EU-DIGEST

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"One Belt, One Road" Dev. Meeting in Beijing May 14  and 15

Despite the apparent tranquility of this year’s spring meetings of the International Monetary Fund and World Bank, there are reasons to be concerned about the global economy.

The United Kingdom’s impending “hard” Brexit from the European Union and US President Donald Trump’s anti-globalization agenda are creating economic uncertainty, and will continue to do so for some time.

In contrast to Trump, Chinese President Xi Jinping has come to the defense of globalization, and made new capital available for creating global pubic goods, enhancing connectivity, and creating jobs in developing countries. More than 60 countries have welcomed Xi’s “One Belt, One Road” initiative, and 28 heads of state will attend an OBOR summit in Beijing on May 14. So, what is China’s rationale for pursuing this grandiose vision – one that so many countries, especially in the developing world, have embraced?

In our new book, Going Beyond Aid: Development Cooperation for Structural Transformation, we argue that official development aid (ODA) need not always be concessional, and make the case for going “beyond aid,” toward a broader approach – like that taken by China – that includes trade and investment. Right now, the OECD’s definition of ODA does not even include some of the more effective instruments for facilitating structural transformation in recipient countries, such as equity investment and large non-concessional loans for infrastructure.

By combining aid with trade and investment, donor and recipient countries alike can benefit. For example, the South-South development cooperation uses all three activities to capitalize on recipient countries’ economic strengths. This allows the SSDC to avoid the bottlenecks in partner countries that one sees under the standard ODA model, which separates aid from trade and private investment – and thus impedes countries from exploiting their comparative advantages

In our book, we look at this topic through the lens of New Structural Economics. NSE treats modern economic development as a process of continuous structural change in technologies, industries, and hard and soft infrastructure – all of which increases labor productivity, and thus per capita income.

According to NSE, the most effective and sustainable approach for a low-income country to jumpstart dynamic growth and development is to develop those sectors in which it has latent comparative advantages: where production costs are low, but transaction costs are high due to inadequate hard and soft infrastructure. Governments can help to reduce transaction costs by creating special economic zones or industrial parks, improving infrastructure, and making the overall business environment more attractive in those enclaves. With this approach, a developing country can grow dynamically, and create a virtuous circle of job creation and poverty reduction, even if its overall infrastructure and business environment are still lacking.

Moreover, large emerging-market economies such as China, Brazil, and India can use their comparative advantages in infrastructure and light manufacturing to help others. For China, this is in keeping with a Confucian dictum: “One who wishes himself to be successful must also help others to be successful; one who wishes to develop himself must also help others to develop.”

China has a clear comparative advantage in infrastructure construction, owing to its lower labor costs (the cost of a project site foreman in China is one-eighth that of OECD countries) and vast domestic market, which have enabled it to achieve economies of scale that other countries simply cannot. Consequently, the overall construction cost for high-speed rail in China is two-thirds of what it is in industrial countries.

But China’s comparative advantages in 46 of 97 subsectors – particularly in manufacturing – benefit other developing countries, too. As labor costs in China rise, labor-intensive industries are relocating to lower-wage developing countries, providing millions of job opportunities. For example, the Huajian Shoemaking Company, C&H Garments, and China JD Group (an apparel maker), are now operating in special economic zones in, respectively, Ethiopia, Rwanda, and Tanzania.

In addition to exporting its comparative advantages, China also deploys “patient capital,” which has a maturity of ten years or more. In a recently published paper, we conceptualize patient capital as an investment in a “relationship,” whereby an investor has a long-term stake in a country’s development. Patient-capital owners are like equity investors, but they are willing to “sink” money in the real sector for an extended period of time.

Patient-capital owners are also more willing, and better able, to take risks. In the chart below, we show that a country’s net-foreign-asset position correlates strongly with its long-term orientation. On the other hand, net-foreign-asset positions of countries with a short-term orientation and a low savings rate tend to deteriorate, while their foreign debts mounts. .

Read more: China: Development Beyond Aid by Justin Yifu Lin and Yan Wang - Project Syndicate

Distrito Castelana Norte (DNC)

The Shard could lose its title as Europe’s tallest building after developers in Spain unveiled plans for an even bigger skyscraper.

Since 2011, the triangle shaped tower has dominated the London skyline, earning it the prestige of being Europe’s tallest inhabitable structure.

Standing at 310 metres tall, 72 of the 95 floors are in use, with the upper floors accounting for the spire.

But new plans for a six tower development in Madrid could knock it off the top spot with one tower included in the complex planned to be 70 floors, also topping 300 metres

Antonio Béjar, CEO of the company behind the project, Distrito Castellana Norte (DCN), announced the lavish plans.

He said the skyscrapers would: "Transform the city’s skyline and put Madrid among the main European capital cities.

"The project is closer than ever to starting,"

The entire development forms part of a wider regeneration scheme for the northern part of the city, which has been progressing over the years.

DCN is currently applying for all the necessary permits to begin construction.

Read more: Spain unveils plans to build the tallest skyscraper in the EU | UK | News | The Independent

The Landworkers’ Alliance (LWA) joined more than 50 groups to protest against the controversial Transatlantic Trade and Investment Partnership (TTIP) on Saturday. Protests took place all around the country as part of the no TTIP campaign and the LWA joined coalition groups protesting in London.

The European Commission will host trade talks in Brussels all this week, with the UK government arguing if the new trade deal goes ahead this will open up trade and boost the economy.

However, critics say the deal puts a lot of power into the hands of large corporations, with fears the deal could mean large US firms will be able to sue governments over laws that are against their interests.

There are also worries from producers with the LWA worried about the safety of US imported meat.
Adam Payne, a spokesperson for LWA, said although the protest was a good start but “we really need to work to stand against the TTIP”.

