The last week saw the United Nations General Assembly as the focal point for global affairs, with the center stage given to the confrontation between a 16-year-old Climate Activist and the Orange-hued leader of the Supposedly Free World. Aside from the liberal angst of the international media, bemoaning the callousness of the Trump Administration on the rapidly worsening climate disaster, little attention was paid to Trump’s actual speech at the UNGA. In short, he laid waste to the American commitment to liberal internationalism, proclaiming that ‘Patriots’ (read white nationalists) own the world now and the globalism was a defunct American ideology. This was brushed off yet another one of Cheeto Fuhrer’s deranged rants against the international system, but Trump is an early social media pioneer who knows how to manipulate his base. His statement at the United Nations is not merely designed to throw shade at the developing world or the EU, it’s meant to remind his supporters that he is serious about global power remaining in Caucasian hands.
As much as DC wishes to turn back the clock and select a leader that is more in-line with the institutional order after the Cold War, it is impossible for them to ignore the White Nationalism that has been strongly revived since the 2016 election on both sides of the Atlantic. The EU and the UK are experiencing the strongest surge in nativist electoral politics since the 1930s, with right-leaning parties beginning to sweep across various jurisdictions. On a darker note, several IGOs are warning of the surge in White Nationalist infiltration in the US military, paramilitary forces and mercenary groups in the Ukraine, Africa and the Middle East. The idea being that since one cannot defeat the Taliban, its best to BECOME the next incarnation of fundamentalism, but for Caucasian people. It is not true that Trump doesn’t possess a foreign policy game-plan, it’s just that the structure is crudely unpalatable to the liberal international order that is vaporizing before our eyes. The State Department piece on the “civilizational conflict” with China, is an example of this sort of crude Realist mash-up with Huntington that Trump represents. But this is a belief that is closely held by various factions within the US military, diplomatic corps and academia. But of course, no one is impolitic enough to come out and state it.
But what has this got to do with rest of the developing world? ASEAN, Africa, South Asia, MENA and the Caucus? As commentators like Parag Khanna have suggested that the developing world will simply pick and choose between the West and Beijing, selecting various aspects of technology and capital that will accelerate their own technical growth. Eventually, this hybridized growth model will supersede the bipolar rivalry and cause a developmental surge in the remaining 70% that had been left behind for so many centuries. In other word, this is liberal institutionalism with a third world slant; the global market mechanism and the need for neo-liberal growth will persuade the West and Industrial Asia’s corporate giants to continue gelling African and Asian trade routes. The technology and skills flow is unstoppable regardless of tariffs and other intellectual property shenanigans, simply as the global middle class demands it.
This is simply too optimistic and smacks of the deep regional integration of Colonial Europe before 1914. There are flaws in this perspective; connection is not development; at its best the international developmental regime had failed Africa since the 1960s and allowed egregious rent-seeking in local government. The African bright spots of Ethiopia, Uganda, Rwanda etc. have only come about after merging state development models and relatively stable governance since the end of the Cold War and with considerable obstacles remaining to their access to the EU and North America. The rising tide of nationalist thinking and the return of nativist racism as a respectable form of politics in the EU and the US, threatens to doom these bright spots in the near future. Foreign Aid, questionably administered and fraught with multiple levels of corruption in the metropole, is already drying up rapidly as “US First” policies become paramount. With the rise of a virulent form of white nationalism in the US and the penetration of mercenary forces into African conflict zones, the unrest can “accidentally” spill into any African economy that is considering aid from East Asia or China. As it is, the global media frequently labels African economies that accept a multitude of assistance from non-western sources as being “corrupt” or technically inept. Essentially, painting various African governments as know-towing to renewed colonialism. This is laughable because the older form never truly left. Think this is left-wing propaganda? Witness how the Franc Zone remains in Africa and how it guarantees industrial dependency on France while making it impossible for agricultural products led growth in the Francophone region. This is colonial dependency in all but name.
Development is typically described as an international relations issue and therefore the subject matter of external experts. In reality, these have a direct correlation with domestic race and violence issues that flow from the developing world. The sharp rise in race-based arrests, hate-crimes and economic violence in the US against black people and minorities since 2016, cannot be divorced from US foreign policy or the shifts in governance culture of Washington DC. Africa is the next frontier in industrial development and for every year that peace is maintained between the US and China, its chances improve ever more. But there is still the absence of an African developmental champion, akin to the Asian Tigers of the 1980s and 90s. The absence of an actual Wakanda, that Africans can look to with global pride that places the entire continent on the take-off trajectory. Ethiopia, Rwanda and Uganda are the best candidates so far and it is questionable that in the absence of heavy-duty Chinese investment since 2004 in all three, whether the technical progress would have been possible so far. The techno-optimism of high neo-liberal global capital is not possible without the realist peace between the world’s two largest industrial economies. But the prospects for this are dimming with every month.
