The trouble with the IMF: Missing one crisis is understandable, missing three is a disaster

OPINION BY

 Paul Ormerod 

The International Monetary Fund (IMF) has played a prominent role in world financial affairs in the post-Second World War period. In the 1950s and 1960s, its main purpose was to support the system of fixed exchange rates. Since then, its activities have evolved to embrace developing economies and both banking and sovereign debt crises.

The top ranked mainstream Journal of Economic Perspectives is hardly the place we would expect to read a strong criticism of the IMF. But in the latest issue, this is exactly what Barry Eichengreen of Berkeley and Ngaire Woods of Oxford have done.

They argue that the effectiveness of the IMF has many similarities with that of a football referee. A great deal depends upon whether the players and spectators perceive the referee as being competent and impartial. With this in mind, Eichengreen and Woods level charges against the IMF on several counts.

Perhaps the most serious is its track record in monitoring the world economy and warning of potential crises. Keynes, who was a great enthusiast for creating the IMF, envisaged that a key role would be as a “blunt truth teller”. Elected politicians may try to fudge and obfuscate, but the IMF should tell things how they really are.

It would be unrealistic to expect anyone to have anticipated and warned of the US sub-prime crisis, the global financial crisis and the Greek sovereign debt crisis. But as Eichengreen and Woods put it, “the IMF batted zero for three on these three events, which suggests that its capacity to highlight risks to stability leaves something to be desired”. Using a different analogy, if a doctor fails to spot the symptoms of a disease, why should we trust his proposed cure?

The IMF’s track record on cures for sovereign debt crises is the second point of criticism. Judging whether a debt burden is sustainable is another tricky problem. But the IMF has in general erred on the side of lending for too long and postponing the inevitable restructuring. This allows private investors to cut their losses, creating the infamous “moral hazard” problem. If you think the IMF will allow private lenders to escape, you will be more inclined to make a loan which is otherwise too risky. The Fund’s decision not to insist on Greek debt restructuring in 2010, allowing French and German banks to bail out, is a case in point. The overall effect is that, when the restructuring does come, it is more expensive and disruptive for the economy which the IMF is trying to save.

The authors’ criticism of the governance structure of the IMF is much less effective, however. For example, major decisions require an 85 per cent vote. America has 16 per cent of the votes and so has a veto, which they argue reduces the Fund’s legitimacy. But the problem with widening the franchise is that standards of behaviour vary enormously across the world, and Fifa is the example of what is likely to happen if every country has one vote. So on this charge, at least, things are better left as they are.

Paul Ormerod is an economist at Volterra Partners, a visiting professor at University College, London, and author of Positive Linking: How Networks can Revolutionise the World.

Google.org Thinks It Can Engineer a Solution to the World’s Woes

WIRED

The backlash came swiftly when Mark Zuckerberg and his wife, Priscilla Chan, pledged 99 percent of their Facebook fortune to philanthropic causes. At first, the announcement brought tremendous praise; if the couple follows through on their plan to donate $45 billion during their lifetimes, they’ll become the world’s most generous donors. But soon, critics were complaining that Chan Zuckerberg Initiative is a private company, not a non-profit. That led some to question their motives.

The skepticism might seem surprising given the scale of their pledge. But rampant income inequality in Silicon Valley breeds cynicism about so much control being held by so few people. Even as tech titans from Bill Gates to Pierre Omidyar to Marc Benioff give away incomprehensible sums—and perhaps because of it—the question of how tech can best approach philanthropy become ever more pressing.

Google.org approaches poverty and inequality as an engineering problem.

Google has been working on this question since before Zuckerberg had a fortune to give away. Google.org is the company’s pipeline for supporting nonprofits and worthy causes. Dot-org, as it’s called within Google, has been in the business of giving since it was established in 2004, and it stands out: Unlike the many foundations lead and endowed by wealthy individuals, Google.org represents the philanthropic aims of an entire company.

As such, Dot-org may have the room to be more agnostic, more data-driven and objective, than an organization headed by an individual whose passions may take precedence over rational criteria. Google.org’s leaders are experienced, idealistic, and invested—the personification of true believers. And what they believe in is the philanthropic version of the Google way. They approach poverty and inequality as an engineering problem, identifying opportunities and throwing brain power—and yes, cash—at the issue.

