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International Cooperation towards the future: Achieving Governance

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] I [/yt_dropcap]n our actual international scenario, international relations play a key role, not just to prevent conflicts but also to foster development and better life conditions. As a globalized international society, we live a reality of interdependence and interconnections, thus international cooperation profiles as a necessity to every country in the world.

Due to this globalization and interdependence, every action, even the most local, has a repercussion at an international level, so an international conflict has negative results, politically and economically speaking to the countries involved directly and to those indirectly involved. In this context, the countries are changing their strategies and actions at the international level, by fostering international cooperation, especially for development.

International Cooperation for Development (ICD) can be defined as the mobilization of technical, economic and human resources to foster wellness, capabilities and better life conditions in other countries.

Since the Paris Declaration of Development Aid in 2005, the efforts to foster and guide effectively ICD have been very strong, by developed and in-development countries. The Paris Declaration was a watershed in this topic, mainly by 2 facts:

The language changed from “receptors” of ICD or aid to “partners”, becoming “cooperation from donors to partners” instead of “cooperation from donors to receptors”, in this way partners are not labeled as the weak players of the relation; moreover, they become literally partners of development with donors.

And most important: the principles of ICD were established: appropriation, alignment, harmonization, results oriented management and mutual responsibility.

In appropriation, the partner countries take the agenda as their own, self-defining the key topics to receive ICD/aid. Alignment, close related to appropriation, means that donors align to the partners’ agenda and partners align to the accountability system of donors. Harmonization refers to share data and have a common database about ICD/aid, and to align procedures to facilitate the goals achievement. Mutual responsibility is very clear and results oriented management is crucial; it means that the resources have to be destined to the means for which they were received and have to be based in development plans of the countries.

In these principles there are included implicitly aspects like transparency, inclusion, accountability and obviously governance, and that is where citizen participation at national and local level gains importance.

These recent principles have made that both donors and partners restructure the way they cooperate and incorporate the principles to establish new agendas of ICD.

It is very important to note that the countries leading these efforts are not developed countries, the leading countries are emerging powers and in-development countries like China, Brazil, South Korea, Russia, Mexico, Australia and others.

With these important changes in international cooperation, non-traditional forms of ICD have been surging like horizontal or south-south and triangular cooperation.

The horizontal or south-south cooperation involves 2 or more in-developing countries or emerging powers, that’s why it is called south-south. This type of cooperation usually focuses in technical aspects and capabilities formation, for example: the cooperation projects between Mexico and Colombia.

The triangular cooperation develops when a developed country or emerging power gives financial or technical support to a country with medium development level, which aids a third country with less development level with technical and/or scientific cooperation.

These 2 types of cooperation are constituting the majority of ICD, due mainly to the rise of emerging powers like China, Russia, Brazil and others.

As stated previously one of the main goals of ICD is building governance and capabilities for in-development countries, this issue has been stated constantly at international summits about development, the most recent example of this is the sustainable development summit of RIO +20, which gave place for the post-2015 agenda and the sustainable development goals (SDG).

The Paris summit has helped the countries to focus on aspects of development such as the mentioned before, but also the Monterrey summit of international aid, realized in 2002. As the most relevant results of the summit, the majority of the emerging powers, donors and partners agreed on the necessity to include and support NGO’s (or non-profit) as leading actor of development.

Since the beginning of 21st. century, more and more donors have included the requisite of “good government” to aid developing countries, which includes aspects like transparency, accountability and governance.

To achieve governance it is needed the participation of different actors from government, and also to include local actors to achieve development goals in countries. These different actors are NGOs, businesses and community groups, not only at the national level but also at local level. Due to this, citizen participation becomes an important actor for development, especially at the local level.

Citizen participation means that citizens interact with governments, not only in the decision-making process but also in the making of public policies and programs in the communities, and that translates directly into democratic governance; which is the post-government process where different agents take part in the making and preserve of the public policies, programs and actions from the local to national level.

As NGO’s and citizen participation gains importance, the urge for including them in the ICD process becomes more and more pressing. Even to be considered at United Nations agenda as key agents to achieve development goals. However, a broader support economically, socially and politically speaking to NGOs is needed.