Another aspect of White Nationalist revival is its categorical denial of climate change and the environmental collapse that we are witnessing in real-time. Sustainable development is not about recycling straws or using electric cars, it is to distribute global wealth more equitably in Asia and Africa before the time runs out. Quietly as the trade war and Sino-American rivalry accelerates, the OECD is seeking to corner resources, curate technology and establish rent-seeking access to talent via corporate mechanisms. There will be a dash for polar resources in the coming five years, while rare earths access is becoming national security prerogatives in East Asia and North America. Climate change will wipe out easy access to growth resources and endanger the health of the entire developing world, extinguishing Africa’ bright spots. The influx of mercenaries, private armies and other crime-related arms of foreign policy has ignited a series of proxy wars in African jurisdictions as means to lock-down Africa’s vast natural wealth. Once again, this is as old as Conquistadores raiding Mexico in the 15th Century. But will Africa survive a second disappointment of development, following its disappearance in the 1960s after independence? The return of racism as a respectable means of foreign policy in the West, is basically kicking away the ladder, writ large.
What remains is for the lucky few whom have escaped to engage in a fresh paradigm of growth; combat developmentalism akin to Israel, pulling in technological capital whenever it’s possible to reach. Disregarding established divides between the State and the free market by utilizing governance planning with market savvy, throwing away ludicrous divides between what is “developed” or “developing” etc. Cultural connections, history, technology and capital, all of these are now up for grabs. Witness the “left-coast” development models of Mexico, the Penang region in Malaysia; deploying diasporic networks of talent while free-riding on global manufacturing for unexpected avenues of market access; in the case of Mexico, the ubiquitous access to the Cocaine industry created a groundswell of laboratory equipment and doctoral level talent, a pharmaceutical and biotech sector blossomed unexpectedly. The international order is turning away from global capitalist growth and going into “lock-down” mode, in order to curate access to privileged few. Very soon, it will be every man for himself.
Summit of Business within Portuguese-Speaking Countries
Long before the Portuguese-speaking countries wrapped up their first business summit in Simpopo, Equatorial Guinea that gathered approximately 250 government officials and corporate business leaders from Guinea Bissau, Cabo Verde and Sao Tome and Principe, Portugal, Brazil and Mozambique, it was described as a step directed at bringing sustained business development.
Some argued that the gathering historically provided the chance for immense business networking opportunities and building strategies. It additionally offers an important impetus for strengthening future corporate business collaboration among the countries.
According to the organisers, the primary goal was to explore ways to attract investments to the countries in bloc, as well as strengthening economic ties between member states and improving the business environment.
Opening the two-day summit, promoted by the Confederation of Businesspeople of the Community of Portuguese-language Countries (CPLP), President of Equatorial Guinea Teodoro Obiang, said frequent militant attacks in Cabo Delgado, in northern Mozambique, should be of concern to the Community of Portuguese Speaking Countries (CPLP).
“The Republic of Mozambique is the scene of aggressions perpetrated, planned and financed from outside its borders, claiming human lives, displacing populations, destroying personal and public property, and sowing terror in the north of the country,” he said.
Obiang believes that the CPLP “should not remain oblivious to this tragedy, which goes beyond the dimensions of a simple internal conflict. It is an aggression”.
He characterised it as an opportunity to identify the challenges the bloc faces and seek ways to facilitate trade between CPLP countries as well as attracting more investment. “Our wish is that the business community takes this opportunity to form a common front when it comes to facing the challenges that affect its activity. It should also make the most of its respective advantages to participate actively in promoting economic cooperation among the CPLP countries, always having as priority the member countries of our community,” the Equatorial Guinea president said.
President of Cape Verde, Jorge Carlos Fonseca, who participated in the summit virtually, advocated for the creation of customs facilities for CPLP countries within the bloc. “There is an urgent need to create joint solutions for the reciprocal protection of investments, reducing, or even eliminating, where possible, double taxation, and facilitating the circulation of public documents within our community without excessive authentication and notarisation burdens,” he urged.