In the process, Google.org garners goodwill for its corporate namesake, which applies a similar approach to changing the world, but with a for-profit motive. The question is whether the same approach Google takes to making money can be just as effective when success isn’t measured by the bottom line.

The History of Philanthropy

Advocates of tech’s model of philanthropy say it takes a unique approach to the old endeavor of tackling social inequities, deploying business-tested, technology-focused, data-driven tactics. But while hyper-efficient algorithms might not have existed in the 19th century, the business-minded approach to philanthropy goes back at least 120 years to industrialists like Andrew Carnegie and John D. Rockefeller, writes Linsey McGoey, author of No Such Thing as a Free Gift.

What is new, McGoey notes, is scale. Nearly half of the 85,000 or so private foundations in the US started in the past fifteen years, and about 5,000 more philanthropic foundations are set up each year. Research from the International Center for Not-for-Profit Law, meanwhile, shows that the rise in global philanthropy has “corresponded with a rise of private wealth in Brazil, India, China, and other countries.” In other words, because the wealthy have gotten even wealthier, they’re able to donate shocking sums.

New technology also dramatically extends the reach of philanthropists. Google.org, for instance, is a lean operation with a handful of engineers, coordinators, and leaders. But it can reach millions of people worldwide.

Technology dramatically extends the reach of philanthropists compared to what was possible in the past.

In September, Google launched its first global matching campaign to donate $11 million to refugee and migrant relief organizations—and all it did was program a banner ad it posted at Google.com. The company reached its goal within two and a half days after tapping some 330,000 donors. More recently, Google.org donated $1 million to Unicef to fight Zika, and dispatched a volunteer team of Googlers to help the nonprofit build an open-source platform that governments and NGOs could use to visualize where their resources would be best spent.

Exponential Improvement

Jacquelline Fuller joined Google.org in 2008, just a few years after Google launched its philanthropic unit with the grand idea of using its immense resources and talent to revolutionize social innovation. “We hope someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world’s problems,” Google cofounder Larry Page wrote of Dot-org in a 2004 letter to investors.

But by the time Fuller came aboard, Dot-org was suffering from an identity crisis. It had struggled to carry out a confused collection of ideas ranging from an ultra-efficient plug-in hybrid to the Google Flu Trends outbreak prediction tool, which the company quietly shuttered.

'Rather than move fast and break things, we launch and iterate.' Jacquelline Fuller, Google.org

By 2011, Fuller was Dot-org’s head, responsible for managing its $100 million annual grants budget. Under her guidance, Google.org has focused on finding the best partners to carry out its social mission. Rather than go it alone, Google wants to work with groups that can capitalize on its expertise.

After working at the Bill and Melinda Gates Foundation and in government, Fuller says was drawn by the chance to dive into more ambitious projects while managing risk and leveraging data. “The approach is evidence-based,” she says. “There’s big thinking, [while] there’s so much incremental thinking in the nonprofit and foundation world. [The foundation world] is so focused on, ‘Fed X number of people today. Can we feed X+1 tomorrow?’ As opposed to asking: ‘Where’s the path that can get us to X squared?’”

How Google Gives

Today, Google.org gives away money in several different ways. Direct grants directly fund a specific nonprofit. Regional “impact challenges” tied to Google’s regional offices let the company be a good neighbor in a specific locale. “Global impact challenges” focus on specific issues of global importance, from robotics education and diversity in computer science education to homelessness and youth unemployment. This year, Google.org’s global challenge focuses on disabilities.

Fuller says this tiered structure gives Google the freedom to invest in nonprofits when they align with Google’s core values while also allowing minimizing the unconscious biases that may plague traditional grant application processes. Direct grants let Dot-org executives fund novel ideas from people beyond the traditional nonprofit world, while the regional approach supports nonprofits that don’t have connections in the tech world.

