The Greeks have received all the blame for the crisis, but the bankers in Frankfurt deserve the lion’s share of the culpability for making such ill-advised loans in the first place.
In 1919, the European nations that had prevailed in WWI imposed onerous peace terms on Germany via the Treaty of Versailles. The harsh economic sanctions and reparations imposed on Germany led to economic catastrophe, massive unemployment, hyperinflation and eventual political turmoil, which led to the rise of fascism a little more than a decade later. After only five years of strict enforcement, France finally relented and canceled some of the more onerous terms of the treaty, but by then the economic and political forces in Germany that would see the rise of Adolph Hitler were already in motion. The Second World War was already inevitable.
The insistence of the WWI allies on political humiliation and economic punishment for Germany presents a remarkable parallel to the position taken by German chancellor Angela Merkel over the question of economic austerity and debt repayment for Greece and other heavily indebted nations in Europe. After the human and economic pain of losing two world wars, is it possible that Germany’s leadership has not learned the key lesson of economics, namely that benevolence is always a better course than retribution? Just ask Vladimir Putin of Russia, who has set back his nation’s economy by decades in order to resist the fearsome specter of a Ukrainian free trade agreement with the EU.
As Fred Feldkamp noted, Adam Smith demonstrated more than two centuries ago that benevolence is the driving force by which the invisible hand of economics can produce optimal benefits. The work of Smith in “The Wealth of Nations” supports the approach of Washington with the post-WWII Marshall Plan, whereby the United States rebuilt much of the industrial world using debt forgiveness and copious amounts of new credit. All nations benefitted from America’s generosity. Smith also demonstrates the futility of nations that attempt to punish actual or potential trading partners via reparations and other sanctions, like those applied to Germany via the Versailles Treaty.
By insisting on austerity to enable repayment of debt by nations such as Greece and Spain, to use just two examples, Germany is repeating the very same mistakes that led to disaster for Europe in the 1920s and 1930s. We need to keep in mind that Germany, France and other larger EU nations extended loans to nations like Greece in order to drive exports of goods and services. A lot of short-sighted politicians, corporate executives and bankers enabled this process of lending to a nation that clearly lacked the ability to repay. And now no one in the major capitals of the EU wants to talk about debt restructuring for Greece and other southern European nations.
“There is an odious component in Greece’s sovereign debt,” notes Berlin-based analyst Achim Duebel. “There have also been already two rounds of Greek debt restructuring, but of course the creditors have in the meantime changed.”
The elections in Greece have brought to power Syriza, a left-wing nationalist tendency that bypassed the existing political parties on a platform of rejecting the German-imposed austerity and debt rescue plan, a scheme which essentially requires Greece to follow in the footsteps of 1920s Germany. Greece’s new finance minister, Yanis Varoufakis, has denounced German-inspired threats by the European Central Bank (ECB) to cut off funding for Greek banks as “political intimidation,” “warning in fiery language that his country’s democratic revolution will not be crushed into submission,” reports the London Telegraph.
Meanwhile in Spain, a poll showed this week that the anti-austerity Podemos party would come second in an election to the ruling People’s Party, but ahead of the Socialists. “Support for the conservative People’s Party (PP) and the Socialists,” Reuters reports, “the two dominant parties since Spain’s return to democracy in the late 1970s, has fallen to a record low after a series of corruption scandals and tough welfare cuts.”
As with Syriza, Podemos is a relatively new political party—in fact, less than a year old. But this insurgent bloc now threatens to force the ruling Socialist Party into a coalition, if not take the election at the end of 2015 outright. But in both Greece and Spain, the central lesson is that austerity in the name of paying foreign creditors does not sell, either in economic or political terms.
Germany and the other core nations of the EU need to admit that much of the debt incurred by Spain and Greece was unsustainable from the start and was only extended to drive the appearance of economic growth in the EU. Just as the United States used a domestic housing finance boom in the 2000s to fashion the pretense of economic solidity, the loans to Greece were likewise a canard.
