Category Archives: Investing
The below are excerpts from an article originally appearing in World Politics Review.
The conditions for revolt or revolution to spread throughout society are reasonably well established: First, the national government must be closed to broad participation or popular control. Second, the government must be weakened by some sort of crisis. This crisis may be a material one, such as a military or development failure, fiscal distress, sustained inflation or sharp spikes in food prices. Or the crisis may be ideological, as when a government seeks to impose an ideology that is widely opposed by its own elites, or when a government is seen as compromised by identification with foreign enemies. Or it may be a succession crisis that leads elites to shift allegiances and contend for power in a coming leadership change. Several of these items may combine to create a widespread sense of uncertainty and anxiety about the future.
In such periods of social anxiety, a great deal depends on which groups are willing to support the regime and which groups still perceive the leadership as legitimate. Governments that are perceived as just and effective generally retain the support of key elites and thus popular groups; they are therefore quite resistant in the face of . . . challenges. On the other hand, states that are widely considered ineffective or unjust by their population rapidly lose key supporters and can succumb with astounding quickness in the face of challenges — as in the Philippines in 1986, the Soviet Union in 1989 and Tunisia and Egypt in 2010-2011. (more…)
There has been a lot of bad news out of West Africa recently. Coup d’états have destabilized Mali and Guinea-Bissau. Nigeria has seen a series of terrorist attacks. Toureg rebels have conquered northern Mali and declared independence. Cote d’Ivoire is still recovering from its civil war. Meanwhile, there are reports about drug trafficking, al-Qaeda in the Maghreb, and a food crisis in the making.
No region in the world has more fragile states than West Africa. The region, which consists of the fifteen countries stretching from Senegal to Nigeria, exemplifies the problems of state building when surrounded by other fragile states. Pint-sized, expensive markets keep most countries isolated from the dynamic changes globalization is bringing elsewhere. The region’s aggregate GDP is roughly the same as Norway’s—despite having over fifty times more people. Although Ghana and Senegal have made significant political and/or economic gains in recent years, most of the other states have been rocked by war, ethnic or religious clashes, political unrest, famine, or serious economic dislocation at various times over the past two decades. (more…)
Cross-posted at Global Dashboard.
Corruption is generally vilified as an unmitigated evil. It disenfranchises the poor, weakens public services, reduces investment, and holds back whole societies. And yet, in some instances, corruption can actually be very useful, lubricating business in a way that promotes growth, creates jobs, helps smooth the introduction of needed reforms, and reduces poverty.
What explains this paradox? (more…)
Economies that cannot produce jobs often produce crises instead.
While the Arab Spring is ostensibly about democracy, it is really about dignity, and good jobs are an essential component of this.
But the instability the protests have unleashed is scaring away investors and hurting economies. It risks undermining one of the main desires of protestors–for more satisfying work.
Tunisia is the canary bird for the whole region. It erupted first, held elections first, and arguably has the best chance to construct a new regime that works well enough to meet the demands of citizens for a better life. If it cannot succeed, the whole region is likely to struggle. (more…)
Cross-posted from Global Dashboard
Most people in the West believe that Pakistan is an unstable country on the verge of imminent collapse or an explosion of violence. It is consistently portrayed—by politicians, policymakers, and the media—as the most dangerous and dysfunctional state in the world, struggling with terrorism, an out-of-control military, and interreligious conflict.
And yet, Pakistan is included on Goldman Sachs’ list of the next eleven (N-11) most important emerging markets. Although it has (along with Nigeria and Bangladesh) “broad and systematic issues across a range of areas” that will prevent it from fully delivering on its growth potential, the country’s large population (it currently has 180 million people) assures its inclusion. Indeed, within a generation, Pakistan will have the fourth largest number of people in the world, behind only India, China, and the United States, and be a market too significant to ignore. (more…)
Low income countries (LICs) did remarkably well during the crisis. Their annual GDP growth rate declined less than 1 percentage point in 2008 (to 4.7 percent in 2009) and quickly recovered (to 5.9 percent in 2010). Some, such as Ethiopia, Mozambique, Tanzania, and Zambia showed no ill effects, generating growth over 6 percent throughout this period.
There is little doubt that LICs ever-increasing linkages with the BRICs and other large emerging economies provided significant support to their growth during the crisis.
The ever increasing ties between the two groups of countries will bring many benefits to the world’s poorest states. As Justin Yifu Lin, Chief Economist at the World Bank, explains on his blog: (more…)
Fragile states are hard to classify: are they a danger to be avoided or an opportunity to be sought?
This conundrum is especially sharp in the bigger countries that may have large markets worth tapping, great tourist sites worth visiting, or a large number of people worth helping.
Mexico is not really a fragile state, but the rise in drug-related violence and its continuing problems with weak institutions give it some of the same characteristics. (more…)
In the years since the financial crisis broke upon the high-income countries, the economic performance of the biggest emerging countries has been remarkable. One of the reasons for this success has been the high degree of fiscal and monetary firepower available to boost demand, making up for shortfalls elsewhere.
Although emerging markets as a whole continue to have substantial room to maneuver, this is not universally true. Some governments are in a much better position than others. And there is a real risk that if another economic shock occurs (because of an oil-price jump – perhaps following conflict in the Gulf – or a collapse of the eurozone), those without the wiggle-room to respond will be vulnerable. (more…)
Cross-posted from Global Dashboard.
Indonesia, sometimes known as the “fifth BRIC” (after Brazil Russia India China) because of its population size and growth potential, now has debt rated at investment grade for the first time since the Asian financial crisis:
While a credit-rating cut hangs over some nations, the Southeast Asian giant’s sovereign debt has been bumped back up to investment grade by Fitch Ratings, in December, and Moody’s Investors Service this week. Standard & Poor’s will surely follow suit.
Investors have already rewarded the country for solid fundamentals—foreign direct investment grew 20.2% last year to a record $19.3 billion, the government said Thursday, and, earlier this month, Indonesia sold 30-year bonds at a record-low yield of 5.375%. Meanwhile, gross domestic product growth is trotting along at a healthy 6%-plus, public debt is under control, and inflation is relatively benign at under 6%. Still, there are reasons to be cautious.
Corruption and weak infrastructure are perennial problems. Crumbling roads and inadequate ports especially stifle trade, costing as much as 1% of GDP, according to analysts. A recently enacted land acquisition bill should help. But there is much work to be done.
While India and China gain many more headlines, Indonesia may be both a more attractive bet for investors and a better case study for development professionals trying to find lessons applicable to less developed countries.
Fragile states can be good places to invest in. Of course, you have to choose the country and the method wisely. But given the dearth of competition and sometimes very rapid (if not very consistent) growth, opportunities abound. Although I would not mortgage the house for most of the below (except maybe Mongolia), it is interesting to note that most of the countries forecast to grow the fastest (by the Economist Intelligence Unit) in 2012 are fragile states. In contrast, most of the fastest shrinkers are well developed places in Europe.