Dot-org, for example, has invested in GiveDirectly, which Fuller calls a prime example for a nonprofit with a sharp focus on data. It uses mobile phones to transfer cash to the underprivileged in Africa without government bureaucracy or overhead. The idea was based on a 2013 study in rural Kenya that monitored how income was spent, and how evidence suggested it improved their well-being. GiveDirectly was started by Harvard and MIT students who typify the well-connected, tech-friendly social entrepreneurs you’d expect to find in Google’s orbit.

Meanwhile, Dot-org also actively supports nonprofits that enjoy strong community support. Last month, for example, it pledged $3 million in grants to Bay Area organizations focused on eliminating racial biases in education.

Fuller stresses that Google.org offers more than cash. “We strive to be cash plus Googlers,” she says. To help groups achieve their goals, Google.org can tap Google’s vast pool of talented engineers and other employees.

Transparency and Accountability

But is Silicon Valley’s “move fast and break things” mindset compatible with charitable giving? “We need to be careful in philanthropy, as opposed to software,” Fuller says. “At the end of the day, we’re talking about the lives of people, some of whom are very vulnerable people. So the way we like to think about it is, rather than move fast and break things, we launch and iterate.”

And yet this is still Silicon Valley. And this is still Google. When I ask Fuller to talk about Dot-org’s failures, she instead offers a charming anecdote. “I reported to Patrick Pichette, Google’s then-CFO, and told him if Google.org’s plan were to be followed, 10 percent of our projects would surely fail,” she says. “He looked at me and said: ‘You should double that risk.'"
But if Google.org adopts a Silicon Valley posture toward data and metrics, it’s not an open source organization. Some critics say that’s not exactly Google-y. “Famously, Google can provide fine-grain analytics to let you get amazing data on the backend,” says Rob Reich, co-director of the Stanford Center for Philanthropy and Civil Society. “If they’re attempting to have a public-facing mission, in the sense of having the social impact—as a learning organization, why bottle up all the knowledge within Google?”

And that creates accountability issues for Google.org and other big tech philanthropies. “I wouldn’t want to wish the Gates Foundation away,” Reich says. At the same time, he says, Bill Gates is treated like a head of state at many important global meetings—while, unlike an elected official, he isn’t held accountable to the public.

The situation at Google.org is similar. The company benefits from good PR while redirecting money into charitable investments of its choice when, if that money were taxed, it would go toward government programs that, in theory at least, were arrived at democratically. Tech philanthropy deserves scrutiny, Reich says, in part because we tend to lionize its leaders. “These days, our most celebrated public figures are the business titans of the world,” he says.

Google only files annual detailed financial information with the government for Google Foundation, which a spokesperson says comprises only one part of Google.org’s total giving. It’s hard to measure the success of Google’s approach compared to other philanthropic efforts, in part because of a lack of comparative information and possibly because there could be hesitation coming from the world of philanthropy to critique an organization that has the power to give out future grants. But as more wealth becomes concentrated in the hands of a few dominant tech companies, Google’s approach to giving promises to have increasing influence over the way philanthropy works and who benefits. More of the world will be shaped by giving, the Google way.

