Residents of Bangalore, India, who live in extreme poverty. Credit: bandarji/ CC by 2.0

By Jim Lobe
WASHINGTON, Oct 26 2013 (IPS)

Key multilateral institutions charged with improving regulation of the international financial system are failing to democratise their governance and adequately consider the impact of their actions on the world’s poor, says a new report by anti-poverty groups.

The 68-page study, entitled “Global Financial Governance & Impact Report”, gave higher marks on both counts to the International Monetary Fund (IMF) and the World Bank than to other institutions, notably various rule-making bodies on international taxation, the Group of 20 (G20), and the Basel-based Financial Stability Board (FSB).

Overall, however, the study, which was released by the ten-year-old Washington-based New Rules for Global Finance Coalition, found all agencies’ governance and impact on poor countries “very disappointing”.

“Too much of the governance of global finance remains ad hoc, with non-transparent, non-inclusive, largely unaccountable and un-responsible institutions wielding great power,” according to the coalition, which includes ActionAid, the South African Institute of International Affairs, and the Jubilee USA Network."Those who are often most affected by the rules aren't there when these rules are being made."
-- Jo Marie Griesgraber

Despite increased integration of poverty reduction into the work of the IMF and the Bank, in particular, “there are huge gaps between declarations and actions,” according to New Rules, which also includes the Institute for Agriculture and Trade Policy, the Tax Justice Network, the South African Institute of International Affairs, Germany-based World Economy, Ecology & Development (WEED), and the Heinrich Boell Foundation of North America.

“All have a very long way to go before they can confidently declare that they are having a strong positive impact on equitable and sustainable development,” the report said.

“The problem is that all of the wealthy countries have a seat at the table in these institutions, while those who are often most affected by the rules aren’t there when these rules are being made,” New Rules executive director Jo Marie Griesgraber told IPS.

“What we’re trying to do is make room at the decision-making table for excluded peoples and thereby ensure that their decisions and processes benefit everyone,” she added. “This is an initial attempt to assess how these institutions are performing in that regard.”

Most experts believe that the 2008 financial meltdown was caused primarily by key national and international institutions’ failure to adequately regulate increasingly sophisticated transactions in an ever-more globalised financial marketplace – a product of the neo-liberal orthodoxy that guided many of the world’s economic policy-makers, including in the IMF and the World Bank, in the 1980s.

In the wake of the crisis, however, world leaders decided that greater regulation was required to keep the global economy from falling into a 1930s-like depression and to impose greater discipline on financial markets.

So they replaced the G8 with the G20 as the key forum for global financial policy-making; boosted lending resources and modified strategies of the IMF and the Bank; and created the Financial Stability Board (FSB) to develop and coordinate global financial regulatory policies to promote stability.

The new report marks the first effort to assess how well these rule-making agencies have performed with respect to their own internal governance, including their “transparency” in internal processes; accountability to all governments and to civil society; involvement of the poor in decision-making; and responsibility to promote “more just and economically sustainable global development, especially for people in low income countries.”

The institutions were given scores ranging from 1 (poor) to 4 (excellent) on each of the four criteria, as well as an overall score.

For the aggregate scores, the IMF, the World Bank, and the FSB all rated a 2 (moderate), while the G20 and the new tax authorities were given 1.5. On transparency, the IMF and the World Bank scored highest at close to 3 (good), while the G20 was the lowest at 1.5.

The IMF also scored highest (2.5) on inclusiveness, higher than the World Bank (2), despite the latter’s long-standing commitments to consult closely with civil society. But with respect to responsibility, the IMF and tax-related agencies received the lowest possible score.

Regarding the impact of these institutions on the world’s poorest, New Rules said it was not possible to use a common framework such as the one it applied in assessing governance. Instead, it used independent specialists and experts from within the coalition’s member organisations to evaluate each institution.

The IMF gained the highest score on impact at 2.6, followed closely by the World Bank (2.4) and the G20 (2.1), which was praised for its coordinated stimulus package devised at its 2009 London Summit, its establishment of the FSB, and its efforts at reducing transfer costs of remittances by migrants from poor countries.

The FSB received a 1.4 score, while the tax authorities received the lowest possible score in large part because none addressed the problem of “offshore” tax havens, or secrecy jurisdictions that are estimated to hold 21 to 32 trillion dollars of the world’s private wealth.

That failure, according to the report, is due primarily to the fact that the status quo powers continue to control the OECD and that the IMF and have deliberately weakened the U.N. Tax Committee.

The World Bank strongly criticised the study. “This report is deeply flawed, and it misses the mark on the World Bank’s increased push for results, our huge strides in openness, and our strong focus on accountability,” David Theis, a Bank spokesman, told IPS by email.

He noted that the “2012 Aid Transparency Index: Publish What You Fund” rated the Bank, along with the British aid agency DFID, first among all donors at the country level on transparency.

Requests to the IMF for reaction to the report went unanswered.

Griesgraber said the new report was “an initial attempt, and we know there’s a lot of room for improvement.…Our report is a challenge to the institutions. If you don’t like our data and conclusions, show us where we’re wrong.”

But, she suggested, the report’s focus on the inclusion of the poor in the governance of institutions that oversee the global financial system and the poverty-reduction impact of these same institutions offered important insights that call for greater study.

