Least Developed Countries (LDCs) are missing out on the foreign direct investment (FDI) they need to transform their economies and benefit from meaningful progress towards the Sustainable Development Goals (SDGs). But it doesn’t have to be this way.

According to the 27th Global Trade Alert Report, Advancing Sustainable Development with FDI: why policy must be reset, an annual average of only two new greenfield FDI projects in SDG-intensive sectors were announced in each LDC between 2015 and 2019.

This comes amid broader declines in the real value of FDI into developing countries that started with the 2008 financial crisis and have accelerated during the pandemic.

Although global FDI inflows had been nominally recovering since 2010, gaining an average 7.1% per year until 2019, a typical annual capital depreciation rate of 3.9% eroded much of that growth. At that rate, FDI inflows into developing countries would need to exceed $440 billion just to replace ageing FDI assets. And due to economic fallout from the Covid-19 pandemic, FDI has since plungedto levels not seen since 1995, the report highlights.

This is concerning for LDCs that have yet to replicate the huge economic boost that transition economies and low and middle income countries (LMICs) in East Asia and Eastern Europe had already enjoyed due to FDI, noted Simon Evenett, co-author of the report and Professor of International Trade and Economic Development at the University of St Gallen.

But with creative thinking and support from donors and international organizations, LDCs still have an opportunity to buck the current trend and experience a similar uplift, he added. “Just because it hasn’t happened to the degree LDCs might have liked in the past doesn’t mean it won’t happen in the future.”

Facilitate commercial returns

One lesson LDCs can apply from recent years is that facilitating good commercial outcomes for FDI investors is critical.

Despite the higher risks associated with investing in developing countries – and hence investors’ rational desire to be compensated with higher returns – direct foreign investments in developing countries in Asia Pacific and Central and South America have for more than a decade yielded returns that barely exceed those of European Union countries, the Global Trade Alert Report noted.

According to UNCTAD’s 2020 World Investment Report, the fall in global FDI inflows coincides almost exactly with a gradual decline in those investments’ financial returns, which shrank from 7.1% in 2010 to 6.7% by 2019. Declines in developing countries were significantly sharper, with FDI returns falling to 7.8% by 2018 from 11.5% in 2011, while in Africa they almost halved over the same period, from 12% to 6.5%, UNCTAD figures show.

At the same time however, private-sector firms are under growing pressure from both civil society and their own investors to contribute more to sustainable development and improve their ESG credentials. This may offer window of opportunity for LDCs to compete for a bigger share of higher-quality, more sustainable FDI – but only if they can help firms be adequately rewarded with better commercial returns.

Treat FDI better

Treatment of FDI has also deteriorated across the board since 2014, with FDI-conducive policies at both G20 countries and LDCs falling sharply between 2019 and 2020 to less than 40% of all newly implemented policies, the Global Trade Alert Report found.

Figure 2 Global Trade Report June 2 2021, p27

Cambodia however offers one positive example of how policies aimed at supporting FDI inflows and financial returns can reap rewards, according to Evenett.

Although Cambodia was not immune to Covid-19 – with Coface figures pointing to a 49% year-on-year decline in foreign investment in the first quarter of 2020 – its FDI inflows had reached a record high the previous year, growing 16% to $3.7 billion, according to UNCTAD. And even in 2020, the Council for the Development of Cambodia (CDC) approved 238 investment projects worth $8.2 billion across a good mix of sectors.

Ways the kingdom has facilitated foreign investment include the creation of special economic zones (SEZs) that provide businesses with access to land, infrastructure and services, and the introduction of incentives such as corporate tax holidays, 100% ownership of companies and duty-free import of capital goods.

Self-reflect with development bank support

LDCs looking to reboot their FDI should start by examining their own track record, seeking to establish which policies or corporate practices are responsible for the rates of return multinational corporations’ foreign affiliates generate in their country, as well as what is driving up perceived risk levels and what impact FDI has on the ground, the report recommends. Partnering with the World Bank or a regional development bank should help this process.

Policy makers should then develop an FDI framework that not only helps their country compete against other locations for foreign investment but makes it more lucrative for companies to invest in the country than simply export to it, Evenett argues.

Target incentives at priority sectors

Policies should ensure state aid for FDI is targeted only at sectors that the LDC has identified as most likely to benefit sustainable development, the report advises. Enhanced incentives should also be offered for investments that facilitate the transfer of innovations that deliver progress towards priority sectors.

A list of these sectors should be made public to inward investors and potential donor governments, it adds.

Resist erecting trade barriers

The erection of trade barriers has long been recognized as a potential tactic for countries looking to attract more FDI from foreign companies that want to reach new markets.

“Governments can try and secure more FDI by blocking out exports and making firms jump the trade barrier and invest in the country,” Evenett noted. However, “our experience of that is it’s a disaster.”

One unintended consequence of introducing tariff or non-tariff barriers is that LDCs’ low-income populations end up paying more for essential goods and services, such as food, medicines or education, he explains. It is far better in such cases therefore to properly incentivize investment in local production capacity from the outset, he argues.

Ensure transparency and stability

Whatever improvements LDCs make now, policy stability and transparency will be key to de-risking FDI in the future, Evenett adds. Any FDI framework should therefore have a five- to 10-year shelf life and be made clear and accessible.

To make long-term investments, companies need to be able to research and understand regulations easily and have confidence they won’t change halfway through a project. “Uncertainty is the killer of investment,” he concludes.