Without a change in the stance taken by the ECB and, behind it, the German financial and business establishment, the politics of Europe will continue to radicalize and deteriorate in an almost perfect replay of the 1920s. As Joschka Fischer, German foreign minister and vice chancellor from 1998-2005, wrote in Project Syndicate:
“Even before the leftist Syriza party’s overwhelming victory in Greece’s recent general election, it was obvious that, far from being over, the crisis was threatening to worsen. Austerity—the policy of saving your way out of a demand shortfall—simply does not work. In a shrinking economy, a country’s debt-to-GDP ratio rises rather than falls, and Europe’s recession-ridden crisis countries have now saved themselves into a depression, resulting in mass unemployment, alarming levels of poverty, and scant hope.”
Germany’s leadership must somehow come to understand that the real threat today is not the inflation of Weimar Germany, but the political unrest caused by the crushing burden of foreign debt. “There has already been voluntary debt forgiveness by private creditors, banks have already slashed billions from Greece’s debt,” Merkel told the Hamburger Abendblatt. “I do not envisage fresh debt cancellation.” But without additional reductions in Greek debt, the country is likely to default on its remaining obligations and begin a process of financial repudiation and political radicalization that could spell the eventual unwinding of the EU itself.
Germany needs to tone down its rhetoric and admit that the debt forgiveness and bailout loans provided to Athens so far have largely saved banks in Germany and other EU nations via the back door, rather than actually helped Greece itself. The Greeks have received all the blame for the crisis, whereas the bankers in Frankfurt deserve the lion’s share of the culpability for making these ill-advised loans in the first instance. But does Merkel have the courage to make this case to the German public? The fate of Europe hangs in the balance.
First published by the National Interest
Alibaba on Platform Economy
Alibaba on national mobilization of
entrepreneurialism on platform economy: today, Alibaba sold $38 Billion within 24
hours: Around the world, currently, there are 100 nations with less than $38
Billion dollars in annual GDP. Imagine if this single company performed at the
same rate for next 365 days, it would equal to annual GDP of Japan, Germany,
India, France, UK and Canada all combined. Bravo Alibaba, well done, the world in shock
is now fondling in own toolboxes.
Are Nations Awake: Are there enough reasons to explore how national mobilization of entrepreneurialism on platform economies and how it will uplift local grassroots prosperity? Are there enough trade-groups, Chambers of Commerce, Trade Associations with enough skills to play in these AI centric digitally advanced and globally friendly market-places? Outside a miniscule number most seriously out-dated trade-groups are in rapid transformation so they too would become shiny butterflies for the new global-age.
Old days of old ways are now new days of
Salvaging of exportability lost during last decade: Nation by nation, the grassroots medium-size economy was basically, ignored, abandoned and rejected, killing exportable goods and services. So long the trade groups around the 200 nations stuck in their old fashioned comfort zones spanning a century, outside handful organizations most nations are in deep trouble. Observe how nations with riots have the most disorganized, disconnected trade-groups, not due the lack of funding but due to lack of poor leadership with little or no global age skills.
Uplifting working-citizenry after a lost
decade on skills: So long the national leadership assumes that MBA degrees are
the saviors of their next economy and so long the corporations feels comfortable
that all their management is being well trained on YouTube, no additional proof
of this fallacy is necessary other than decimated economies and chaos on the
Understanding The Third Economy: During the first economy; rules of engagement and rules of balancing the books were established, the second economy; where fancy jargon was invented to cook the books to balance with political agenda and now the upcoming third economy where real numbers will balance the real books with real columns all managed by artificial intelligence and block-chain delivering honest picture instantly to all and all the times.
Alibaba proves the direct benefits of a Third Economy; such prosperity can only assured by respecting the balancing of pennies and cents with mobilizing millions of abandoned small and medium enterprises and using free technologies as starting base. Such deployments are only possible when leadership is skillfully equipped to understand global-age and able to serve the special transformation demands, by firing the first person for incompetence for saying they have no new funding to change and firing the next person for disorganization for saying they are too busy and have no time to change.
