Powering Africa’s Transformation

CAPE TOWN/LAGOS – Africa has a bright future ahead of it. Productivity and growth will improve as African economies continue to place more emphasis on services and manufacturing, pursue commodity production, and achieve quick gains in agriculture and light industry.

But African countries’ success presupposes that they generate and manage energy sustainably to keep up with increasing demand. In the next 35 years, Africa’s population will continue to rise, with a projected 800 million people across the continent moving to cities. And Africans are already disproportionately exposed to the adverse effects of climate change, even though they are collectively responsible for less than 4% of global greenhouse-gas emissions.

Urban areas will have to reduce environmental stresses by promoting low-carbon energy systems, electric mass transportation, and energy-efficiency initiatives, as well as the use of cleaner cooking fuels. And rural areas can create new opportunities that reduce the need for urban migration, by expanding renewable energy systems and energy access.

But even with these measures, providing enough energy for a modern, inclusive economy will not be easy. Africa already experiences frequent power outages, even though more than 600 million people there do not have access to electricity, and current demand is relatively modest.

To avoid the harmful spillover effects of high-carbon economic growth, Africa will have to undergo a “climate smart” energy revolution. African countries will need to build climate-resilient infrastructure and tap into the continent’s abundant renewable-energy resources. Doing so will broaden access to energy,create green jobs, reduce environmental pollution, and enhance energy security by diversifying sources.

At the same time, Africa’s energy revolution will itself be challenged by some of the worst effects of climate change. For example, as rainfall becomes more erratic, hydropower production and revenues may decline. This risk can be managed by modifying existing investment plans to account for large climate swings. Still, for the region to adapt, the United Nations Environment Programmeestimates that it will need annual investments of about $7-15 billion by 2020, and $50 billion by 2050.

Rather than treating new climate-related risks as hurdles to overcome, we should view them as opportunities for investment and innovation. We are standing on the threshold of an exciting new era in which technological progress allows us to use a range of conventional and unconventional energy options (excluding nuclear energy).

African countries can now combine energy sources to adapt to realities on the ground. Unlike in past decades, they no longer need be tied to a single energy source. And, because much of Africa’s energy infrastructure remains to be built, governments have a chance to get their energy and infrastructure policies right the first time, thereby maximizing returns on investment.

Policymakers should take a few key steps to help transform Africa’s energy sector and boost long-term economic growth. For starters, making it easier, safer, and more financially attractive for private investors to enter power markets would boost competition, thereby spurring innovation and lowering costs. Moreover, African countries should seek opportunities to share infrastructure and create cross-border power pools.

Another important step is to invest in renewable energy. Africa has an exceptionally rich portfolio of clean-energy assets, including almost nine terawatts of solar capacity, more than 350 gigawatts of hydropower capacity, and more than 100 GW of wind-power potential. This is more than enough to meet the continent’s future demand.

At the same time, renewable-energy sources are becoming less expensive, making them increasingly competitive with fossil-fuel alternatives. For example, the price of utility-scale photovoltaic solar energy in Africa fell by 50% between 2010 and 2014, and continues to decrease today. And South Africa’s Renewable Energy Independent Power Producer Procurement Programme has seen an overall decline in bid prices and oversubscription rates.
Innovative off-grid and mini-grid electricity-distribution systems, meanwhile, are already transforming Africa’s energy landscape and multiplying the ways to exploit clean-energy sources and expand electricity access for the poor, particularly in areas where consumers are widely dispersed. Companies such as M-kopa and Mobisol have made small solar-energy systems available to thousands of African homes, by allowing their customers to pay in installments on their mobile devices.

Still, to accelerate a market shift on the scale that Africa needs will require increased financing from export credit agencies, development banks, commercial financial institutions, and other cross-border sources.

Africa has a chance to bring hundreds of millions of people without electricity into the modern economy; and we have an opportunity to pioneer the next investment frontier. Getting Africa’s energy transformation right, by pursuing a mix of policies and investments that boost diversity and strengthen resilience, will ensure a brighter future for us all.