In addition, the lack of participation and dialogue of NGOs is considered a problem for donors when cooperating with developing countries, constituting an indicator of a “fragile State”, which may lead to corruption and misuse of the resources received for development means. That’s why the international community has been debating about including more and more the civil society (especially NGOs) in the formulation of national development plans.

Inclusion of NGOs at the local level goes hand by hand to building capabilities in local governments to foster local responsiveness, accountability and transparency. Moreover, the internationalization of local governments and paradiplomacy are actions that foster ICD and local and regional development.

This is closely related to rescaling, in which the State restructures economically and politically to adapt to the globalized and interdependent scenario, which changes the territorial, economic, political and social constitution of the countries.

The international efforts to foster development include these new focuses; local and regional development, democratic governance, paradiplomacy, and obviously ICD.

That’s why (as stated before) the newest international agenda, the post-2015 agenda, includes 17 goals which will operate until 2030 with an inclusive, innovative and integral focus to be accomplished.

The Agenda was made by the active participation of developing countries in the creation of the goals, with both governmental and nongovernmental entities contributing to the global debate. This agenda calls for a multi-stakeholder approach, which encourages local governments, civil society (NGOs, community organizations) to become development partners and take joint action with governments.

One of the key concerns of this agenda is the institutional capacity of local governments to implement the goals. Governments need to strengthen the capacity of local entities to deliver and implement the goals.

The different Stakeholders involvement will ensure the government’s accountability and responsiveness to its citizens. Therefore, all stakeholders will have an important role in the accountability measures and mechanisms.

Civil society entities, such as NGOs must play a crucial role in the implementation of the sustainable development goals (SDGs) by being agents that respond to the wellbeing of citizens, by having accountability, responsiveness, transparency and being an active follower and reviewer of government actions to implement and achieve the SDGs.

Being the first year of the SDGs official launch, it is tremendously important to begin to take action now in fostering governance by including different agents such as NGOs and local businesses, the alliances will mark the success or failure of these brand-new goals; as the 17th goal establishes “Strengthen the means of implementation and revitalize the global partnership for sustainable development”, countries, businesses and citizenship have to be united and work together to improve development levels in the communities.

We, the people, have the right and duty to be an active part of our development.

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Economy

What an ‘Impossibility Clause’ can make possible

Mehrnoosh Aryanpour

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Since the implementation of the JCPOA in January of 2016, and throughout the current period of accelerating investment by foreign enterprises in Iran, many participants have taken for granted that in the event of a “Snapback” or the reimposition of UN, U.S. and EU sanctions under the provisions of the JCPOA, foreigners must perforce exit all investments in Iran and Iran’s major industries would be relegated to the shadows as an unlawful destination for foreign capital.

The operative assumption has been that any such reimposition of sanctions under a Snapback scenario would make it “impossible” for such foreign participants to maintain, lawfully, their investments in the various projects within Iran, investment they have made a huge effort to structure and uphold in the still-new era of significantly relaxed sanctions.  In fact, the very idea of the impossibility of maintaining significant investments in Iran under such sanctions has become something of a fixation. To the dismay of Iranian partners in various ventures, their foreign partners tend to focus on securing their own interests, rights, and recompense under a Snapback. An efficient exit strategy is often sought.

In reality, those who are here on the ground in Iran know that, regardless of the whims of the American President or the vicissitudes of foreign capital flows, the continued development and renovation of Iran’s domestic economy, both in terms of absolute production, as well as in terms of sophistication, efficiency, and integration, will continue apace, and therefore, the wiser among the stewards of foreign investment in Iran understand that it is as much a question of ensuring business continuity for their Iranian-Foreign joint venture projects despite changing international sanctions regimes, which have been imposed by the West against Iran for decades.

As a result, the most basic and fundamental considerations for any prospective foreign project participant and its Iranian partner become:

1. How the foreign participant can, through appropriately drafted “Impossibility Clause(s)”, remain invested in the Iranian venture for as long as possible under the threat of renewed or reimposed sanctions, and without incurring unacceptable risk.

2. How the foreign participant can contractually envision the broadest range of adverse sanctions scenarios through a single and efficient impossibility mechanism.

3. How the foreign participant can provide for a gradual approach to any putative withdrawal procedure, as opposed to the simplistic solution of outright termination upon Snapback after a period of suspension.