He believes there is still not enough focus on this important trade deal and said, “We need other farming and agricultural unions to join us as this deal will effect them negatively.
“We still have time but now it’s crucial to build a big united opposition against the TTIP.”

The EU has publicly announced that the deal would not change European consumer safety laws. However, this has not stopped groups that are worried the deal could see a reduction in the importance placed on climate change and environmental issues and millions of job losses.

More than 1,000 people protested in front of the EU’s UK base at Smith Square, including the World Development Movement (WDM).

Speaking at the protest, Nick Dearden, director of the WDM, said, “This deal would hand multinational companies unprecedented powers over life in this country, including the ability to sue a future government for billions of pounds if they didn’t like its decisions. 
“The deal is not really about trade, it’s about entrenching the position of the 1%. It should be abandoned.”  

Read more: Thousands protest against EU-US trade deal across the UK - Blue and Green Tomorrow

The 4th EU-Africa Summit, April 2 - 3, 2014 brought together more than 60 EU and African leaders, and a total of 90 delegations, to discuss the future of EU-Africa relations and reinforce links between the two continents. In the summit declaration, leaders highlighted the close nature of EU-Africa relations and the shared values of democracy, respect for human rights, the rule of law and good governance as well as the right to development.

Leaders recognised the importance of peace and security as essential prerequisites for development and prosperity. In particular, they confirmed their commitment to enhancing political dialogue on international criminal justice and universal jurisdiction. Leaders also gave their support to the African aspiration and commitment to ensuring peace and stability in Africa and agreed to support African capabilities in this area through any available means, with a particular focus on capacity-building. Both continents agreed to strengthen common effort to fight international terrorism and to combat the spread.

Leaders pledged to pursue policies to create jobs and stimulate long-term growth on both continents. In particular the two continents agreed to cooperate more closely in the field of maritime policy. The EU also underlined its commitment to continuing to support African countries in the preparation of climate-resilient and low-emission development strategies. Leaders on both sides highlighted the importance of ensuring prudent and transparent management of respective natural resources, and responsible mineral sourcing.

The summit declaration also underlines the importance of encouraging greater investment and economic development within and between countries in both continents, alongside developing transport, access to drinking water and to sustainable and affordable energy.  successful

Read more: European Council - EU-Africa summit 2014

Apps = Skills=Jobs

The EU's app sector has gone from zero to digital superhero in less than five years. By 2018 it could employ 4.8 million people and contribute €63 billion to the EU economy according to a report presented in Brussels today.

The study, carried out by GIGAOM and NUI Galway for the European Commission, shows that Europe's app developers are up to the challenge of taking the global lead.

 Currently, EU and North American developers generate the same levels (42% each) of app revenues in crucial EU and US markets. Although the future is bright, developers have raised concerns about the skills gap, connectivity and fragmentation which could put the app boom at risk

For the international development community, 2013 was a year to restructure, diversify funding streams, “go local.” Everyone seemed to pursue local solutions, strengthen country systems and improve governance.

There was promising news on a variety of global health indicators — on malaria-related deaths among children or the availability of antiretrovirals. But maternal health gains remain slow, polio is making a resurgence and the nexus of animal and human health remains underfunded, despite a few promising pilot projects.

The global response to climate change has been a mixed bag: A high-level panel appointed by U.N. Secretary-General Ban Ki-moon recommended inclusive, sustainable development goals to succeed the anti-poverty Millennium Development Goals, which expire in two years. The U.N. Environmental Program is consolidating power, but the outcome is uncertain. Climate negotiations fizzled.

The aid community is rushing to engage the private sector now — a trend that would have seemed unthinkable ten, perhaps even five years ago. The U.S. Agency for International Development — which survived bruising budget battles and a government shutdown largely unscathed — led the way, and Administrator Rajiv Shah is getting ready to enshrine the agency’s renewed spirit in a merged “institute” for science, technology and innovation.

Throughout the year, Devex has covered these developments and many others — from marbled board rooms to dusty African villages. We’ve reported from Tacloban, in the Philippine province of Leyte, where relief efforts continue after typhoon Haiyan. We chatted with movers and shakers at the Clinton Global Initiative in New York and the European Development Days in Brussels, where Devex served as the official media partner. We traveled to Panama City for the annual meeting of the Inter-American Development Bank, and convened our own first-ever Devex International Development Partnerships Forum & Career Fair in Nairobi, Kenya. 

Read more: Development cooperation in 2013: A year in review - Development Buzz | Devex

In the last few decades, Africa’s failure to achieve rapid growth has puzzled economists. GDP statistics clearly show that African economies have failed to converge with Europe's since the Second World War. While GDP per capita in constant terms almost quintupled in Western Europe between 1950 and 2008, it only doubled in Africa in the same period. Some African countries have not simply failed to catch up with Europe but have fallen behind in absolute terms. GDP per capita in countries like the Central African Republic, Liberia and the Democratic Republic of the Congo have fallen over this same period.

Many scholars still blame the continent’s economic woes on the legacy of western colonialism. But a new paper* by Stephen Broadberry and Leigh Gardner, both at the London School of Economics, seeks to find a new answer to this old question by comparing trends in contemporary Africa to Europe’s development experience over the last 800 years.

Africa’s failure to develop, they argue, should not be seen as the exception, but as the historical norm. Africa’s growth trends since 1950—overall stagnation with periods of growth and decline—appear incredibly similar, both in terms of patterns and level, to those of pre-modern Europe. It took European countries until the 1800s to exceed Africa’s current per capita output. Humanity all over the world, for the vast majority of its history, has been at least as poor as Africa today.

Read more: Development: What Africa can learn from medieval Europe | The Economist