Africa

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Jan 17 2024 (IPS)

World Bank aid encourages governments to enable illicit financial outflows to offshore tax havens by reducing capital controls, thus draining precious foreign exchange and government resources.

Aiding elite wealth
Aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centres known for banking secrecy and private wealth management.

Jomo Kwame Sundaram

Using Bank for International Settlements (BIS) data, Jørgen Juel Andersen, Niels Johannesen and Bob Rijkers found trends suggesting wealth accumulation abroad by national elites coinciding with World Bank aid disbursements.

Capital outflows follow aid inflows apparently captured by ruling politicians, bureaucrats and their cronies. In the 22 most World Bank aid-dependent countries, aid disbursements coincide “with increased deposits in foreign bank accounts in tax havens”.

National elites capture World Bank aid to poor developing countries. Such ‘leakages’ came to 7.5% of inflows, rising with aid-reliance. Earlier, ‘petroleum rent’ leakages to secretive offshore tax havens were estimated at 15%.

A modest share of all aid, World Bank disbursements averaged over 2% of low-income countries’ GDPs yearly. For Bank disbursements of at least 1% of GDP, leakages from 46 countries increased deposits in havens by 3.4%. But at a 3% of GDP threshold, leakages from seven countries rose to 15%!

Elites capture aid
The conventional wisdom is that aid promotes economic development in the poorest countries, while a few disagree. Many believe aid effectiveness depends on institutions and policies in receiving countries, with some warning corrupt elites may capture aid.

Many suspect elites who capture aid, or funds freed up by aid, hide their ill-gotten gains in private accounts in tax havens. Some countries receiving foreign aid are quite corrupt, with aid inflows captured by ruling politicians and their cronies.

There is much evidence that very high aid inflows foster corruption, with development projects failing due to greedy elites. The poorest countries supposedly receive the most aid but are often the worst governed. The study shows World Bank aid has been no better than others, further burdening poor countries and people.

Its data does not allow identification of those involved or the mechanisms used. Nonetheless, it concludes “the beneficiaries … belong to economic elites” with other research showing “offshore bank accounts are overwhelmingly concentrated at the very top of the wealth distribution”.

Illicit outflows enabled
Such aid capture by ruling elites helps explain its diversion abroad, how such funds end up in tax havens, and related surges in illicit outflows. Hence, large increases in offshore haven bank accounts coincided with aid disbursements.

Such abuses get worse when countries are more corrupt and have less effective checks and balances. Unsurprisingly, there are larger outflows to havens when projects fail, suggesting elite responsibility for such failures.

Conversely, there are less outflows to havens when procurement is from local contractors. When taxes can easily be evaded without using offshore accounts, and such abuses are unlikely to be penalised, outflows to havens become unnecessary and decline.

Foreign aid has also been used to get governments to reduce capital controls. Although assured by the International Monetary Fund’s Articles, the Bretton Woods institutions have eroded them since the 1990s. They claim doing so will ensure net inflows when all evidence suggests the contrary.

Reducing capital controls enables and boosts illicit capital outflows by reducing exit barriers. Such outflows have greatly exceeded World Bank aid inflows, draining precious government foreign exchange resources.

Study underestimates outflows
The study tries to minimise other factors influencing aid inflows and financial outflows. It excludes observations when wars, natural disasters, financial crises, oil price hikes and exchange rate volatility triggered such flows.

The study only covers World Bank aid leakages diverted to offshore tax havens. Spending on real estate, luxury goods, pet projects, and outflows using offshore intermediaries who help “hide and launder assets” are also not counted. Besides ignoring such outflows, it also rules out other possible causes.

International Consortium of Investigative Journalists’ leaked data on offshore corporations, especially the Panama Papers, showing many secretive offshore havens used to hide illicit outflows, especially in Switzerland and Luxembourg.

Financial transparency has improved significantly, with more information on offshore financial centres from 2009. But more transparency has not stopped illicit outflows, including aid-derived wealth accumulation in havens.

Unsurprisingly, more corrupt countries, less local procurement and more failed projects have generated more outflows. But the study suggests more donor monitoring and control may have lowered leakage rates for aid compared to natural resource extraction.