To read the full commentary by Enhanced Integrated Framework, please click here.

The post How LDCs can reset policy to attract more FDI appeared first on WITA.

This begs the question of what private-sector engagement—through foreign direct investment (FDI) decisions and other business conduct—has contributed to the globally agreed-upon Sustainable Development Goals.

While there is a vibrant and necessary debate about the mechanisms through which FDI affects host economies, on the whole, developing countries have enjoyed economic benefits from greenfield investments and reinvestment in the existing stock of FDI. But what of the social and environmental benefits?

Looking back over the past quarter of a century, the 27th Global Trade Alert report puts current FDI dynamics in perspective, uses the latest data on policy interventions to assess the degree to which governments continue to favor FDI, and points the spotlight on the limited contribution of FDI to advancing sustainable development in emerging markets. What follows is a summary of some key findings.

FDI in Developing Countries Falters 

Companies are resorting less and less to FDI. Once a hallmark of globalization, FDI has been in trouble for some time—a fact compounded by the ongoing pandemic:

• Even before last year’s 42 percent drop, sensibly benchmarked annual inflows of FDI have been in decline since the global financial crisis.
• The economic fallout from COVID-19 has resulted in new FDI flows retreating to levels not seen for 25 years.
• Globally, the average return on FDI fell during the past decade. Mean FDI returns fell more in developing countries than in higher-income countries.
• Since 2015, U.S. multinationals have earned at most meager additional returns from FDI in developing countries (outside of the Middle East) when compared to investments in less risky European Union economies.
• Returns on U.S. FDI in educational services are so low it would take 40 years to recoup their outlays. Worse, the payback period for investments in health and telecoms is over 90 years. Fortunately, returns from investing in manufacturing are healthier.

According to the World Investment Report 2020, a total of $11.3 trillion of foreign direct investment has been made in developing countries up until the end of 2019. Each year, some of that capital will depreciate and need to be replaced. With a 3.9 percent depreciation rate, this implies that annual FDI inflows into developing countries must exceed $440 billion just to replace the FDI capital that has worn out and ceased to be commercially useful. Considering the low FDI premia reported earlier, whether multinational enterprises are prepared to commit to such substantial outlays in the future is the central question.

Falling returns on FDI in developing countries are the canary in the coal mine— they call into question the commercial viability of setting up shop in foreign markets and retaining operations there. Risk adjustments would lower FDI returns in emerging markets even further.

Policy Toward FDI Must Be Reset 

With over $11 trillion invested in developing countries, both international business and governments have a huge stake in reviving the commercial fortunes of FDI. To date, too much of the onus has been on international business. For example, the private sector has been told by advocates of sustainable development to “align” with the global and societal transformations needed to accomplish the Sustainable Development Goals.

Those advocates and policymakers must reflect and act on why the returns to FDI in key sectors are so low and why only a trickle of FDI inflows has occurred in them. Enhanced corporate contributions to sustainable development should be balanced by policy reforms to restore the commercial viability of FDI in developing countries—a proven mechanism to transfer management expertise, people, capital, and technology.

Simon J. Evenett is Professor of International Trade and Economic Development, University of St. Gallen, Switzerland; Coordinator, Global Trade Alert; and a former nonresident Senior Fellow, Economic Studies, Brookings.

Johannes Fritz is the CEO of the St.Gallen Endowment for Prosperity through Trade, a Swiss non-profit and the institutional home of the Global Trade Alert and the Digital Policy Alert initiatives. His work focuses on utilising technology to bring transparency to public policy choice.

To read the full commentary, please click here.

The post Declining Foreign Direct Investment Can’t Contribute Much to Sustainable Development appeared first on WITA.

For them, strategic industries like health care are a primary area of concern. How do these measures manifest in practice and why are they being implemented by host countries?

While investment screening measures are not new, the scope of their expansion is. Before the pandemic, a study analyzing FDI-screening measures established three justifications for these measures — fear of becoming dependent on a foreign company for the delivery of critical goods and services, a desire to ensure that domestic technology and expertise remain within national borders and the prevention of surveillance or sabotage of essential services.

The pandemic has added new dimensions to these insecurities that will have global ramifications for FDI and trade flows.

The post How Coronavirus Is Changing The Rules On Foreign Investment in Essential Areas appeared first on WITA.

But preparation and cooperation among African leaders and African Union agencies, particularly the Africa Centers for Disease Control and Prevention, have resulted in many successes – including increased testing capacity, resource mobilization, and coordinated policies to prevent and contain the coronavirus’s spread and promote economic recovery.

Despite these successes, Africa is still facing significant challenges. These include a continued rise in COVID-19 cases, a need for greater testing capacity and improved health infrastructure, difficulties acquiring medical and food supplies, weak social-welfare systems that are struggling to support vulnerable populations during the economic crisis, and high government debt coupled with a need for increased spending.

Although African countries are capable of continuing their progress on the long road to recovery, external support would greatly bolster their efforts. Aside from humanitarian principles and solidarity, a strong and rapid African recovery is in the world’s interest. As long as the virus is unchecked in some regions, no part of the world can be safe from it. Moreover, if COVID-19 further weakens fragile African states or causes health or economic disasters on the continent, a migration crisis or increased threats to international security could ensue.

We therefore propose six ways the world can cooperate with Africa to improve the continent’s crisis response, accelerate its economic recovery, and build momentum for its post-pandemic development.