Public sector around the world had almost all
these resources available to deploy since last decade. Nation by nation, outside
the top business sectors rest of the small medium enterprise players
systematically abandoned and crushed were replaced by too big to fail nonsensical
hype. Now national races in the age of digital platform economy will demand
clarification on their internal conflicts of “digital-divide and mental-divide” and explain dysfunctional imbalanced spending on trade expansion
without “national mobilization of entrepreneurialism” …it is also a fact that
majority nations need massive in-depth-training at all top leadership levels to
understand the new language of the new days.
It’s time to choose; either build world-class export promotion agencies, vertical trade groups to foster trade by global-age showcasing on platform economies and bring home some grassroots prosperity or allow restless citizenry and rise of populism. It time to balance, that where public sectors mostly all over the world failed on such progressive affairs, technology has now blossomed as salvage operation with dramatic tools and deployment options. Is your national leadership ready now? Not to sidetrack, this is not an exclusive IT issues; this is global age expansion and entrepreneurial mobilization issues. Deeper studies and debates are essential.
The world is changing fast is no longer just a cliché, now growing into a warning
National Transformation: Futurism of ‘creating local grassroots economy’ demands two distinct national mobilizations. Firstly, creating skilled citizenry capable to swing with global-age demands and secondly, creating massive digitization of midsize economy to enable global-speed-performance to match trading with 100-200 nations. Mostly not new funding dependent but execution starved. Nations with such mastery will thrive and lead; generational transformation at magical speed with full deployments of platform economy is a prerequisite. Sounds rocket science, it is, but very doable and easy.
Rules of National Mobilization of Entrepreneurialism: To deploy such blueprints, launch a nationwide business-uplifting lifelong learning agenda for the entire export promotion bodies, Chambers, trade associations and also the entire small-medium-exporters base. Review this process meticulously every 100 days. Under right situation, the export promotion of the nation can easily quadruple within a year. It is necessary to keep asking what is blocking this and who is stopping this?
How do you mobilize public and private sector leadership after a lost decade on global-age expansion? With some 100 elections in 2019 alone and million promises on podiums the realities are hidden in creating real grassroots prosperity, now pending Presidential Elections of 2020 USA the mother of all elections will provide massive debates amongst calls of Impeachments, while December 12th Election of UK amongst calls of Brexit and European Union with loud and restless citizenry, a new world is unfolding. The public is informed, and slowly realizing what’s working and what’s not… deep silence at the public sector is not good, a growing sign of lack of skills. Urgent debates needed as 2020 starts with some dramatic shifts of markets, ideas and visions. We are now in the age of national mobilization of entrepreneurialism and platform economies.
China’s Descending Rise
China is in a sustained economic slowdown. This is causing malignant unease among the political and economic leadership of the communist party in Beijing that governs China. Investing in China will be different, because:
“The country’s first sustained economic slowdown in a generation. China’s economic conditions have steadily worsened since the 2008 financial crisis. The country’s growth rate has fallen by half and is likely to plunge further in the years ahead, as debt, foreign protectionism, resource depletion, and rapid aging take their toll.”
Chinese social structures are under duress over their aging society. Formerly in the 1990s-early 2000s: “China had the greatest demographic dividend in history, with eight working-age adults for every citizen aged 65 or older.”
Once societies age, marital numbers decrease, and overall productivity plunges. China’s explosion of older citizens versus working-age will bring unique circumstances for global consumers. Factual evidence of slower productivity is evident throughout China, and will have to be considered for any financial or economic decision for decades ahead. The Chinese economic miracle bursting is largely due to aging demographics.
No one in western or eastern economic analysis circles or think tanks realistically saw this coming former President’s Deng Xiaoping opening of China. This was termed, “Socialism with Chinese characteristics (and/or) ‘socialist market economy,’” still ongoing. This slowdown will have deep ramifications for the global investment community, liberal order in place for over seventy-five years, and Chinese financial wealth that now spans the globe.
When countries age, and use reproductive rights to control populations, they become more assertive abroad, and repressive to its citizenry; this describes China’s social, political and economic philosophies that govern over a billion people. Since its one-child policy was enacted, Chinese economic productivity will plummet, “because it will lose 200 million workers and young consumers and gain 300 million seniors in the course of three decades.”