Adding insult to injury
It is bad enough for the World Bank to enable the theft of scarce financial resources by influential elites. Worse, such enabling reforms have been required or advised by the Bank despite prior knowledge of their likely consequences.

To add insult to injury, the poor countries themselves are blamed for such abuses and their consequences. Unsurprisingly, the beneficiary elites are the political and economic allies of those who control the Bank and its policies.

These same elites have incurred much debt in the names of their countries and people. But much market-based debt dried up as the US Fed, European Central Bank and others sharply raised interest rates from 2022.

Thus, most poor countries face punishing market credit terms in the face of massive international economic contractions due to policies pursued by the US and its European allies.

IPS UN Bureau

 

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By Inés M. Pousadela
MONTEVIDEO, Uruguay, Jan 16 2024 (IPS)

Iran’s time of public rebellion has ended. The protesters marching, chanting, and dancing under the ‘Woman, Life, Freedom’ banner have long stopped. And shifting regional dynamics may play to the regime’s favour.

Protest wave repressed

The wave of protest against the theocratic regime started on 16 September 2022 and lasted far longer than anyone could have predicted. But by the one-year mark it had all but died down, its unprecedented scale and reach superseded by the unparalleled brutality of the crackdown.

The regime murdered hundreds of protesters, injured thousands and arrested tens of thousands. It subjected many to torture, sexual abuse and denial of medical treatment while in detention.

It weaponised the criminal justice system, holding express trials behind closed doors in ‘revolutionary courts’ presided over by clerics, with zero procedural guarantees. It sentenced hundreds – including journalists – to years in jail and handed out several death sentences. According to the UN Special Rapporteur on Iran, some of the human rights violations committed by the regime could constitute crimes against humanity.

Shortly after the first anniversary of the protests, on 6 October, it was announced that the 2023 Nobel Peace Prize had been awarded to Narges Mohammadi, an imprisoned Iranian woman activist with 20 years of struggle for democracy, human rights and women’s rights under her belt. Over the years, she’d been arrested 13 times, sentenced to 31 years in prison and 154 lashes, and been in prison three times. She received the news behind bars.

Ahead of the anniversary, afraid of protests returning, the theocratic regime put back on the streets the morality police whose intervention had resulted in Mahsa Amini’s death. Conservatives proposed a new ‘hijab and chastity’ law that would impose a stricter dress code and harsher penalties for violations.

The reinforcement of morality rules soon claimed its next victim. On 1 October, high school student Armita Garawand was left unconscious, reportedly assaulted by a hijab enforcer for not wearing a headscarf. She remained in a coma for several weeks before dying on 28 October. At her funeral mourners were assaulted and dozens were arrested, including well-known human rights lawyer Nasrin Sotoudeh.

Succession

Battered but unbeaten, the Iranian regime views upcoming legislative elections as part of its road to recovery. On 1 March, people will be called on to vote for all 290 members of the Islamic Consultative Assembly. The key battle will be over turnout, which was already down to 42 per cent in 2020 – the lowest since the 1979 revolution. That record could be shattered, as opposition and reformists call for abstention or boycott.

Along with parliamentary elections, in March Iran will hold elections for the Council of Experts, the body of clerics that appoints Iran’s Supreme Leader. The Council has recently faced criticism for its lax oversight of 84-year-old Supreme Leader Ayatollah Ali Khamenei’s performance, and might have to step in relatively soon.

In power since 1989, Khamenei is in a race against the clock. Bent on ensuring that the theocracy he largely built stands strong after he’s gone, he’s preparing his 54-year-old second son to succeed him. But the ongoing economic crisis may conspire against his plans. The cumulative impacts of international sanctions, fluctuating oil prices, mismanagement and rampant corruption have fuelled inflation and unemployment, and discontent runs high.

To prevent accumulated grievances from translating into mass protest, the regime will likely try to tread a fine line between displaying indestructible power and offering minor concessions.

Regional balance shifts

When the protests erupted international support poured in. People around the world showed solidarity with Iranian women and called on their governments to act. Early on, the USA imposed sanctions on the morality police and several senior leaders of the force and other security agencies. New sanctions by the European Union, UK and USA were announced on the eve of the anniversary of the protests.