First, external partners can provide sufficient resources and investment to enable effective COVID-19 responses and inclusive post-pandemic economic recoveries. Although multilateral and bilateral partners have already provided some financial support in the form of debt relief, loans, and grants, African governments need much more. Some estimate the continent’s pandemic-response funding gap at about $100 billion annually over the next three years. Given Africa’s health-care and economic vulnerabilities, additional financial support and debt relief are critical.

Second, partners should support and invest in the African Continental Free Trade Area, which is one of Africa’s best economic-recovery plans. The AfCFTA aims to increase intra-African trade significantly, and thus develop regional value chains, local manufacturing, and sourcing of intermediate and final goods. By reducing the continent’s vulnerability to external shocks through decreased dependence on non-African trade, the agreement will foster economic diversification and resilience, thereby promoting Africa’s integration and assisting its recovery. In addition to backing and investing in the AfCFTA, partners can provide expertise regarding trade regulations and manufacturing capacity.

Supporting private-sector growth is a third way to unlock Africa’s economic potential, representing a significant opportunity – in terms of both trade and investment – that will benefit Africa and global businesses. Although both the formal sector and the large informal sector are currently struggling, owing to lockdowns and economic restrictions, private firms will be crucial to Africa’s recovery and future development. External partners can support African businesses through increased investment, including in small and medium-size enterprises that are today trying to stay afloat and pay their employees. International partners can also help to improve the business environment, for example by overseeing a mandatory regulation process.

Next, external partners can support Africa’s efforts to embrace the Fourth Industrial Revolution (4IR) and achieve a successful digital transformation. During the pandemic, technology has enabled real-time medical forecasting and modeling, better communication between leaders, and the virtual operation of businesses. But Africa’s technology infrastructure, specifically Internet access, lags severely, and the continent has benefited less from digital technology than the rest of the world. Partners can help accelerate the 4IR in Africa by sharing technological innovations, collaborating in adapting them to African contexts, and providing investments that will unleash young African innovators’ technological potential and enable existing innovations to be scaled up.

Fifth, the world can help to ensure that no African is left behind, including through job creation, skill-building, social protection, and gender equality. Vulnerable groups such as those living in urban slums or rural areas, youth, women, and the poorest families need extra government support, but social-welfare systems are weak, especially in fragile states. External partners should therefore give special consideration to assisting the most-affected countries and communities by channeling resources toward these populations, instead of giving unconditional aid to governments, and by collaborating with African leaders to create innovative policies that benefit these groups.

The final priority is to help Africa address its fragilities and bridge the gaps between policy goals and outcomes, including through evidence-based policy research. Ineffective institutions, corruption, and a lack of accountability can undermine even perfect policies. Partners can monitor projects or provide experts to assist in implementation, and can promote good governance through measures and indicators such as Transparency International’s Corruption Perceptions Index, the Fund for Peace’s Fragile States Index, or the World Bank’s Worldwide Governance Indicators. Research institutes and think tanks such as the Brookings Institution are playing an important role in this effort.

Each of these six proposals can help Africa to combat and recover from the COVID-19 pandemic, but they are also critical for realizing the continent’s potential and accelerating its future development. By collaborating with external partners to secure additional resources, develop new initiatives, and invest in key sectors, African countries can mitigate the virus’s immediate impact and hasten economic recovery while building resilient systems for long-term growth and success.

This commentary is co-signed by Joyce Banda, a former president of Malawi; Rosalía Arteaga Serrano, a former president of the Republic of Ecuador; Phumzile Mlambo-Ngcuka, United Nations Under-Secretary-General and Executive Director of UN Women, and a former vice-president of South Africa; Laimdota Straujuma, a former prime minister of Latvia; Yves Leterme, a former prime minister of Belgium; and Rovshan Muradov, Secretary-General of the Nizami Ganjavi International Center.

Landry Signé, a professor and senior director at Arizona State University’s Thunderbird School of Global Management, is a senior fellow at the Brookings Institution, a distinguished fellow at Stanford University, a member of the World Economic Forum’s Regional Action Group for Africa, and the author, most recently, of Unlocking Africa’s Business Potential.

Ameenah Gurib-Fakim, the first female president of Mauritius, is the author of her autobiography, Ameenah Gurib-Fakim: My Journey.

To read the original blog post, click here.

© Project Syndicate – 2020

The post Global Partnerships for an African Recovery appeared first on WITA.

Positive and negative externalities

There are two main pathways – public and private – through which international trade generates resources for sustainable development. Through the public pathway, governments derive revenues from international trade through taxes on imported and exported goods and services, taxes on incomes and profits from trade-related production and transactions and by directly receiving the proceeds from exports. The private pathway is through returns on investment and other transactions including remittances. Both pathways can further generate positive externalities and indirect financing for economic and social development. Both pathways, however, can also generate negative externalities, including unsustainable levels of inequality.

Trade, poverty, inequality and growth

Trade revenues are multiple resource flows from other sources into Africa. As shown in figure 1, over the last decade export revenues have accounted for more than three times the value of remittances, FDI inflows and official development assistance taken together. Exports have been worth approximately 17 times as much as overseas development assistance, such as development aid, during this period.