America’s most successful cities, states and firms are leaving the rest behind

THE ECONOMIST

Inequality between states has risen for most of the past 15 years

IN THE Nuvotronics factory in Durham, North Carolina, small is beautiful. The firm, founded in 2008, uses a process resembling 3D printing to make miniaturised radio chips for jets and satellites. Typically, such chips are the size of a chocolate bar; Nuvotronics’s widgets are smaller than a breathmint. Such innovation is lucrative; every kilogram saved makes a satellite $15,000 cheaper to launch. Nuvotronics is part of a cluster of high-tech firms that has increased Durham’s GDP per-person by 28% since 2001. By the same measure, North Carolina as a whole grew by just 3% over the same period. Durham’s success reflects an emerging trend: high-flying cities, and the successful firms they contain, are detaching from the rest of the economy.
Cities have long been the most productive places to do business, because they bring firms, customers and workers closer together. A banker in New York is only a taxi ride away from her clients; a new restaurant there immediately has 8.4m potential customers on its doorstep. Where clever people congregate, innovation results.
For the most successful cities, these advantages seem to be getting bigger. In 2001 the richest 50 cities and their surroundings (dubbed “metropolitan areas” by statisticians) produced 27% more per head than America as a whole. Today’s richest cities make 34% more. Measured by total GDP, the decoupling is greater still, because prosperous cities are sucking in disproportionate numbers of urbanising Americans. Between 2010 and 2014 America’s population grew by 3.1%; its cities, by 3.7%. But the 50 richest cities swelled by fully 9.2%.
Durham, whose population grew by about 7% in that period, provides some hints as to what makes a place flourish. The city thrives on its proximity to three top universities—Duke, North Carolina State and the University of North Carolina. Far-sighted planning in 1959 led Durham and its close neighbours, Raleigh and Chapel Hill, to establish a research park between the three cities. The idea was to coax the universities’ boffins into business ventures. It worked; today 50,000 people work at site. Graduates flock there, often starting firms themselves.
Unlike much of America, the area has not shied away from infrastructure investment. The gleaming Raleigh-Durham airport was renovated over the last two decades, with a helping hand from local businesses. The roads are well-maintained, if a little crowded. Bill Bell, the city’s mayor, hopes to develop a light-rail system for the city; in 2011 voters approved a sales-tax increase to help pay for it.
Investment has also revitalised a deprived downtown area. For most of its history Durham made tobacco and textiles. When those industries went into decline in the latter half of the twentieth century, they left a vacuum in the city. But over the past decade the gap has been plugged. The tower of the old American Tobacco factory, emblazoned with the “Lucky Strike” logo, still stands—but the factory is now a “campus” featuring bars, restaurants, and the kind of tech firms where staff ride around on scooters. The city’s performing arts centre, located across the road, is one of the four best-attended theatres in the country. Mr Bell says public-private partnerships are to thank for much of the investment.

Durham is unusual for its failure to drag up North Carolina’s per-person growth. The state’s tanking labour force participation rate, which at 61% is grim even by American standards. Elsewhere, the presence—or absence—of rich cities determines states’ economic fortunes. States containing one of today’s richest 50 cities grew 13% in per-person terms since 2001. The eighteen (mostly southern and south-western) states without one managed growth of just 7%. As a result, inequality between states has risen for most of the past decade-and-a-half (see chart).
Rich cities typically attract successful, growing firms. Nuvotronics is young, employing fewer than 100 staff, and only moved to Durham in 2013. But the city also hosts well-established firms like Cree, which makes LED lighting, and giants like Quintiles, a consultancy which works on pharmaceutical trials.

Attracting the right companies matters because America’s firms, too, are diverging. In the past two decades returns to investment at the most profitable 10% of firms have more than doubled by one measure, defying low interest rates in the economy as a whole. But returns for middling performers have increased only a little (see chart). A recent paper by Jason Furman, a White House economist, and Peter Orszag of Citi, a bank, says this could be because the best firms are gaining market power (think of Apple’s dominance of the smartphone market). A report by the McKinsey Global Institute attributes the divergence to the varying pace of digitisation across industries. Highly digitised industries such as technology, media and professional services—the type of work found in successful cities—have benefited from the juiciest increases in margins. Digital laggards, such as the health care and retail industries, are doing less well.
This bears directly on the inequality which matter most: wage inequality. Two recent studies suggest that the most of the increase in wage inequality over the last four decades is explained by wage gaps between firms rather than within them. A secretary will probably earn more working for Goldman Sachs than working for the local plumber; it is more lucrative to be a programmer at Facebook than in a corporate back-office. That means that bringing high-skilled workers to an area is not enough to guarantee high wages; the right firms must come to town too. Mr Bell says Durham is becoming more discerning about which firms it tries to lure.
The end of mediocrity
In 2013 Tyler Cowen, an economist at George Mason University, predicted in his book “Average is Over” that the fortunes of both people and places would become more polarised. Ambitious and talented workers, he argued, would want to work in a relatively small number of cities and regions. These vibrant clusters would then benefit from increasing returns to scale, cementing their advantages. Mr Cowen’s predictions are already coming true. While successful cities grow, almost 60% of rural counties are shrinking in population. With America’s shale and manufacturing industries suffering the pull of successful cities is getting greater still. And for cities, bigger probably does mean better. 