On International Women’s Day in 2023, a group of Afghan and Iranian women launched the End Gender Apartheid campaign, which seeks recognition and condemnation of the two regimes as based on gender apartheid. They want the 1973 UN Convention on the Suppression and Punishment of the Crime of Apartheid, which so far applies only to racial hierarchies, extended to gender. The campaign wants this specific and extreme form of exclusion to be codified as a crime under international law so those responsible can be prosecuted and punished.

There was hope that such moves would foster action to hold those responsible to account. Civil society called for the creation of a dedicated accountability mechanism to work alongside the UN Special Rapporteur on Iran.

But on 7 October, as Armita lay in a coma, the paramilitary wings of Hamas launched their attacks into Israeli territory, and global attention shifted to this outrage and Israel’s murderous campaign of revenge. As a key source of support for Hamas, Iran was far from out of the spotlight – but condemnation of theocracy and gender apartheid now took a back seat to geopolitical considerations.

Khamenei publicly stated that Iran wasn’t involved in the 7 October attacks, and although he reiterated Iran’s political and moral support for Hamas, he reportedly told Hamas leader Ismail Haniyeh that Iran wouldn’t directly intervene unless it was attacked by Israel or the USA. But Iran’s leadership of the anti-Israeli and anti-western ‘Axis of Resistance’ and the key role it can play in either expanding or limiting the scope of the conflict means it will be included in any attempt to redefine the regional order, and could well emerge stronger.

Amid the chaos and in the search for security, the international community might be increasingly willing to look the other way. Iran’s search for international respectability saw a milestone in November, when it took advantage of other states’ lack of interest to claim the chair of the UN Human Rights Council’s Social Forum. The result was a largely empty room – but it remains the case that Iran succeeded in occupying institutional space to whitewash its blood-soaked image.

This mustn’t be allowed to happen. Iranian women mustn’t be left to their own devices. Iranian pro-democracy and human rights activists, both inside and outside Iran, need the support of the international community if they’re to have any chance.

Inés M. Pousadela is CIVICUS Senior Research Specialist, co-director and writer for CIVICUS Lens and co-author of the State of Civil Society Report.

 

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By Kristalina Georgieva
WASHINGTON DC, Jan 16 2024 (IPS)

We are on the brink of a technological revolution that could jumpstart productivity, boost global growth and raise incomes around the world. Yet it could also replace jobs and deepen inequality.

The rapid advance of artificial intelligence has captivated the world, causing both excitement and alarm, and raising important questions about its potential impact on the global economy.

The net effect is difficult to foresee, as AI will ripple through economies in complex ways. What we can say with some confidence is that we will need to come up with a set of policies to safely leverage the vast potential of AI for the benefit of humanity.

Reshaping the Nature of Work

In a new analysis, IMF staff examine the potential impact of AI on the global labor market. Many studies have predicted the likelihood that jobs will be replaced by AI. Yet we know that in many cases AI is likely to complement human work. The IMF analysis captures both these forces.

Kristalina Georgieva

The findings are striking: almost 40 percent of global employment is exposed to AI. Historically, automation and information technology have tended to affect routine tasks, but one of the things that sets AI apart is its ability to impact high-skilled jobs. As a result, advanced economies face greater risks from AI—but also more opportunities to leverage its benefits—compared with emerging market and developing economies.

In advanced economies, about 60 percent of jobs may be impacted by AI. Roughly half the exposed jobs may benefit from AI integration, enhancing productivity. For the other half, AI applications may execute key tasks currently performed by humans, which could lower labor demand, leading to lower wages and reduced hiring. In the most extreme cases, some of these jobs may disappear.

In emerging markets and low-income countries, by contrast, AI exposure is expected to be 40 percent and 26 percent, respectively. These findings suggest emerging market and developing economies face fewer immediate disruptions from AI.

At the same time, many of these countries don’t have the infrastructure or skilled workforces to harness the benefits of AI, raising the risk that over time the technology could worsen inequality among nations.

AI could also affect income and wealth inequality within countries. We may see polarization within income brackets, with workers who can harness AI seeing an increase in their productivity and wages—and those who cannot falling behind.

