - has some industry observers suggesting that higher food prices aren't a temporary fluctuation but instead may be here to stay.

"We don't exactly have a crystal ball," said Whole Foods' Perry Abbenante, a senior global grocery buyer. "But I'm not sure (prices) are going back. We're preparing for a new threshold."