Iran and Turkey to increase Trade to $30 billion dollars within two years

TEHRAN - Iran and Turkey aim to triple their annual trade to $30 billion within two years, officials said in Tehran on Saturday, despite the two countries being at odds over fighting in Syria.

Following last year's nuclear deal with world powers Iran is being targeted by Europe as a new market but Turkey is also seeking to cash in after the end of most international sanctions on Iran.

Visiting the Iranian capital, Turkish Prime Minister Ahmet Davutoglu met Iran's first vice president Eshaq Jahangiri.

"We have set a target of $30 billion for our trade," Jahangiri said in a press briefing broadcast on state television, outlining a two year timeframe for upping the figure from its current $10 billion.

Trade between Turkey and Iran slipped from $15 billion to around $10 billion in the past 12 months, with less imports reaching Tehran.

Iran sells gas to Turkey and an increase in exports is one of the topics that should be discussed during Davutoglu's trip.

The trade target comes after tensions rose between Turkey and Iran over the war in Syria after Ankara shot down a Russian fighter plane last year.

Russia and Iran back Syrian President Bashar al-Assad while Turkey has sought his removal and supported rebels fighting to overthrow the Damascus regime.

Jahangiri acknowledged that Iran has "differences" with Turkey on regional issues.

Reuters adds: Turkey is close to Saudi Arabia, which has cut its diplomatic ties with Iran and is concerned about Tehran's growing clout in Lebanon, Syria and Yemen.

"We have our differences on some regional issues, but we are determined to manage the differences to reach stability in the region .
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Iran and Turkey would both benefit from regional security and stability," Jahangiri said in remarks broadcast live by Turkey's NTV channel and Iran's Press TV.

The comments, days before the planned resumption of Syrian peace talks in Geneva, also reflected a will on both sides to reap trade benefits from the easing of international sanctions against Iran in January.

The removal of the sanctions means the two neighbours can easily exceed their previous trade target of $30 billion annually, Davutoglu said.

"The main obstacle that prevented us from reaching our goal were the sanctions.
Being free of those, means we can easily surpass our goal of $30 billion," Davutoglu said, adding he hoped to encourage mutual direct investment.

Trade between the two nations was $9.
7 billion in 2015, according to the Turkish Statistical Institute.

Turkey has trailed other European countries eager to tap into Iran's $400 billion economy after world powers, led by the United States, reached an agreement with Tehran last year that seeks to prevent Iran from developing nuclear weapons.

Turkey mainly sells machinery, vehicles and iron and steel products to Iran.
Oil and natural gas make up 90 percent of Iranian exports to Turkey, the Turkish Foreign Ministry said.

Turkey will serve as a key transit for Iranian energy supplies to Europe, Davutoglu added.

Meanwhile, Iran expects economic growth of more than 5 percent in 2016, its central bank's governor said on Saturday, after emerging from years of isolation and crippling international sanctions over the country's nuclear programme.

The major oil producer's economy is still struggling and growth is close to zero but many investors are betting that restoring Iran's links with the world and attracting foreign capital and technology will trigger a long-term economic boom.

"Iran's economic growth slowed down in 2015 but domestic and international predictions both indicate that growth in 2016 would be beyond 5 percent," central bank chief Valiollah Seif said.

In January world powers led by the United States and the European Union lifted sanctions on the country in return for curbs on its nuclear programme.
The subsequent leap in Tehran's stock market in late January and early February gave a hint of the country's investment potential.

But President Hassan Rouhani said last month that his country needed 8 percent economic growth in order to deal with inflation and unemployment, both of which stand above 10 percent.

Energy Minister Hamid Chitchian said on Thursday Iran is implementing a development plan aiming for yearly growth of 8 percent although many private economists consider that over-optimistic.

Jumia wins $325 million investments.

Africa’s leading e-commerce platform Jumia, popularly refered to as the Amazon of Africa says it has won funding of more than $325 million from French, German, South African and U.S. companies eager to invest in one of the continent’s fastest-growing online economies.

Parent company Africa Internet Group said the investment boosts its value to nearly $1.1 billion.