President of Sao Tome and Principe, Evaristo Carvalho, spoke of the need for investments in the CPLP countries to be sustainable, especially in Equatorial Guinea, which was experiencing a boom in mineral resources. “Our appeal is to look at the country with confidence, stripped of a culture of short-termism. With thought for the country’s development, let’s seek sustainable solutions and invest in the medium and long term, he advised.
While various issues were discussed during the two days, there was particular interest in mineral exploitation, oil and gas development within the bloc. The panel session spent time analyzing widely the various dimensions and aspects of the sector.
Equatorial Guinea’s Minister of Mines and Hydrocarbons has called for a common project of the Portuguese-language countries for gas exploration, stressing the need for a longer energy transition in some African countries. “Hydrocarbon producing countries such as Equatorial Guinea, Angola, Mozambique or Brazil and Portugal, as a major consumer, it is very important that we can work on a coordinated project at the CPLP level to be able to exploit the gas for use in our economies,” Gabriel Obiang Lima said.
“It will be increasingly difficult to get funding to develop our [oil] products because worldwide there is a great motivation to carry out the energy transition from hydrocarbons to renewable energy,” he noted.
Despite this, he said, in countries such as Equatorial Guinea and others in Africa, this transition will have to take at least another 20 years. “Only then will we be at the level of developed countries,” he said.
The Equatorial Guinean Minister was speaking at a panel with government officials from Guinea Bissau, Cabo Verde and Sao Tome and Principe, as well as representatives from Portugal, Brazil and Mozambique on the role of governments in attracting foreign investment.
Speaking at the panel session, Luís Moreira Testa from the Portugal’s Socialist Party in Parliament, explained that in the new advent of renewable energy, Portugal has the potential to move from energy consumer to producer. “Hydrocarbons will serve in the coming decades as transition fuels. Portugal is a major consumer of natural gas, mainly from Algeria, and the new generation of natural gas consumption in Europe foresees the mandatory inclusion of green hydrogen,” he said.
According Luis Testa, the pipelines that bring gas from Algeria may soon take the gas produced in Equatorial Guinea or Mozambique cut with green hydrogen produced in Portugal. “This could be a great opportunity for energy communion in the CPLP,” he said.
Cabo Verde’s Minister of Trade, Industry and Energy, Alexandre Dias Monteiro, considered mobility within the Portuguese-speaking community as a critical factor for creating a favourable framework for business and foreign investment. “Mobility is a critical factor for contacts and exchanges between companies and businesspeople,” he said, stressing the progress made in this area in recent years, which should make it possible to sign a mobility agreement at the next summit of heads of state and government, in July in Luanda.
Guinea-Bissau’s Economy Minister, Victor Mandinga, advocated the creation of an investment promotion agency at the community level to link up with agencies in each of the countries. “This mechanism is essential to make legislation on investment more homogenous and the distribution of investment opportunities between countries more harmonised,” he said, adding that businesspeople lacked transversal information about the CPLP as a whole.
Sao Tome’s Foreign Minister, Edite Ten Jua, noted the importance of creating a climate of trust for attracting investment, particularly in terms of legal protection and tax justice, as well as simplifying administrative procedures, along with the existence of infrastructure and means of transport and communications.
President of the Community of Portuguese Speaking Countries Business Confederation Salimo Abdula, speaking during the opening, urged the governments of member countries to speed up the process of creating the CPLP Community Development Bank to facilitate financing for bloc projects.
“The bank will be a tool which will support projects of small, medium or large size, thus overcoming the difficulty of access to financing, which often has a high cost in CPLP countries, making projects unfeasible,” Abdula argued.
Abdula further proposed the creation of a CPLP arbitration court, because, despite being united by the same language and economic interests, conflicts between stakeholders from different member states could arise.
“This court would make it easier to settle disputes between businesspeople in the community. At this moment, this project (the CPLP Arbitration Court) is at a very advanced stage. A team was formed that is working hard on the subject and has already produced several document proposals and prepared a questionnaire aimed at defining an ideal model for the construction of such an arbitration court,” Abdula told the gathering.
The opening of the summit coincided with World Portuguese Language Day. According to Rádio Moçambique, there is an estimated 300 million speakers spread across four continents. The first CPLP Business Confederation business summit held under the motto, “Together We Are Stronger and Move the World Forward” in Simpopo, Equatorial Guinea.