Carlos Lopes is a Professor at the University of Cape Town and a Visiting Fellow at the Oxford Martin School, University of Oxford. Tony Elumelu is Chairman of Heirs Holdings and United Bank for Africa (UBA), founder of the Tony Elumelu Foundation, and Co-Founder of the African Energy Leaders Group. AlikoDangote is the owner of the Dangote Group and Co-Founder of the African Energy Leaders Group.

By Carlos Lopes, Tony Elumelu, and AlikoDangote

Federalism and Progressive Resistance in America

BERKELEY – The year 2016 was one of ascendant populism in the United States, the United Kingdom, and many other developed countries. With income stagnation, faltering economic opportunities, and a loss of faith in progress fueling widespread discontent, voters backed candidates who promised to return power to the “people” and to shake up systems that mainstream political leaders had “rigged” in favor of a corrupt “elite.” In the US, growing ethnic diversity, smoldering racial tensions, and changing social mores added fuel to the electoral fire.

In the US, long-term erosion of trust in the federal government culminated in Donald Trump’s victory in November’s presidential election: even though President Barack Obama enjoyed high public approval, only 19% of Americans trusted the federal government to do what is right. Given traditional Republican priorities, reflected in President-elect Trump’s cabinet choices, federal government programs (with the notable exception of the military) are likely to be slashed. Ironically, spending cuts for health, education and training, and the environment, along with large regressive personal and business tax reductions, will further enrich the “elite” while undermining programs that benefit the majority of households.

But the major social and economic challenges addressed by federal programs will not disappear. The responsibility to deal with them will merely fall more heavily on state and local governments, which will have to tackle them in innovative ways. Indeed, the answer to Trumpism is “progressive federalism”: the pursuit of progressive policy goals using the substantial authority delegated to subnational governments in the US federal system.

Annual Gallup polls continue to show that a majority of Americans trust their state governments (62%) and their local governments (71%) to handle problems. A 2014 Pew study found that while only 25% of respondents were satisfied with the direction of national policy, 60% were satisfied with governance in their own communities. And the US Constitution allows individual states to function as what Judge Brandeis called laboratories of democracy by experimenting with innovative policies without putting the rest of the country at risk.

There is a long and rich history of successful experiments. State and local governments were leaders in establishing public primary and secondary education systems, as well as state colleges and universities. California, Wyoming, and other states allowed women to vote – an example that encouraged passage of the Nineteenth Amendment (enfranchising all adult women). Welfare-to-work programs in Michigan and Wisconsin served as the model for federal welfare reform under President Bill Clinton, and Obamacare is based on Massachusetts’ health-care system, introduced under Republican Governor Mitt Romney.

Likewise, from 2000 to 2014, by enacting a variety of energy policies – from broad climate action plans to mandated renewable-energy standards – 33 states cut carbon dioxide emissions while expanding their economies. More recently, some states have introduced cap-and-trade systems to put a price on carbon, and many are already on track to meet Obama’s Clean Power Plan targets. Half of all US states have now legalized marijuana in some form, with eight embracing full legalization. Three states have implemented laws offering paid family leave, with a fourth on the way. Nineteen states rang in 2017 with increases in their minimum wage.

The list goes on. Successful examples of progressive federalism can be seen in a wide variety of areas, including health care, prison reform, higher education and job training, entrepreneurship, worker protection and benefits in the “gig economy”, and pay-for-success government contracts. Cooperation, collaboration, and compromise – between private and public actors, for-profit and non-profit organizations, and Republicans and Democrats – are essential features in all of them. They also underpin the myriad examples of policy innovation and civic engagement at the local level described by James Fallows in a recent article and upcoming book.

To promote state and local policy innovation, the federal government often assumes the role of venture capitalist, providing measurable goals and incentives, rather than dictating solutions. Obama championed this approach through statewide competitions like the Department of Education’s Race to the Top program, through federal “social innovation grants” to support state and local governments, and through the Medicaid expansion program. Vice President-elect Mike Pence is proud of the Medicaid expansion he led as Governor of Indiana – though, as of October 2016, 19 states, mainly in the South and Midwest, had opted not to participate, thereby denying health insurance to more than 2.5 million low-income people.