Suppressive economies have difficulty innovating, producing enough goods domestically, and integrating into world economic mechanisms that intends to distribute wealth globally. But this isn’t the first time these warnings have been made publicly.
Former Premier, Wen Jiabao gave a prescient declaration in March 2007 during the long march of economic progress when Mr. Jiabao had misgivings about China’s growth model by stating, “(Chinese growth had become) ‘unsteady, unbalanced, uncoordinated and unsustainable.” Recent numbers indicated China’s official GDP “has dropped from 15 percent to six percent – the slowest rate in 30 years.”
Expansionary Chinese growth hasn’t experience this level of downturn since the end of the Mao into post-Mao era. What this does for the Belt and Road Initiative that is paving the way for investments into Central Asia up to the Arctic Circle is uncertain? Deep investment difficulties could witness China stopping the flow of billions of infrastructure projects into countries and continents such as Africa desperate for growth.
Public figures from the Chinese government generally have the economy growing at six percent, but many analysts and economists peg the number(s) at “roughly half the official figure.” China’s GDP has consisted of bad debt that typical financial institutions and western governments will transfer from the state to public sector and ultimately costs passed onto consumers. For China’s wealth to increase when so much domestic wealth is spent on infrastructure projects to increase GDP these official numbers need context.
China has bridges, and cities full of empty office and apartment buildings, unused malls, and idle airports that do not increase economic productivity, and if that isn’t the case then infrastructure increasing economic measurements will decrease. Unproductive growth factors officially known are: “20 percent of homes are vacant, and ‘excess capacity’ in major industries tops 30 percent.” According to official Chinese estimates the government misallocated $6 trillion on “ineffective investment between 2009-14.” Debt now exceeds 300 percent of GDP.
What’s discovered is the amount of China’s GDP growth “has resulted from government’s pumping capital into the economy.” Private investments have trouble overtaking government stimulus spending, and Foreign Affairs ascertains “China’s economy may not be growing at all.”
Chinese economic growth – post-Mao – saw the country’s self-sufficiency in agriculture, energy, and water almost complete by the mid-2000s. Through economic malfeasance, population control, and resource decimation, “water has become scarce, and the country is importing more food and energy than any other nation.” Environmental degradation is destroying the basic necessities for every day survival.
This is where the world community and financial resources of east and west can meet needs, and grow interconnected, global economies. Energy is one of the biggest areas that China will engulf global energy supplies
The U.S. Energy Information Administration believes China will continue being the largest natural gas user in non-OECD Asia, and by 2050:
“Expects that China will consumer nearly three times as much natural gas as it did in 2018. China’s projected increase in natural gas consumption is greater than the combined growth of natural gas consumption in all other non-OECD Asian countries.”
Opportunities for liquid natural gas (LNG) facilities to be built globally, and in China to spur domestic and international economic activity are unlimited. As China goes, so goes Asia, and the world is now in the “Asian Century.” Investors, geopolitical strategists, and anyone concerned with global security should never believe it is wise to let China continue to falter economically and societally. Setting up investment mechanisms and diplomatic vehicles that benefit China, and the world community is a prudent choice.
When military choices defeat sound fiscal and monetary polices, the past 150 years have brought “nearly a dozen great powers experienced rapid economic growth followed by long slowdowns.” Normal, civilized behavior was pushed aside. What’s needed for Chinese economic growth is the free flow of information, managed wealth, consumer goods, and research/innovation.
Decades ahead, and current economic realities point to China being a great power that is under pressure, but still needs capital. A weak, unsecure China who isn’t satisfied with its place in the Asian hemisphere or global economic system isn’t good for continued prosperity. It would be smarter to engage and invest within China in the areas of energy, water, agriculture, and electricity where opportunities still abound.
Agribusiness: Africa’s New Investment Frontier
Authors: Mariam Yinusa and Edward Mabaya*
In the past decade, a stroll along the aisles of any African supermarket is revealing: there is a new wave of home-brewed brands that are fast becoming household names. Products like Dangote rice from Nigeria, Akabanga pepper oil from Rwanda and Tomoca coffee from Ethiopia attest to the gradual but persistent evolution towards greater agro-processing and value addition in the domestic agriculture sector.