Can Sukuk Match the Growth Trajectory of Green Bonds?
As the socially responsible investing movement in fixed income began to take off a decade ago, a great deal of ink was spilled on the similarity of green bonds and Sukuk. Both products are explicitly ethical and appeal to investors’ social consciences over and above their desire for financial returns. The thesis at the time was that an ever-increasing number of investors would seek out these types of ethical investments, leading to a steep upward trajectory in demand for both green bonds and Sukuk. MICHAEL BENNETT writes.
To a certain extent, that thesis has played out. Between 2010 and 2020, the annual issuance of green bonds increased from less than US$5 billion to more than US$270 billion. They have successfully transitioned from being a highly niche product to one that has a role in the portfolios of major institutional investors across the globe. Green bonds became the product that mainstreamed socially responsible investing on the fixed income side of the capital markets.
Sukuk have also increased during that time-period, going from US$53 billion of annual issuance in 2010 to US$140 billion in 2020. While a 164% increase in annual issuance volume is impressive, it clearly lags the 5,300% growth for green bonds. This divergence in the growth trajectory of the two products can also be observed in Chart 1 that looks at annual issuance volumes between 2014 and 2020:
In absolute terms, it should come as no surprise that Sukuk volumes now trail green bonds, as there is a much larger market globally for conventional instruments than for Shariah compliant ones.
Even the most passionate supporters of Islamic finance accept that the potential market for Islamic products is only a fraction of that of their conventional comparators. However, that does not explain why, in percentage growth terms, Sukuk have fallen so far behind green bonds. Why has one product exploded while the other has made only a steady climb?
Many explanations have been offered for why Sukuk have not grown at a faster pace in recent years. These usually focus on global economic hurdles that have impacted the market (eg oil price declines, COVID-19-related slowdowns).
However, many of these same issues have impacted, to one degree or another, the conventional markets as well. In addition, some economic hurdles could reasonably be expected to increase issuance volumes (eg a decrease in oil prices could cause an oil-exporting sovereign to have greater need to tap the capital markets).
Therefore, these explanations seem insufficient to fully explain how green bonds have grown at such a faster clip than Sukuk.
I believe the reason for the difference may stem in part from the fact that the Sukuk market has simply not responded sufficiently to the socially responsible investing movement. As the remarkable growth of the green bond market proves, predictions a decade ago that socially responsible, fixed income investing was about to take off were correct.
In other words, the socially responsible investing wave did indeed come. The problem for Sukuk is the product has not found the best way to ride that wave.
Sukuk are ethical instruments. They cannot be used to finance impermissible activities like gambling, tobacco and weapons manufacturing. Also, they are structured to avoid high degrees of leverage and speculation, and therefore promote a sounder financial system.
Many investors who are motivated by ethics and feelings of social responsibility should be quite happy to add Sukuk to their portfolios, regardless of whether they are adherents of Islam.
A conventional bond has none of these built-in restrictions. Therefore, to make a conventional bond an ‘ethical investment’, additional steps must be taken, for example adding covenants to limit the potential uses of the financing. This building-in of these additional prohibitions is the genesis of green bonds and other labeled sustainable development bonds. In essence, these bonds adopt the types of restrictions on the use of proceeds that already to a certain degree exist for Sukuk.
However, the Sukuk market has not sold the standard Sukuk product as ethical. Rather, it has treated Sukuk as equivalent to a conventional bond (no better or worse from an ethical perspective), and therefore sought to develop green and socially responsible labels for certain types of Sukuk that mimic the labeling that is required to make a conventional bond ethical.
I believe such labeling of certain Sukuk can have the unfortunate impact of obscuring the ethical nature of the basic Sukuk product and, at the extreme, possibly throwing the social responsibility of most Sukuk into doubt.
In other words, if certain Sukuk are labeled ‘socially responsible Sukuk’, what does that imply about all the Sukuk that do not carry that label?
While I certainly would not advocate against green and other types of labeled Sukuk, I think the Sukuk market needs to spend more time and effort to be clear that such labeled Sukuk are simply a special use of proceeds instruments within a broader universe (ie all Sukuk) that is already ethical in nature.
Such an approach would mirror the one the World Bank takes in the conventional market. The World Bank issues green and other labeled bonds from time to time, but the priority always is to stress the ethical nature of all the issuances.
By focusing on the ethical quality of the Sukuk product itself, I believe Sukuk can best benefit from the ethical investing movement, and take its place, aside green bonds, as an ethical investing success story.