Research shows that AI can help less experienced workers enhance their productivity more quickly. Younger workers may find it easier to exploit opportunities, while older workers could struggle to adapt.

The effect on labor income will largely depend on the extent to which AI will complement high-income workers. If AI significantly complements higher-income workers, it may lead to a disproportionate increase in their labor income. Moreover, gains in productivity from firms that adopt AI will likely boost capital returns, which may also favor high earners. Both of these phenomena could exacerbate inequality.

In most scenarios, AI will likely worsen overall inequality, a troubling trend that policymakers must proactively address to prevent the technology from further stoking social tensions. It is crucial for countries to establish comprehensive social safety nets and offer retraining programs for vulnerable workers. In doing so, we can make the AI transition more inclusive, protecting livelihoods and curbing inequality.

An Inclusive AI-Driven World

AI is being integrated into businesses around the world at remarkable speed, underscoring the need for policymakers to act. To help countries craft the right policies, the IMF has developed an AI Preparedness Index that measures readiness in areas such as digital infrastructure, human-capital and labor-market policies, innovation and economic integration, and regulation and ethics.

The human-capital and labor-market policies component, for example, evaluates elements such as years of schooling and job-market mobility, as well as the proportion of the population covered by social safety nets. The regulation and ethics component assesses the adaptability to digital business models of a country’s legal framework and the presence of strong governance for effective enforcement.

Using the index, IMF staff assessed the readiness of 125 countries. The findings reveal that wealthier economies, including advanced and some emerging market economies, tend to be better equipped for AI adoption than low-income countries, though there is considerable variation across countries.

Singapore, the United States and Denmark posted the highest scores on the index, based on their strong results in all four categories tracked.

Guided by the insights from the AI Preparedness Index, advanced economies should prioritize AI innovation and integration while developing robust regulatory frameworks. This approach will cultivate a safe and responsible AI environment, helping maintain public trust.

For emerging market and developing economies, the priority should be laying a strong foundation through investments in digital infrastructure and a digitally competent workforce.

The AI era is upon us, and it is still within our power to ensure it brings prosperity for all.

Kristalina Georgieva is a Bulgarian economist serving as the 12th managing director of the International Monetary Fund, since 2019.

— For more on artificial intelligence and the economy, see the December issue of Finance & Development, the IMF’s quarterly magazine.

IPS UN Bureau

 

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Gender inclusion remains an important non-technological innovative measure enhancing export performance. Women in developing countries such as Pakistan, India, Bangladesh, and Sri Lanka have long been involved in the agriculture and textile sector. Credit: Obaidul Arif/IPS

By Quratulain Fatima
ISLAMABAD, Jan 15 2024 (IPS)

The World Economic Forum is hosting world leaders in Davos from January 15-19 2024. One of the key themes for the forum this year is “Creating Growth and Jobs for a New Era” with a focus on creating economic gender parity.

The World Economic Forum states that “The potential gains from closing economic gender gaps could unlock a “gender dividend” of $172 trillion for the global economy while closing the gender investment gap could add $3 trillion to assets under management in the US alone.”  World Trade Organization (WTO) estimates that eliminating gender discrimination would lead to a 40% increase in productivity.

The potential gains from closing economic gender gaps could unlock a “gender dividend” of $172 trillion for the global economy while closing the gender investment gap could add $3 trillion to assets under management in the US alone.”  The World Trade Organization estimates that eliminating gender discrimination would lead to a 40% increase in productivity

Trade has remained a significant contributor towards increasing the economic stature of countries. Historically the trade has been observed through the gender neutral lens by practitioners and researchers.

However, in recent times, trade and gender links have been explored and efforts have been made to strengthen by international organizations including the World Economic Forum, United Nations Conference on Trade and Development,  International Labor Organization (ILO), International Finance Corporation, and World Bank among others.

Trade openness has been shown to have a positive impact on employment, wages, and very importantly the overall export performance of the country. Several studies have shown that both technological and non-technological innovations improve a country’s export performance. Gender inclusion remains an important non-technological innovative measure enhancing export performance.

Women in developing countries such as Pakistan, India, Bangladesh, and Sri Lanka have long been involved in the agriculture and textile sector.