Figure 1. Africa’s total exports, remittances, FDI inflows and DAC official development assistance, 1980-2018, constant 2018 US$

Sources: Exports from IMF DOTS 2020; FDI inflows from UNCTAD Stat 2020; Official Development Assistance from OECD ODA 2020; and remittances estimates from World Bank 2020. Note: Reliable FDI data is available only from 1970 and remittances data from 1980, represented above accordingly.

Poverty and inequality in Africa are pervasive, as can be seen in figures 2 and 3. Much of this outcome can be attributed to the historical legacy and current reality of African economies undergirded by trade regimes that are mainly dependent on producing and exporting low value products (and services), often subject to severe price fluctuation. Africa, with 17% of the world’s population, accounts for about 3% of world trade.

Figure 2. Development indicators 2020. Right: Gini Index (higher = greater inequality), 2019 or latest available data. Left: Poverty gap (share of population with less than PPP $1.90 per day), 2019 or latest available year.

Formal trade between African countries is also low, at an average of 15% of total trade during 2016­–18. Africa’s trade challenges are compounded by the strong prevalence of informal cross border trade in both goods and services of even lower value transactions. Informal cross border trade is associated with the high rates of poverty that compel people to seek a living by buying and selling small quantities of fast-moving merchandise, especially food items, and providing low skilled services. It is fuelled by such constraints as high trade costs, expressed through a lack of access to credit and finance and inefficient border processes. Women constitute the majority of informal cross border traders, accounting for as much as 61% of all informal cross border transactions in the Lagos-Abidjan corridor, for example.

Figure 3. Female informal cross border traders crossing Aflao on the Ghana-Togo border. Credit: UNECA.

However, until the COVID-19 pandemic struck in early 2020, several of the fastest growing economies in the world were in Africa, mainly driven by diversification and trade expansion, with positive externalities on poverty reduction and other indicators of general welfare. For these countries, GDP growth rates during 2020–24 were expected to be between 6% in Burkina Faso and 8.3% in Senegal (as shown in figure 4). Even with COVID-19, African countries are forecast to retain a relatively higher degree of growth in 2020 and 2021 (as shown in figure 5).

Figure 4. Average annual growth rate: 2009 to 2019.

Source: IMF World Economic Outlook April 2020Fig. 6 Forecast average growth rate under COVID-19: 2020 and 2021. Source: IMF. IMF World Economic Outlook April 2020.

An often-overlooked detail is that the composition of trade tends to vary strongly whether the destination of Africa’s exports is the African market or the rest of the world. As shown in figure 6, primary commodities account for over 70% of Africa’s exports. But the share of manufactured goods in intra-African exports is about 45%, with primary commodities accounting for a third.

This is why there has been so much interest in the African Continental Free Trade Area Agreement (AfCFTA), which entered into force on 30 May 2019. Analysis carried out at the UN Economic Commission for Africa (ECA) shows that, if effectively implemented, the agreement could help boost intra-African trade. The ECA projects – on the basis of computable general equilibrium modelling – a positive effect on Africa’s overall GDP, exports and welfare. The benefits will be most significant for intra-African trade, which could increase in value between 15% (US$50 billion) and 25% (US$70 billion) by 2040, depending on the ambition of the reform as compared to a baseline scenario with no AfCFTA. More than two-thirds of the gains in intra-African trade will be captured by industrial sectors with textile, wearing apparel, leather, wood, paper, vehicle and transport equipment, electronics and other manufactures expected to benefit the most. Gains in the agriculture and food sectors would also be substantial, particularly for meat products, milk and dairy products, sugar, beverages, vegetables, fruits, nuts, rice and other grains.

Figure 6. African exports and imports by composition 2016-18.

Source: Calculation from UNCTADstat

The AfCFTA is therefore a central tenet of African trade policy. It is a continent-wide initiative for maximising value from trade, economic diversification, the promotion of intra-regional trade and a better and more stable integration into regional and global value chains. Associated policy reforms include bringing trade costs down by improving border processes and other trade facilitation measures, which are essential for productivity and competitiveness. More efficient services sectors can help to build and upgrade regional value chains. These are all key enablers for a more diverse and complex production and trade structure, for managing volatility and providing a more stable path for sustainable growth and development. These elements are now more important than ever in the wake of the COVID-19 pandemic and the demographic imperative in Africa to increase the number and quality of jobs.

Trade agreements

Trade agreements provide the framework for the articulation of trade policy. They ensure predictability and legal certainty for the contractual commitments embodied in the exchange of goods and services. But they also shape development and other outcomes in the outworking of positive and negative externalities from trade.

African trade agreements can be divided into four main categories (see annex).

1. World Trade Organization agreements that apply to its 44 African member countries. An additional nine African countries are in the process of acceding to the WTO or are observers.

2. African regional trade agreements which include the continent-wide AfCFTA and sub-regional trade agreements of the main regional economic communities (RECs) such as the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Southern Africa Development Community (SADC), the Southern African Customs Union (SACU), the Economic Community of West African States (ECOWAS) and the Arab Maghreb Union (AMU).

3. Concessional trade arrangements such as the European Union’s Every Thing But Arms (EBA) for least developed countries; the United States’ Africa Growth and Opportunity Act (AGOA) for eligible African countries; and the Generalised System of Preferences (or GSP) and enhanced GSP (GSP+) of several OECD countries; as well as a number of schemes for least developed countries, including of China and India.