With the world’s sixth-largest economy, a population of nearly 40 million that looks like the future of America, and a united and responsible Democratic government, California is a model of what progressive federalism can accomplish. It has led the way in expanding rights for women, farmworkers, immigrants, and sexual minorities, among others. Similarly, it has been at the vanguard of environmental protection and efforts to combat climate change – from setting tough standards for energy consumption and auto emissions (adopted as federal law in 2016), to pioneering a carbon-pricing system. Governor Jerry Brown recently promised that if the Trump administration cuts federal funding for satellites needed to collect climate data, California would “launch its own damn satellite.”

California can also be a leader of progressive resistance or “uncooperative federalism,” by refusing to carry out federal policies that it opposes. Many cities in California and the state itself already act as “sanctuary jurisdictions,” which protect undocumented immigrants from deportation by limiting cooperation with federal authorities. By law, immigration enforcement is the federal government’s responsibility; in practice, it lacks adequate resources. The massive spending and personnel cuts promised by Trump will exacerbate the shortfall, forcing the federal government to rely even more on state and local authorities to do much of the work. Signaling its opposition, the California legislature recently introduced for consideration new bills to finance legal services for immigrants fighting deportation and to ban the use of state and local resources for immigration enforcement on constitutional grounds.

Trump has already threatened to cut federal funding to sanctuary jurisdictions. But such pressure tactics have been rendered more difficult by a recent Supreme Court decision limiting the use of conditional spending by the federal government to “coerce” state officials into implementing federal policies.

We may remember 2016 as the year populism returned to power in the US. But it may also be remembered as the start of a new era of progressive federalism and resistance, championed by state and local governments trusted by their citizens to help improve their lives and communities.

Laura Tyson, a former chair of the US President's Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. Lenny Mendonca, Senior Fellow at the Presidio Institute, is a former director of McKinsey & Company.

By Laura Tyson and Lenny Mendonca

Trump’s Middle East Supporters

WASHINGTON – US President Donald Trump’s effort to bar citizens from seven predominantly Muslim countries has provided, up until now, the main barometer of how his administration is viewed in the Islamic world. But Trump’s decision to fire 59 Tomahawk missiles at a Syrian airbase, in response to the latest chemical weapons attack by President Bashar al-Assad’s forces, is likely to provide another – perhaps more revealing – indication of who stands where.

To former US government officials and many Muslims, Trump’s proposed travel ban represents a betrayal of liberal values and offers a recruiting gift to extremists. But, among Washington’s oldest allies in the Middle East – those with the most to gain from a partisan president leaning their way – the response has largely been silence. After eight years of being told what to do by the White House, Trump is seen as a welcome – if potentially unsettling – change of pace.

Saudi Arabia may be the Trump administration’sgreatest (albeit silent) cheerleader. The Saudis were never comfortable with President Barack Obama’s overtures to Iran, and were particularly startled when he toldThe Atlantic magazine that the Iranians and Saudis “need to find an effective way to share the neighborhood and institute some sort of cold peace.” The Saudis, bogged down in a proxy war with Iran in neighboring Yemen, are elated that Trump is contemplating an increase in assistance to repel Iranian encroachment from their strategic backyard.

It’s a similar story for the Saudis in neighboring Bahrain, the Kingdom’s closest regional ally (and one that it supports with free oil). Ever since Sunni-Shia strife first erupted there in the 1990s, Bahrain’s leaders have accused Iran of meddling in its affairs (despite offering flimsy evidence). When Saudi-led forces crushed Shia protests on the island in 2011, the Obama administration rebuked Bahrain’s leaders and curtailed arms sales. But the Trump administration, eager to generate manufacturing jobs, has lifted Obama-era restrictions, announcing that it will sell $5 billion worth of fighter jets to Bahrain.