4. How the foreign participant can, in the event of the extinguishment of impossibility, subsequent relaxation or obtained exemption of sanctions, reasonably provide for the right, or at least the option, for itself to reenter an investment project which it may have exited because of Snapback.

The legal thought process underpinning successful solutions which industry practitioners may be likely to embrace is beyond the scope of this article, but the conceptual summary can be a useful guide for all of us as we come to grips with what can be made possible by “Impossibility Clauses”.

1. Remaining invested, minimizing risk: Of course, it is true that for many projects, a direct investment by the foreign participant though its stake in an Iranian joint venture entity may be the most straightforward means of effecting the transfer of capital that allows the foreign party to have a stake in a project.  It also allows for the simplest mechanism by which a foreign party may apply for and successfully obtain an investment license in accordance with the Foreign Investment Promotion and Protection Act.

Nonetheless, such a direct investment may, particularly in the case of European entities which also do business in U.S. jurisdictions or in jurisdictions which have significant links with the U.S. financial system, provide little or no cushion under even the most benign reimposition of any form of secondary sanctions.  This is because the direct investment leaves the foreign party little room to maneuver by way of restructuring or otherwise allocating its participatory interest in the project as sanctions change.

For this reason, a more effective solution could include the formation of a foreign special purpose vehicle to act for the project entity.  In the case of a joint venture, an SPV incorporated in a jurisdiction less likely to be adversely affected by reimposition of sanctions would allow for a more flexible platform to facilitate intelligent solutions such as exit and re-entry options, trustee or agency relationships, and contingent sale-repurchase strategies to prepare for the worst outcome of a sanctions scenario which may force a foreign party to exit Iranian investment.

2.Knowing unknowns, counting uncountables: Even now, with the most recently issued ultimatum by the American President declaring that the end of the JCPOA as we know it is nigh (to be either amended or abrogated, if Mr. Trump is to be believed), there exists a wide variety of circumstances involving the reimposition of sanctions, ranging from those that would make the maintenance of an interest in a project by a foreign party merely inconvenient to those which would make maintaining such an interest lawfully untenable.   These may range from largely toothless, otherwise symbolic targeted secondary sanctions which apply only to the entities of specific countries, as we have continued to see since Trump’s October 2017 decertification, or those which may apply only to certain economic sectors or types of goods or projects, to those which render further financial flows in support of such a project functionally impracticable.  Most challenging of all would be the failure of the UN to continue to waive the imposition of sanctions against Iran.

Thus, a single mechanism to classify sanctions in some way as materially adverse changes and evaluate consequences seems a more pragmatic solution than contemplating what may constitute an “impossibility” event, and including it under grounds for termination.

Under a scenario in which the foreign party has made appropriate structuring preparations as suggested, the determining exit remedies depends on compliance with mandatory applicable laws of the project vehicle’s jurisdiction.  To put it another way, the most straightforward test of whether the foreign party may have to adjust, or exit from its participation, comes down to whether it can fulfill project obligations while abiding by all applicable regulations that may apply to it.  Beyond such a litmus test, imagining or prognosticating about the myriad complexities of a possible Snapback scenario may be fruitless and contractually inefficient.

3.Avoiding the black-and-white trap: Of course, a foreign project participant can easily avail itself of the opportunity to stipulate that under any kind of scenario of project impracticability caused by sanctions, certain or envisioned, termination shall be the one and only prescribed remedy.

But this is likely to disadvantage the foreign party in the context of negotiations over comprehensive project terms with its Iranian counterparty, and it may limit the scope of the project work itself and fail to allow for a more complex investment structure which cannot survive the threat of termination overnight due to a “Snapback” of one kind or another.

Aside from termination, and its precursor remedy, suspension, there should also be the possibility to contemplate a variety of concepts including assignment, agency and delegation, in order to benefit from the vagaries of sanctions regulations and their exemptions. In some cases, project obligations which would be in violation of sanctions for some foreign entities may not be so for others.  As has been shown by the agreements between foreign export credit agencies (“ECA”s) such as EKF, BPI and Invitalia, developments at an international level, especially where adequate sovereign support and sufficiently ringfenced banking facilities exist, are being contemplated to facilitate the kind of continuity required for the decades-long projects now underway in Iran.   In addition to these ECAs, other parties such as quasi-sovereign corporations, particularly those from less dollarized jurisdictions, can play a role as fallback transferees of the exiting foreigner’s project interest or shares under Snapback.  Moreover, it should always be noted that under even the most negative circumstances, the potential for a foreign party to obtain a waiver does exist and can be specified for the benefit of all parties.