4. Reciprocal trade agreements such as the Economic Partnership Agreements between the EU and three groups of African countries in East and West Africa (still to be finalised) and Southern Africa (finalised); the Euro-Mediterranean Agreement between the EU and North African countries; the EU-Algeria Free Trade Agreement; and the USA-Morocco Free Trade Agreement.

In 2013, China announced a ‘Belt and Road Initiative’, which provides a mix of trade concessions and financing for trade-related infrastructure. Mauritius is negotiating free trade agreements with China and India. The US and Kenya have announced negotiations for a free trade agreement. It is understood that in relation to African countries, the United Kingdom will roll over the EU arrangements on EBA (Everything But Arms), GSP (Generalised System of Preferences) and GSP+ pending its own negotiations of a trading framework with African countries. The UK already has agreements with Morocco, the SACU (Southern African Customs Union) group, Tunisia and a group of Eastern and Southern African countries (Madagascar, Mauritius, Seychelles and Zimbabwe).

Trade matters for Africa

The central role of trade in development requires that trade policies, trade agreements and concessional arrangements are monitored, assessed and analysed in relation to positive and negative externalities. Key issues for analysis range from structural changes to the economy, regional imbalances, and poverty to employment, decent work and gender equality, and from technological change including digitalisation to public health and climate change.

There is a good case for independent work that (1) systematically monitors trade negotiations in which African countries are engaged (2) assesses the impact of trade agreements and policies in Africa and (3) identifies practical policy measures and other changes to improve the developmental impact of trade. An emerging question that also deserves attention is, how will the UK’s new trade policy affect Africa and other developing countries?

LSE’s Firoz Lalji Centre for Africa is well placed to become a repository of real time information on current trade negotiations through which African countries are engaged via an Africa Trade Negotiations Monitor. It will allow not only trade experts and policy makers but the whole community of scholars to keep track of the trade rules that shape development outcomes. This can be complemented with analytical work on trade policy impacts with a view toward the publication of an annual Africa Trade Year Book.

Annex: Africa’s Trade Agreements

Annex: Africa’s Trade Agreements (continued)

Sources: WTO RTA database (2020) and UNCTAD, Handbook on Duty-Free Quota-Free and Rules of Origin (2017). Notes: GSTP is Global System of Trade Preferences among Developing Countries and the Pan-Arab FTA grants preferential access to the markets of Iraq, Kuwait, Lebanon, Oman, Saudi Arabia, Syria, UAE, Yemen.

David Luke is coordinator at the African Trade Policy Centre, UN Economic Commission for Africa.

To read the original blog post, click here.

The post Why Trade Matters for African Development appeared first on WITA.

However, despite the manifold benefits of cloud-based outsourcing, some sectors have proved largely immune to its charms. One such is the investment management sector, where the majority of firms have long eschewed outsourcing their data management requirements.

Perhaps looking to maintain control of their data, these firms instead find themselves burdened with complex and costly ‘defensive’ data tasks, such as data quality assurance, standardisation, and validation. By and large, the approach taken by such firms is to invest in ETL tools, data warehouses, and enterprise data management systems – an approach that hampers agility and leads to rapid cost inflation.

Outsourcing momentum gathers pace

Finally, however, things are beginning to change. Every year, RIMES runs a survey of buy-side firms, with the aim of uncovering some of the trends driving data management in the space. This year, our survey found that three times as many firms are planning to outsource data management compared to last year. These findings are supported by other surveys, such as one by Northern Trust, which found that nearly half of global asset management firms are considering data management outsourcing.

From the conversations I’ve had with clients, one of the reasons data management outsourcing is increasingly in vogue is because firms are looking to do much more with their data. In the past, it was easy to relegate data management to the back-office, because it only really served back-office functions. Conversely today, firms are looking at how they can use data to enable and optimise middle, second line and front-office functions.

Such offensive data strategies seek to turn data into a competitive differentiator, but they only become possible when a good defensive data strategy is already in place. The danger is that as companies invest in offensive capabilities, they overlook the necessary operational data foundation. If this happens, firms may find that their investments fail to deliver as expected across scope, timelines, and cost.

A strong data foundation

This is where outsourcing comes into its own. By outsourcing the complex and non-core data sourcing, mastering, and governance processes that lie at the heart of defensive data strategies, firms can focus on the value-adding offensive capabilities that are core to their businesses and which help them generate alpha. Viewed this way, outsourcing data management becomes a foundation for the successful commercial exploitation of that data.

Within this overarching driver, there are a several other benefits that are coming together to make a compelling case for data outsourcing. These include:

Bridging the data skills gap – Data expertise is in short supply and is becoming more expensive to acquire as data management shifts from being a processing-centric task to one focused on business enablement. Managed data services provide on-demand access to the expertise and resources firms now need to thrive.

Lower cost of ownership – Outsourcers can leverage economies of scale to help reduce the cost of data management. By helping create a single unified data operation they can also ensure against the duplication of data licenses (our survey revealed that managing data license costs is still one of the most important priorities of firms). When underpinned by stringent SLAs these cost benefits become even more compelling for firms.

Greater commercial control and visibility – Finally, managed data services can help firms bring order to data management practices that can be unwieldly. Often, business users will use data in siloes, which can create governance issues and drive up costs. By taking data management as a service, firms can overcome this complexity and ensure one single, well-governed data framework is in place. What’s more, as outsourced services can be bought and paid for on consumption-based modelling, firms can easily scale their data according to need.