Africa’s agribusiness sector is expected to reach $1 trillion by 2030, so there is certainly cause for optimism. Consumer demand for food in Africa is growing at an unprecedented rate. But what is fuelling this growth?
First, size matters. At a population of 1.2 billion people, Africa is currently the second most populous continent in the world, superseded only by Asia. According to United Nations projections, Africa’s population could reach 2 billion by 2030 and 2.5 billion by 2050. This means that one in five consumers globally will be African.
Second, quality counts. Sustained GDP growth rates in several countries across the continent have translated into rising incomes for some segments of the population. According to the African Development Bank’s African Economic Outlook Report, the middle-class population is expected is projected to reach 1.1 billion by 2060 which will make up 42% of the population. The average African middle-class consumer is becoming relatively more affluent, sophisticated and discerning in the food they choose to buy and eat. Concerns about price/quality trade-offs, convenience, nutritional content and food safety, amongst others, are central in their minds.
Third, concentration can be powerful. Although most growth poles are small to medium cities, megacities with populations of over 10 million inhabitants, such as Cairo, Lagos and Kinshasa, have gained increased prominence. These metropoles offer ripe opportunities for investment, as a result of the triad of high consumption, concentrated spending power, and agglomeration (i.e. lower and fixed distribution costs).
On the supply side, there is significant untapped potential. Over 60% of the world’s uncultivated arable land is in Africa.
Policy makers recognize the huge opportunities these trends present and are making concerted efforts to create and maintain an enabling business environment to attract both local and foreign investors. The African Development Bank is at the forefront of this coalition of the “ready” to transform African agriculture.
Under its Feed Africa Strategy, the Bank is supporting its regional member countries to address both demand and supply side constraints along agricultural value chains. Through initiatives like the Technologies for African Agricultural Transformation (TAAT), the Bank is boosting historically low yields in priority commodities such as rice, maize and soybeans. In Sudan for example, the TAAT-supported heat-resistant wheat variety has increased wheat self-sufficiency from 24% in 2016 to 45% in the 2018-2019 farming season.
At the same time, Special Agro-Processing Zones (SAPZs) are attracting both hard and soft infrastructure and creating value addition to increased agricultural produce. Together with partners, including Korea-Exim Bank and the European Investment Bank, the African Development Bank has invested $120 million in SAPZs in Guinea, Ethiopia and Togo, which will significantly expand local agro-processing activities along numerous agricultural value chains.
Along with these key investments in Africa’s agricultural value chains, the continent is starting to consolidate its wins. A case in point is regional integration, exemplified by the recent ratification of the African Continental Free Trade Area (AfCFTA), which has the potential to make Africa the largest free trade area in the world.
Agribusiness has already caught the eye of investors. Last year, it was one of the main attractions at the inaugural Africa Investment Forum conference, which is becoming the continent’s premier marketplace for global and pan-African business leaders, and an innovator in accelerating deals.
Agriculture was one of the nine sectors that attracted investor interest at the 2018 Africa Investment Forum. The sector held its own against big hitters like financial services, infrastructure, energy, and ICT. One such transaction was the Ghana Cocoa Board (COCOBOD) deal in which $600 million loan financing was mobilized from the African Development Bank and other investors to boost annual production of cocoa beans from 880,000 tons to 1.5 million tons. Within the next three years, the project is also expected to promote growth in the domestic cocoa value chain by increasing processing capacity two-fold from 220,000 tons to 450,000 tons per annum.
Africa’s expanding consumer base will undoubtedly lead to more spending on food and beverages on the continent. This should be enlightening for would-be investors in food processing and value addition ventures.
The front door to these opportunities is the Africa Investment Forum, scheduled for November 11-13 in Johannesburg, South Africa.
*Edward Mabaya, Principal Economist and Manager, respectively, in the Agribusiness Development Division of the African Development Bank.
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