4.Saving face, weighing options: Although some foreign entities have a checkered past derived from cutting and running under the threat of or the actual imposition of sanctions against Iran, time has shown that many of the same foreign parties which were forced, or chose, to exit their project ventures are the first ones to have returned since the JCPOA. Such is the compelling nature of Iran as a destination for foreign capital.

Iranian parties to a project know both this history itself and its implications. Foreign participants may wish to keep close to the exits, but foreign companies that have been victimized by their own government’s whims regarding sanctions, and the slippage inherent in exiting and reentering, cannot be understated.
For this reason, foreign project partners may choose to consider the solution of exit and entry “options” for themselves under adverse sanction scenarios, and thus it is important for all parties involved to understand what an “option” precisely means, and how to value such an option.

In financial speak, an option is defined as the right but not the obligation to sell (or buy) an asset in a fixed quantity at a fixed price on (or before) a fixed date in time.  In the case in question, the asset is the participatory interest of the foreign party in the Iranian project, and the date is that point in time at when the parties to a project agree that the foreign party must leave due to sanctions (or is able to re-enter due to easing of sanctions).

However, it is not obvious immediately what the fixed price should be for foreign project interest at the time of exit or re-entry, and, most importantly, what may be overlooked is the tremendous value that such an option has.  In finance, the greater the underlying uncertainty about an asset, the more valuable any option on that uncertain asset is. Similarly, the longer the life of an option on an asset, the more valuable that option is.  In the context of long term investments, any option to exit (or re-enter) should be linked with a significant premium (that is, the worth of the option), and the contract parties should ensure that they successfully negotiate an appropriately fair value for the flexibility the options offer. As an illustrative example, the alternative to any exit put option for the foreign party is a fire-sale in the face of illiquid conditions for its share interest under the menace of reimposed international sanctions, or more problematic still, the inability to exit its share interest altogether, which an option is supposed to protect against.

Absent a foreign investor’s legal immunity to the whims of the UN, OFAC, or other authorities, there is no perfect panacea for fool proofing long-term Iranian projects against the kind of uncertainty which the spectre of sanctions create.  But although this threat, to a certain extent, has forestalled the growth in Iran’s industry and economy despite the strengthening of Iran’s relationships with the international community, it is now apparent, moreso than ever before, that foreign parties can be expected to take an increasingly pragmatic approach in efforts to remain engaged with their Iranian projects for as long as possible.  They can effectively do so by allowing for the most flexible and broad classification of sanctions-related termination risks, by specifying a menu of contractually stipulated responses to reimposed sanctions (in conjunction with intelligent and pre-emptive project structuring) and by exchanging due consideration with the Iranian party for the invaluable options which allow them to remain confident that they can, if absolutely necessary, exit the project and someday re-enter, at a fair price.

Thus, it seems that the operative watchword for all foreign investors in Iran is continuity: continuity of the progression towards innovation, development and growth, and continuity of the participation of foreign interests in that process, bolstered by intelligent structuring solutions, both legal and financial, for dealing with the complicated reality of international economic sanctions.  With a measure of foresight, and a functional, flexible contractual framework, all participants in long-term, large-scale project joint ventures can move closer to the ideal of mitigating most, if not all, of the adverse consequences of sanctions regulations on investment decisions and risk management.

First published in our partner Tehran Times

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Economy

Creating Quality Jobs Crucial to Boost Productivity, Growth in Indonesia

MD Staff

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Indonesia must create good and quality jobs to help increase the country’s productivity and competitiveness for sustained and inclusive growth, says a new Asian Development Bank (ADB) study.

The study, titled Indonesia: Enhancing Productivity through Quality Jobs, takes an in-depth look at the challenges in creating better jobs and raising the country’s labor productivity, as well as the necessary skills needed for a youthful and increasingly better educated workforce to meet the demands of the digital age. The publication was launched today at an event in Jakarta hosted by ADB and the Coordinating Ministry for Economic Affairs.