Cloud-based outsourcing has already transformed the way businesses operate in a large number of industries. The investment management sector is now undergoing its own transformation. Over the medium-term, the sector will become increasingly data-driven, and firms will secure or lose market share based on their data strategies and the operational insights and business models that their data enables.

As a first step, firms need to get their data management in order and secure a complete, accurate and timely source of data for all their operational needs. Clearly, taking this data as a managed service is making more and more sense. 

Andrew Barnett is the global head of product management at RIMES 

To view the full post, please click here.

The post Has Buy-Side Data Management Outsourcing Finally Come of Age? appeared first on WITA.

Two years ago, US President Donald J. Trump welcomed then President of the European Commission Jean-Claude Juncker to the White House to face off escalating trade tensions between Washington and Brussels, and ultimately to call a truce. It was an interesting sell for staffers on both sides of the Atlantic. US officials argued that ultimately the best thing to do was get the two in a room together to hash it out and give negotiators a fresh mandate after the Transatlantic Trade and Investment Partnership (TTIP) had fizzled and the US president threatened tariffs on automobiles—a cleverly identified Achilles heel for European exporters. For those of us in the Rose Garden that day, watching with disbelief as the two leaders delivered a hastily assembled joint statement that set us on the road to new talks, there was a giddy sense of relief but also a long sigh of recognition—our work would never be as easy as getting Trump and Juncker to kiss.

In his recent address at Chatham House, US Trade Representative Robert Lighthizer criticized the EU for negotiating seventy-seven individual trade agreements globally, promulgating European and not internationally arbitrated standards. Whether you believe the EU is justified in doing this is a matter of opinion, but what was more striking in this comment was not the criticism of Brussels, but what that number revealed about the transatlantic dilemma. Europe can take home ancillary prizes but the golden goose—an agreement with the United States—remains out of reach.

TTIP grew too big for its britches because of the sheer scope of the negotiating mandate, as experts and politicos set aside the prospect of a narrower agreement in the glow of the moment. But the rhetoric went even further. The United States and the European Union are a community of values—transparency, democracy, open markets—” so there is no reason why we can’t reach an agreement,” officials repeated, and “this should be the easiest thing.” It’s time to turn this argument on its head and manage expectations. Moving forward, let’s acknowledge that this is one of the hardest and most nuanced negotiations out there.

The United States and the EU are nearly equal-sized markets and are competitors. In many sectors they are near perfect competitors—witness the Airbus-Boeing standoff playing out in real-time—meaning there are fewer comparative advantages available to make concessions worthwhile. To take an easy example, let’s wager that both the United States and the EU want to import cheap textiles from Vietnam, and not from each other. Previous negotiations had gotten most tariff lines to zero, but the going gets tough on standards and regulation. Washington and Brussels each present two sophisticated and advanced regulatory frameworks, with equal claim to fairness and transparency, and an equally long list of the other’s transgressions. Geopolitics aside, it’s hard to see, by the analogy of game theory or just a chessboard, why either would give way.

But where can we show some leg? Tax and state aid. Let’s try and give an optimistic case for both.

Finance ministries have a way of getting along even while fighting. Like lawyers, economists like to exchange friendly fire over principle. The Trump administration’s sweeping tax reform caused many in Europe to bristle, not over politics but out of jealousy that the United States could push corporate rates through a glass floor. The OECD negotiations on digital taxation—derailed just as much by Congress as the coronavirus—will continue despite USTR’s bullseye on French wine. The European Court of Justice’s rejection of the Commission’s case against Apple last week is a lob into America’s court. Brussels had wrongly presumed that a proxy battle with a US tech company could lay a stake in EU tax harmonization because taking on Ireland would never survive a veto by the same. There is also reason for optimism that individual EU member states introducing autonomous regimes at the promise of the quick windfall will see their efforts backfire, especially as tech holds up a greater percentage of the corona-economy. The companies themselves have stopped trying to ax the concept and are now, reasonably, lobbying for clarity.

One of the greatest parries on the regulatory front surrounds state aid and public procurement, an unforgivable irony for two trade blocs waving the free trade flag. The United States has cleverly funneled sponsorship for technology innovation and heavy industry through defense budgets, and the Buy America Act, according to Brussels, is not even thinly veiled protectionism. Meanwhile, Washington maintains a longstanding bugaboo over Europe’s direct subsidies to key industries such as agriculture and manufacturing. In this area, both are equal sinners with constituencies that won’t take changes lightly. But things are moving. First, the coronavirus has shifted conversations on both sides of the Atlantic on what it means to be competitive to include structural changes within our economies. If the United States needs to introduce comprehensive unemployment insurance and a viable option for universal public health care, the European Union is learning the hard way (at the recent EU Summit for example) that fiscal heterogeneity is a lasting and dangerous holdover from the eurozone crisis.

Second, a parallel agenda in negotiations with China will eventually force a convergence of interests and tactics. Phase 2 of the proposed negotiations (when and if it starts) between Washington and Beijing, which should cover subsidies for state-owned enterprises, sounds a lot like the draft EU-China Investment Agreement (when and if those negotiations resume). The Capital Markets Working Group, comprised of US agencies examining the behavior of Chinese corporates in US markets, sounds like the EU’s recently amended competition policy, which requires third party participants to adhere to the rules of the Single Market. “Why are we going after each other when we need to go after China together?” is a common lament of the past years. On a hot, sticky July day in Washington, this author is cautiously optimistic that this convergence will occur in time to avoid irreparable damage to the global economy.