The investment announced Thursday comes from U.S. investment bankers Goldman Sachs, French insurance multinational AXA, German startup Rocket Internet and a long-time backer, South African telecommunications giant MTN.

Jumia was founded in Nigeria in 2012 to provide a platform for local African businesses to sell products online. It has expanded to 11 African countries while Africa Internet Group’s activities have grown to include online taxis, travel, real estate, and job and food delivery marketplaces.

TURKISH PRESIDENT ON HIS VISIT TO NIGERIA

Turkish President Tayyip Erdogan with President Muhammed

Buhari at the State House

GUARD OF HONOUR WELCOMING HIM

BOTH PRESIDENTS OBEYING THE NATIONAL ANTHEM

Members of the FEC welcoming him to the State House , Abuja.

Africa: Barclays Plays Down Impact of Possible Africa Exit

Barclays Africa Group Ltd said on Monday that any announcement by its London-listed parent company Barclays Plc would not impact the shareholding and ownership of operations in individual African countries.

Barclays Plc said on Sunday its board was evaluating strategic options in relation to its shareholding in its African business. The bank will update the market on its plans for Barclays Africa on Tuesday, it said.

Barclays Africa said it was well capitalised, that it had an independent board and that it would continue to operate as normal.

That comes after a report by the Financial Times on Friday that the bank's chief executive, Jess Staley, had decided to shut operations in Africa and had appointed a subcommittee to study the sale process.

Barclays Africa is the majority and sometimes sole owner of operations in 10 African countries including South Africa and Kenya. Any change in the shareholding of Barclays Africa will not impact the shareholding structure of those individual operations, it said.

"BAGL (Barclays Africa) confirms that any announcement relating to PLC's shareholding in BAGL does not impact the shareholding and ownership of these operations," it said.

Under a deal concluded three years ago, Barclays handed over ownership of eight African businesses to its South African subsidiary in exchange for a 62.3 percent stake in the new Barclays Africa entity.

Dangote Cement production to hit 80mmt

Dangote Cement production in Africa is expected to hit 80million metric tons in 2017.

Speaking at the 38th Pre-Convocation Lecture of the Ahmadu Bello University Zaria on Friday, President of the Group Alhaji Aliko Dangote said the Dangote Cement has production operations in eight African countries including Nigeria, with investments at various stages in another ten countries.

“In Nigeria we have three cement plants with a combined installed capacity of 29.25 million MT per annum. The Obajana Cement Plant in Kogi state is the largest cement plant in the world with a current capacity of 13.25 million MT.

“The Ibese cement plant in Ogun State has combined installed capacity of 12 million MT while the Gboko plant has installed capacity of 4 million MT,” he said.

The theme of his speech was: The role of entrepreneurship in national development: The story of the Dangote Group.

He said: “In 2015, six new plants commenced full operations (Tanzania, Cameroon, Ethiopia, Senegal, South Africa and Zambia) while 12 MOUs for a total contract sum of over $4 Billion were signed.”

Mr. Dangote said: “We are currently building a new 6 million MT plant in Itori, Ogun State among several other new projects, and by the time we complete all our existing Africa projects in 2017 we will have a total installed capacity of 80 million MT.”

He said he was honoured to have been chosen to deliver the 38th Pre-Convocation Lecture of this great citadel of academic excellence, Ahmadu Bello University (ABU), Zaria, named after one of Nigeria’s revered patriots, the Sardauna of Sokoto and former Premier of the defunct Northern Region, Alhaji Sir Ahmadu Bello.

He said entrepreneurship is the leading vehicle of job creation and economic growth all over the world. As such, countries pay special attention to the needs of entrepreneurs by creating strong infrastructural frameworks, conducive policy and regulatory environments, and strong legal protections.

According to him, some of the identified major causes of unemployment in Nigeria include inadequate infrastructure (particularly epileptic power supply), lack of access to finance, shortage of technical skills and difficult regulatory environment.

He said the Group was currently working on other huge investments that include rice and sugar production, as well as a petroleum refinery projects, and electricity power plant.

He therefore called on institutions like ABU to move out of their comfort of their traditional environment and work more actively with institutions, groups and individuals.