“The fact that the voices of low-income countries and the world’s poor citizens are rarely heard in the forums governing global finance almost certainly explains why they have disappointingly low impact on improving their lives,” said the report.

Ajegunle, a low-lying slum in Lagos, Nigeria. Analysts say that the Nigerian market itself is huge and under-served. Credit: Sam Olukoya/IPS

By John Fraser
JOHANNESBURG , Jun 17 2013 (IPS)

If a Free Trade Area were to be negotiated between Africa’s two largest economies, South Africa and Nigeria, it would have a powerful effect on trade across the sub-continent and would challenge other countries to respond.

“In my view it would bring substantial economic benefits to both sides in terms of exports, investment, competition enhancement and, ultimately, productivity,” Peter Draper, a senior research fellow at the South African Institute of International Affairs, told IPS.

The countries have already entered into an informal agreement of cooperation. In May, South African Trade and Industry Minister Rob Davies announced during a visit to this country by Nigerian President Goodluck Jonathan that South Africa pledged to help Africa’s most populous nation make the automotive sector the West African nation’s flagship industrial sector.

However, there are concerns that an FTA would give one-sided benefits to the South Africans, who have a developed manufacturing sector, at the expense of the less-industrialised Nigeria.

“That is not to say South Africa is not favourably disposed, but rather to suggest that to the extent there is political will behind the idea it would be in favour of a limited trade arrangement and not a comprehensive one,” Draper said.

Johannesburg-based businessman R J van Spaandonk has the official licence to import Apple computers, phones, tablets and other products into both the South African and Nigerian markets. He told IPS that the proposed FTA would send a very positive signal, as the two governments seem to be getting closer and closer all the time.

“But in practice the benefits may be limited. Many South African companies operate in Nigeria through non-South Africa entities, so it is not clear if they could be considered as beneficiaries of such an FTA.”

However, he did suggest that it would be a welcome move if it were to make it easier to trade between Nigeria and South Africa.

“I would welcome more transparency on what rules and regulations apply – in terms of import restrictions, product certification, visas, and so on – and faster execution and processing. On both sides, probably.”

Jabu Mabuza, president of Business Unity South Africa, said that there is big potential for closer relations between the two countries, but said he would need more time to decide whether or not an FTA was the best approach.

“I personally welcome the coming together and reigniting of the relationship between our two nations.

“To the extent we can have mutual socially and politically-rewarding relations, we should do all that it takes.”

Jabu Mabuza, president of Business Unity South Africa, said that there is big potential for closer relations between the South Africa and Nigeria. Credit: John Fraser/IPS

However, Dianna Games, the chief executive of consultancy ‘africa @ work’, told IPS that she believes there is enough current and future trade between both nations to look at the issue of an FTA. However, she is concerned about the lack of non-oil trade from Nigeria to South Africa.

“The manufacturing sector in that country is still at a fledgling stage, partly because of serious power shortages,” she explained.

“Although Nigeria is one of South Africa’s main suppliers of crude oil, there is almost no non-oil trade taking place.”

The South African Revenue Service reported that in the first three months of 2012 Nigerian exports to South Africa were worth 750 million dollars, with 740 million dollars made up of mineral products, mainly oil. In the same three months, South African exports to Nigeria were worth 150 million dollars.

“The Nigerian market itself is huge and under-served so what capacity exists is easily swallowed up by the local market itself, with some trade into the West African region. There is nothing to suggest that South Africa will be a market of choice for Nigerian goods and services for some time to come,” she said.

This caution was echoed by Foluso Phillips, the chairman of Lagos-based Phillips Consulting, a business consultancy of branding advisors.

“There is much that South Africa can offer Nigeria, but there has been a problem of attitude and lack of trust as well as divergent objectives by both parties,” he said.

“However, there must be a strong spirit of win-win, as the track record and perception makes it all look one-sided in South Africa’s favour.”

He said that any agreement between both countries had to be on real technology transfer and of value to Nigeria. He added that if an FTA were negotiated, “South Africans (could) not come to the table with a ‘smarter by half’ attitude.”

He insisted that there would need to be a focus on bringing value to Nigeria and not on making his country a dumping ground for South African goods if his country’s borders were to be thrown open to South African exports.

“Nigeria cannot continue to fund imports paid for by oil – so if the value proposition from South Africa is predicated on local input but joint ownership, then we are on to a winner.”

Games said that while there was recognition of the importance of both countries to each other and the continent generally, Nigeria would need to be persuaded of the benefit to its market.

“Such a move has positive spinoffs in terms of South Africa assisting Nigerian companies to build industrial scale and capacity.

“The discussion about developing linkages between South Africa and Nigeria in the auto industry (which took place when Jonathan was in South Africa) is an example of something that could be replicated in other sectors.”

She also believed that it would be important symbolically to highlight a greater level of cooperation between the two countries, which she sees as the two pivotal states in Africa, both politically and economically.

“The economic success of each is important not just to their respective hinterlands but also to the broader development of the continent, and if an FTA proved to be politically acceptable – not just to politicians but also other stakeholders such as business – it would help to cement ties between the countries,” she concluded.

Meanwhile, Draper said that if Nigeria and South Africa were to bring their regional neighbours into the negotiation “it could lead to a juggernaut effect of competitive liberalisation incorporating southern and western Africa. Managing this would be, to say the least, challenging.”