In the meantime, Brussels and Washington will chip away at the cracks in the areas identified two years ago in the Rose Garden. BusinessEurope’s excellent publication from this month provides an exhaustive list of a positive US-EU trade agenda. US and EU leaders don’t need to kiss (please don’t!), but they do need to recognize that fair competition, alongside cooperation, is the idea that our institutions dare to uphold.

Julia Friedlander is the C. Boyden Gray senior fellow and deputy director of the Global Business and Economics Program at the Atlantic Council. She has served as senior policy advisor for Europe at the US Treasury and director for European Union, Southern Europe, and Economic Affairs at the National Security Council from 2017 to 2019.

To view the original blog post at Atlantic Council, please click here

The post Perfect competition: Getting a US-EU trade deal was never going to be easy appeared first on WITA.

Nowcasting global poverty is not an easy task. It requires assumptions about how to forecast growth and how such growth will impact the poor, along with other complications such as how to calculate poverty for countries with outdated data or without data altogether. All of this goes to say that estimating how much global poverty will increase because of COVID-19 is challenging and comes with a lot of uncertainty. Others have tried to answer the question using general equilibrium models or by exploring what will happen if all countries’ growth rates decline a fixed amount. Here we’ll try to answer the question using household survey data and growth projections for 166 countries.

In particular, we take data from the latest year for which PovcalNet (an online tool provided by the World Bank for estimating global poverty) has poverty estimates for a country and extrapolate forward using the growth projections from the recently launched World Economic Outlook, in which global output is projected to contract by 3% in 2020. This approach assumes that countries’ growth accrues equally to everyone, or in other words that COVID-19 does not change inequality within countries (more on that below). Comparing these COVID-19-impacted forecasts with the forecasts from the previous edition of the World Economic Outlook from January allows for an assessment of the impact of the pandemic on global poverty. Of course other factors may have also worsened (or improved) countries’ growth outlooks between January and April but it’s safe to say that most of the changes in the forecasts are due to COVID-19.

A Flourish chart

Such forecasts reveal that COVID-19 is likely to cause the first increase in global poverty since 1998 , when the Asian Financial Crisis hit. With the new forecasts, global poverty—the share of the world’s population living on less than $1.90 per day—is projected to increase from 8.2% in 2019 to 8.6% in 2020, or from 632 million people to 665 million people. Compare this with the projected decline from 8.1% to 7.8% over the same time period using the previous World Economic Outlook forecasts. The slight change from 8.2% to 8.1% for 2019 happens because the revised growth forecasts also changed for non-COVID reasons for some countries. Taking this into account, it means that COVID-19 is driving a change in our 2020 estimate of the global poverty rate of 0.7 percentage points — (8.6%-8.2%)-(7.8%-8.1%). Another way to put this is that the estimates suggest that COVID-19 will push 49 million people into extreme poverty in 2020 . 

The places where the virus is taking its highest toll depends primarily on two factors: 1) the impact of the virus on economic activity and 2) the number of people living close to the international poverty line. IMF projects that advanced economies will contract by around 6% in 2020 while emerging markets and developing economies will contract by 1%. Yet with more people living close to the international poverty line the developing world, low- and middle-income countries will suffer the greatest consequences in terms of extreme poverty. Though Sub-Saharan Africa so far has been hit relatively less by the virus from a health perspective, our projections suggest that it will be the region hit hardest in terms of increased extreme poverty.  23 million of the people pushed into poverty are projected to be in Sub-Saharan Africa and 16 million in South Asia.

A Flourish chart

At the country-level, the three countries with the largest change in the number of poor are estimated to be India (12 million), Nigeria (5 million) and the Democratic Republic of Congo (2 million). Countries such as Indonesia, South Africa, and China are also forecasted to have more than one million people pushed into extreme poverty as a consequence of COVID-19. When looking at the impact of the pandemic on higher poverty lines, for example the number of people living on less than $3.20 or $5.50 per day, more than 100 million people will be pushed into poverty. Latin America & Caribbean, East Asia & Pacific and the Middle East & North Africa are all expected to have at least 10 million more people living on less than $5.50 per day. 

One way to gauge the uncertainty around these headline numbers is to explore what will happen under slightly more optimistic or pessimistic scenarios. For example, what would happen if growth in all countries were 1 percentage points lower or higher than the World Economic Outlook projections? And what would happen if COVID-19 changes inequality in countries? We know that low-income workers are more likely to lose their jobs as a result of COVID-19, but what does this imply for the poor in Sub-Saharan Africa, many of whom are subsistence farmers? And what about the many emergency packages countries have implemented to assist the most vulnerable households? And what about the decline in wealth from the fall in the stock market which is likely to hit the well-off most? COVID-19 will likely impact countries’ inequalities differently.

What would happen if alongside the deteriorated growth forecasts inequality as measured by the Gini coefficient increased or decreased by 1% in all countries in 2020? 1% changes in the Gini from year to year are very common, what is less common is that these changes go in the same direction in all countries. To measure the impact of increased inequality, we need to make another assumption: how is inequality increasing? Is COVID-19 only hurting the very bottom of the distribution or is the middle class also affected? Here we assume something closer to the latter (which in technical terms will amount to implementing the change in the Gini using a linear growth incidence curve, following this approach).