Recently women’s participation in the ICT and service industry has also gained momentum in developing countries. It is, however, important to note that South Asia remains second lowest at 63.4% out of eight regions at the gender parity index 2023. Although its position improved by 1.1 percent from the year 2022 attributed to rising scores in countries like Pakistan, India, and Bangladesh; there is much to be done.

Women entrepreneurs are a very small portion of the export profile for developing countries. In a country like the United States that remains Pakistan’s biggest trade partner in textiles and related goods share of women exporters from Pakistan is minimal.

Trade development authority in Pakistan and Trade promotion bodies in developing countries have focused on improving women entrepreneurs’ participation in international trade through training and resources.

However, women’s participation in the trade shows even in the traditionally established Textile and Apparel sector that provide major access to industry buyers in the USA remains negligible for countries like Pakistan, India, and Bangladesh; all of which are very well established and reputed in the USA market hence lowered entry barriers for women.

Less visibility of women entrepreneurs in the export sectors especially for developing countries tied to the fact that women and men have unequal access to education, productive resources, transport, networks, and other resources that impact economic activity.

This in turn affects women’s ability to capture trade-related opportunities. General trade barriers such as deficient infrastructure and tiresome regulatory and documentation requirements also impact women more than men.

Evidence also suggests that women entrepreneurs are concentrated in relatively less profitable sectors and even in profitable sectors they lag behind men-owned businesses.

Women-led businesses also lack resources to expand into international markets and when they do they have relatively smaller trade volumes and higher trade costs making businesses less able to sustain losses in the short term. This chain translates into limited mobility to trade and has been one of the reasons that woman-led businesses got impacted worse during post COVID-19 crisis.

Several steps can be taken at the domestic and international markets to help women entrepreneurs reach their maximum potential in exportable sectors in trade.

Gender provisions in the trade policy and trade agreements are one of the most important steps. The WTO Declaration on Trade and Women’s Economic 2017 endorsed by 127 countries is seen as important towards women’s economic participation in the economies and international trade.

Some regional and bilateral trade agreements like the African Continental Free Trade Area (AfCFTA), and USMCA (United States–Mexico–Canada Agreement) are now actively adding gender language and provisions. Canada has been a pioneer in including gender chapters in its trade agreements, such as the one with the European Union (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

These chapters typically address topics like equal access to economic opportunities, fair treatment in the workplace, and support for women entrepreneurs. These examples can be emulated widely in bilateral and multilateral trade agreements further translating into gender provisions in the trade policy at the local level.

Enhancing the role of women in export sectors where women’s presence is already established can be very helpful. In the case of Pakistan, Bangladesh, and India, women are involved in farming and livestock management.

Facilitations for easy access to training, credit, and improved participation opportunities in agricultural extension services can encourage women’s participation in international trade. Both financial institutions and the private sector should be engaged in this agenda. Private –Public partnerships to ensure investment in export-oriented sectors to strengthen women-led small and medium-sized businesses need prioritization.

Women who have access to technology are more likely to participate in international trade. Access to technology gives women the opportunity to sidestep issues of restriction of mobility and overcome cultural barriers while providing equal opportunities to connect with consumers and buyers of their businesses. Studies have shown that access to phones and the Internet has improved incomes and economic opportunities for women in Pakistan, India, Bolivia, Egypt, and Kenya among others.

Country trade missions at embassies and consulates abroad must ensure that women are included in awareness webinars/ seminars conducted by trade offices of their countries abroad. These trade offices are also central facilitation centers for connecting exporters with buyers and managing Trade show participation. Increasing participation in trade shows, trade delegations and awareness of the importing country regulations/requirements will enhance women exporters’ opportunities to find business abroad.

The world needs to pay more attention to women’s inclusion in trade. Trade has been shown not only to reduce the economy but also the gender gap. The world needs equitable and inclusive prosperity through gender-inclusive steps on the economic and social front alike.

 

Flight Lieutenant Quratulain Fatima is a policy practitioner currently working as a Trade Diplomat for Pakistan on the West Coast USA. She has extensively worked in rural and conflict-ridden areas of Pakistan with a focus on gender-inclusive development and conflict prevention. She is a 2018 Aspen New Voices Fellow. Follow her on Twitter, @moodee_q.