“Indonesia has a tremendous potential to capitalize on its youthful workforce by addressing the country’s long-term challenges to job creation and inclusive growth,” said Rudy Salahuddin, Deputy Minister for Creative Economy, Entrepreneurship, and SME Competitiveness, Coordinating Ministry for Economic Affairs.

“Not only does the country need to create a more skilled workforce, but it also needs to adjust to new global patterns of technology and the demand for new skills,” said Bambang Susantono, ADB Vice-President for Knowledge Management and Sustainable Development.

The study provides three key messages on how to create good and quality jobs for Indonesia’s large workforce. First, improved education and skills development are necessary to create enough quality jobs to raise productivity. Second, as urban jobs are expanding faster, supportive public policies for sustainable cities are fundamental in generating quality jobs. Lastly, there should be continued efforts to improve labor market institutions and regulations that promote a wider range of employment options and better income security for workers.

The study identifies policy initiatives focused on creating better jobs in the labor market, raising labor productivity, and facilitating worker adjustment to the challenges of the digital age. These issues are addressed both from the supply side and from the demand side of the labor market. Policymakers should ensure that initiatives aimed at increasing productivity also target the poor, women, older people, and other disadvantaged groups.

Labor market institutions like private businesses, small-scale enterprises, and community groups also play a critical role in helping improve the employability of Indonesians. Combining new work opportunities with new technology, ideas, and organization will raise productivity and contribute to improved living standards.

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Economy

Agriculture Is Creating Higher Income Jobs in Half of EU Member States but Others Are Struggling

MD Staff

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Half of EU member states have leveraged the Common Agricultural Policy (CAP) to significantly reduce poverty and drive higher incomes in farming, while other countries are still lagging, according to the latest World Bank study.

The ‘Thinking CAP’ report details how new investments and services in farming, reinforced by the EU’s flagship agriculture policy, can drive down poverty and transform agriculture into a sector which can provide higher paying jobs for those who farm.

Hungary, Slovakia, Estonia, Denmark and the Netherlands are all examples of member states that have successfully modernized their agricultural sectors by providing advisory services, roads, secure property rights and access to education and health services in rural areas. Others, such as Bulgaria, Portugal, Romania, Slovenia and Greece, still have some way to go in reducing poverty and ensuring that agricultural work pays. They can do so by improving the basic conditions for a successful agricultural sector, which would improve the results of the financial investments available under the CAP. Other remaining member states fall in between these two categories – achieving a successful transformation or lagging behind.

“Agriculture and poverty in half of the member states of the EU no longer go hand-in-hand. It’s clear that the income gap between agriculture and other sectors is narrowing and in some countries, such as the Netherlands, agricultural work can pay more than jobs in other sectors,” says Arup Banerji, Regional Director for the European Union Countries at the World Bank. “Today, about half of EU member states recognize that farming can boost shared prosperity, while the other half still has some work to do to provide the basic conditions to bring about necessary structural changes.”

The World Bank report shows that the EU CAP is associated with improving employment conditions in farming. Decoupled payments – annual payments based on how much land a farmer uses – and the co-financing of on-farm investments do show clear links with improvements in agriculture. For instance, in the newer member states agricultural labor productivity growth increases from 3.1 percent to 4.7 percent per year with a 10 percent increase in this type of CAP spending. However, there are certain categories of subsidy – known as coupled payments, which reward farmers for producing a particular crop or livestock— for which the report could find no such association. In the past, these coupled payments also led to extreme overproduction and price distortion on global markets.

“Some countries are running before they can walk by issuing payments to farmers who don’t have the necessary infrastructure to effectively bring their products to market or to make the best use of their investment,” said Rogier van den Brink, Lead Economist at the World Bank. “However, the processes the CAP has put in place are impressive. The CAP casts a very wide net and reaches farmers in every far-flung corner of the EU. Because of this, improvements in the CAP along the lines of the recommendations outlined in our report will further strengthen its role as a powerful instrument of structural transformation.”

Going forward, the report says the monitoring of CAP funds should focus on delivering tangible results rather than confusing bureaucratic processes. This would also encourage the co-financing of private investment into CAP-supported projects which are in the public interest such as environmentally sound practices, organic farming and animal welfare.

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