A Flourish chart

When changing the growth and inequality assumptions, the projections suggest global poverty estimates in the range of 8.4% and 8.8%, or in other words that the number of people pushed into extreme poverty will be roughly between 40 and 60 million. In the more pessimistic scenarios, global poverty in 2020 would be close to the level in 2017—meaning that world’s progress in eliminating extreme poverty would be set back by three years.

The post The impact of COVID-19 (Coronavirus) on global poverty: Why Sub-Saharan Africa might be the region hardest hit appeared first on WITA.

To view the full report, please click here

The post Appellate Body issues report regarding US duties on Canadian paper appeared first on WITA.

The fact is, however, that the trade deficit has nothing to do with unfair trade and everything to do with the world’s confidence in the U.S. economy. If anything, annual trade deficits mean the United States is winning hundreds of billions of dollars in net inflows of foreign investment every year. Inward investment — rather than export growth — is the real prize of international competition and it tends to reward good policies.

The United States has long been the world’s premiere destination for foreign direct investment. In 2017, the accumulated stock of FDI in the United States surpassed $4 trillion, which accounts for nearly 25 percent of the total global stock. By comparison, the second largest destination is Hong Kong, which accounts for 6 percent. China and the United Kingdom account for roughly 5 percent each.

With one out of every four dollars of global FDI invested in U.S. subsidiaries of foreign headquartered companies (“international companies”), the United States enjoys economic advantages that no other country has. A reportpublished this morning by the Organization for International Investmentdocuments the significant contributions of these companies to the U.S. economy.

These international companies tend to be among the best in their industries, having succeeded in their home markets before taking their best practices and testing their mettle abroad. They have contributed disproportionately to U.S. economic performance over the years, as observed across of variety of objective measures. Even though these entities as a group comprise a mere 1.3 percent of all U.S. businesses, collectively they punch well above their weight, accounting for:

• 5.5 percent of all private‐​sector employment
• 6.5 percent of U.S. GDP (private‐​sector value added)
• 14.8 percent of U.S. private‐​sector employee benefits
• 16.0 percent of new private‐​sector, non‐​residential capital investment
• 16.7 percent of private‐​sector research and development spending
• 17.1 percent of all corporate federal taxes paid
• 23.5 percent of U.S. exports
• 24.3 percent higher worker compensation than the U.S. private‐​sector average

These direct contributions — and there are many more telling statistics in the report — provide only a partial picture of the impact of international companies on the economy. The full story must take into account the related economic activity that is spurred upstream of these companies with their suppliers, vendors, and intermediate goods’ providers, as well as the activity generated downstream through the spending of their employees.

It must also consider the effects of these companies on the U.S. economy over time through the reactions of domestic companies rising to the challenge of new competition, the residual benefits delivered through technology spillovers, the adoption of best practices in governance and workplace management, and the hybridization and evolution of ideas that make companies more efficient, more pioneering, and more exciting places to work.

Despite President Trump’s claims that trade killed U.S. manufacturing and that his mix of policies and threatening tweets will draw factories and their workers back to the United States, the fact is that over $1.6 trillion (40%) of that FDI is parked in U.S. manufacturing operations. That is by far the largest amount of FDI in any country’s manufacturing sector. If there’s been a race to the bottom driving factories south of the border and overseas, somebody forgot to tell foreign‐​headquartered companies, which continue to remain bullish on U.S. manufacturing.

Over one‐​fifth (20.7%) of the U.S. manufacturing sector’s GDP is generated by these international companies, which account for one‐​fifth (19.9%) of total U.S. manufacturing employment. They account for almost half of all property, plant, and equipment expenditures in the manufacturing sector (45.2%), over 17 percent of all manufacturing‐​sector R&D spending, and their effective tax rates exceed the U.S. manufacturing average by 35.8 percent.

What the OFII report shows is that international companies contribute significantly to the U.S. economy, raising average economic performance across a wide range of pertinent metrics through their direct contributions, but also because their presence and participation in U.S. markets brings out the best in incumbent domestic firms.

The report presents new and compelling evidence that international companies increase U.S. economic growth, vitality, and diversity well beyond the levels that would obtain without their contributions, and that U.S. policies should be designed to attract more of these companies — and more of their intellectual and financial capital — to U.S. shores.

Foreign investment in the United States is a barometer of the faith of the rest of the world that the U.S. economy is safe and strong, and will perform well, prospectively, relative to other economies. Meanwhile, investment is essential to economic growth and higher living standards. To remain atop global value chains and at the technological frontier, the U.S. economy requires continuous inflows of fresh capital to replenish the machinery, software, laboratories, research centers, and high‐​end manufacturing facilities that harness our human capital, animate new ideas, and create wealth.

Over the years, foreign companies have contributed significantly to the satisfaction of those capital requirements. With the world’s largest consumer market, relatively transparent business and regulatory environments, a skilled and productive workforce, an innovative culture, and deep and broad capital markets to commercialize that innovation, the United States has some big advantages in the global competition to attract investment.

Although the United States accounts for nearly a quarter of the global FDI stock, the U.S. share was much a much larger 37 percent, as recently as 2000. Since then, the competition for FDI has been intensifying.

By growing their economies, improving the education and skills of their workforces, strengthening the rule of law, implementing reforms to make their business climates more predictable, and adopting other best practices, countries once considered too risky have started to become viable competitors for a growing share of that investment.

To view the full blog, click here.

The post The Economic Bedrock of Foreign Direct Investment appeared first on WITA.