US Sanctions Against Russian Sovereign Debt: Possible Alternatives
The US and the EU have imposed new sanctions against Russia because of the so-called “Navalny case”. The European Union has activated the human rights sanctions mechanism approved by the EU Council in December 2020. On March 2, the EU added four Russian security officials to its sanctions list. The sanctions include a ban on entry to the EU, an assets freeze in the EU and a ban on economic transactions with persons involved in the lists. However, such officials are unlikely to have assets in the EU. Even if they exist, such assets are not significant for the Russian economy. The sanctions were introduced as a reaction to the arrest and then imprisonment of Alexei Navalny, while restrictions on the topic of the alleged poisoning were introduced back in October 2020. At the time, six high-ranking Russian officials and the Research Institute of Organic Chemistry and Technologies were subject to the restrictions. Such sanctions have zero impact on the Russian economy.
Unlike the EU, the US has refrained from imposing sanctions following the alleged poisoning of the politician last year. However, on March 2, they were introduced, both in connection with the poisoning and in connection with his subsequent arrest. That is, the topics of the use of weapons of mass destruction and human rights violations were combined. The blocking sanctions targeted seven Russian officials who were already affected by EU sanctions, as well as three research institutes. Trade sanctions were imposed against 14 companies. US government agencies have been prohibited from lending to Russia and a ban was introduced on the supply of weapons and on the provision of US financial assistance. These measures have no impact on the economy. These companies are not the backbone of the economy, Russia does not need US help, it does not buy weapons from the United States, and it does not take loans from US government agencies.
However, the new US sanctions are still fraught with uncertainty. The key question is whether the United States is imposing restrictions on Russian sovereign debt obligations. Such a measure could cause more serious damage and have an impact on the world markets.
The prospect of sanctions against Russian government bonds is related to the specifics of the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991. Properly it is used as a legal basis for the imposition of sanctions in the event that a country uses chemical weapons (in the US and the EU, it is assumed that Navalny was poisoned with a substance from the Novichok group). The CBW Law envisages the imposition of sanctions in two stages. On March 2, 2021, the first stage was implemented (a ban on aid, military supplies and loans from government agencies). If, within three months after the first stage, the President does not provide Congress with evidence that the target country has not abandoned the use of CBW and has not given reliable guarantees of their non-use in the future, then the second stage of sanctions will be introduced. It is important to note here that guarantees of non-use should be determined by UN inspections or those provided by another international organisation. Obviously, Russia will not give such guarantees and will not allow any inspections. Moreover, according to the statements of the Russian authorities, Russian chemical weapons were destroyed long ago. In other words, the second round of sanctions is inevitable. The CBW Law obliges the US President to impose at least three of the six types of sanctions. The most unpleasant of these is the ban on American banks from lending to the Russian government.
There has already been a precedent for using CBW against Russia. The sanctions were imposed in connection with the Skripals case. In 2018, the first stage was carried out, and in 2019 — the second. It was secured by Donald Trump’s executive order No. 13883. The decree reflected two types of sanctions — a ban on lending to the Russian government and blocking aid through the IMF. Then trade restrictions were added. If the last two measures were symbolic, then the ban on lending potentially had more serious consequences. However, this measure was applied in an extremely limited manner. The ban applied only to Russian government bonds denominated in foreign currencies, while most of them are denominated in rubles. The sanctions also did not affect the debt of Russian state-owned companies.
In general, the issue of sanctions against Russia’s sovereign debt has been raised many times on other occasions. In 2017, within the framework of Art. 242 of PL 115-44 CAATSA, Congress ordered the US Treasury to give an opinion on the appropriateness of such sanctions. Officials noted in their report that such sanctions would hurt Russia, but were also fraught with market fluctuations and costs for American investors. Such sanctions have repeatedly been proposed in sanction bills, including the most famous ones — DASKA and DETER. However, they have never been passed into law. In 2019, the State Department criticised DASKA.
The forthcoming second round of sanctions over the Navalny case will again raise the issue of restrictions on Russian sovereign debt. Two alternatives are possible. The first is the preservation of the existing restrictions already adopted by Trump in 2019, or their cosmetic expansion. The second is a more radical tightening, including bonds denominated in rubles. The second alternative cannot be ruled out, especially if there is another escalation in the Navalny case. If the status quo is maintained, the first option is most likely.
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