Even in Lebanon, where Iran’s proxy, the Shia Hezbollah militia, is the dominant political force, the Saudis view Trump as a possible savior whose emerging anti-Iranian policy could strengthen the Kingdom’s surrogates.

As Saudi Arabia focuses on Iran, Egypt and the United Arab Emirates are taking aim at the Muslim Brotherhood. And here, too, Trump represents an attractive alternative for these countries’ leaders. The Egyptian government, in particular, blames the Brotherhood – which it overthrew in a 2013 military coup – for all of the country’s ills, from an Islamic State insurgency on the Sinai Peninsula to the country’s economic hardships. Understandably, Trump’s push to designate the Brotherhood as a terrorist organization, and prevent it from fundraising in the US, resonates strongly with Egypt’s government.

Democracy has made few inroads in an Arab world dominated by authoritarian leaders. But that does not concern Trump, who has shown little interest in liberal democratic norms and the institutions that sustain them. After meeting Egyptian President Abdel Fattah el-Sisi in September 2016, Trump gushed that Sisi was “a fantastic guy” who “took control of Egypt …really took control of it.” Sisi returned the platitudes by being the first head of state to congratulate Trump on his victory. And, just days before ordering the attack on Syria, Trump received Sisi warmly at the White House, praising him for doing a “fantastic job.”

Even Turkey’s leaders, long staunch critics of US policy in the Middle East, have warmed to Trump (who in a July 2016 interview marveled at how President RecepTayyipErdoğan crushed a coup attempt). The denunciation by Michael Flynn, Trump’s first national security adviser, of FethullahGülen, a Turkish cleric living in self-imposed exile in rural Pennsylvania, was especially pleasing to Turkey. Erdoğan believes Gülen was behind the coup attempt and demanded that the Obama administration extradite him, to no avail. Flynn, writing in The Hill newspaper, argued that the US “should not provide him safe haven.”

Before they became obsessed with Iran and the Muslim Brotherhood, Arab leaders often began meetings with US officials by railing against Israel. Trump’s early pledge to move the US embassy to Jerusalem, and his support for Israeli settlements in the West Bank, was particularly alarming to America’s Arab allies. But Trump has since backtracked on promises to move the embassy, and, after meeting with Jordan’s King Abdullah in February, changed his position on new settlement construction.

Trump’s now-frozen travel ban has been similarly polarizing. Michael Morell, a former deputy director of the US Central Intelligence Agency, deemed it “a recruitment boon” for the Islamic State, while influential Muslim cleric Yusuf al-Qaradawitweeted that the move “kindles hostility and racism.” The Iranian Foreign Ministry, meanwhile, called the travel restrictions “a clear insult to the Islamic world, and especially the great nation of Iran.” (Iraq, one of the other states singled out, was equally incensed by the original order; the other countries targeted were Libya, Somalia, Sudan, Syria, and Yemen).

Compare those responses with the silence from Egypt and Saudi Arabia, the suggestion of a “fresh start” from Turkey, and the approval expressed by the UAE’s foreign minister.

It remains to be seen how the turn from Obama’s collaborative policy approach to Trump’s more polarizing tactics might affect regional stability, though it is easy enough to speculate. Trump’s ambivalence about the Iran nuclear deal, for example, could have devastating consequences down the road.

So far, however, Trump’s embrace of some Arab leaders, while leaving others alone, suits most Middle East governments quite well. While Western media wax nostalgic for Obama, these leaders, never comfortable with American meddling in their affairs, are relieved he is gone. Regardless of the political heat Trump may be taking for his “Muslim ban,” they have welcomed his agenda. Their voices may be muted now; but, with the US seemingly intent on more robust military intervention in Syria, those rooting for Trump’s success may not be for long.Barak Barfi is a research fellow at New America, where he specializes in Arab and Islamic affairs. 

By Barak Barfi

Finishing Off Malaria

JEDDAH –Malaria has long been one of the major killer diseases of our age. World Health Organization data show that as much as half of the world’s population is at risk. But roughly 90% of malaria cases and 92% of malaria deaths take place in just one region: Sub-Saharan Africa.

Europe and North America live completely free of malaria. Butchildren in Sub-Saharan Africa often suffer through multiple bouts of the disease before they reach the age of five. And children below the age of five account for 70% of malaria-related deaths. Pregnant women who contract the disease can suffer serious health complications.

The good news is thatthe fight against malaria has lately gained momentum, with infections falling steadily in most places and malaria-related deaths down by 29% since 2010. Progress can be attributed partly to innovations, including newrapid diagnostic teststhat work injust minutes,more accessible and affordable anti-malarial drugs, andrising use of long-lasting insecticide-treatednets (LLINs). Greater community engagement has also helped, with popular musicians, media organizations, and religious leaders advocating for stronger action against malaria.

Senegal is one of the countriesleading the decline in cases. Nearly 86% of the populationnow uses LLINs, and most people have access to rapid diagnostic tests, as well as artemisinin-based combination therapy, which is provided for free by the government and donors. Community health workers, under the direction of an effective national program led by the country’s health minister, AwaMarie Coll-Seck, have played a pivotal role in enabling progress.

The results are impressive. In 2001, nearly 36% of outpatient visits in Senegal were malaria-related. According to the National Malaria Control Program (NMCP),thatfigure stood at just 3.3% last year. Over the same period, malaria-related deaths fell from nearly 30%to just above 2%. The US-based Centers for Disease Control reports that, from 2008 to 2010, the number of children under the age of five infected with malaria dropped by 50%.

Senegal is hoping to achieve pre-elimination (defined by the NMCP as fewer than five cases per 1,000 people annually) by 2020,with the WHO certifying malaria as fully eliminatedfrom the country by 2030. But getting there will not be easy. Senegal will need more resources, a stronger government commitment, increased support from development partners, and greater community involvement.

Against this background, the Lives andLivelihoods Fund (LLF) – a grant facility launched by the Islamic Development Bank (IsDB) and the Bill & Melinda Gates Foundation – has joined Senegal’s fight against malaria. The LLF combines $500 million from donors– including Saudi Arabia’s King Salman Humanitarian Aid and Relief Center, the Qatar Fund for Development, the Abu Dhabi Fund for Development, and the Islamic Solidarity Fund for Development (ISFD)– with $2 billion of IsDB financing for health, agriculture, and rural infrastructure projects.Administeredby the IsDB, the LLF isthe biggest initiative of its kind based in the Middle East, aiming to increase the resources available for development across the 30 least-developed and lower-middle-income countries in the Muslim world.

One of the LLF’s first projects will bea $32 millionmalaria pre-elimination project in Senegal.The LLF’s governance mechanism, the Impact Committee (of which I am an alternate member, representing ISFD), approved the year-one pipeline last September. TheSenegalese government officially agreed to the project– a scaled-up version of the already-successful NMCP –in February. As a result,25 districts in five regions of Senegal will be helped in achieving malaria pre-elimination, directly or indirectlybenefiting nearly four million people (about 25% of Senegal’s total population).

I recently traveled to Senegal to assess the project’s progress. The other Impact Committee members and I met withColl-Seckand other national leaders, who affirmed the project’s importance.The most moving part of the trip was ourvisit to the Deggo health post, in the suburbs of Dakar, where health workers and community volunteers explained to us their ongoing efforts to fight the disease.We left that meeting confident that the project possesses both theright skillsand the needed commitment to succeed.

Investments in combating malaria, like those by the LLF, are among the most cost-effective health interventions, yieldingbroad socioeconomic benefits. A healthy child is more likely to attend school, resulting in improved learning outcomes, just as a healthy adult can earn a steady income, resulting in reduced poverty and hunger. Healthy workers are more productive, boosting economic output. Malaria-free communities can divert their health budgets to fight other scourges, such as non-communicable or neglected tropical diseases.

Progress in the fight against malaria will mean progress toward several Sustainable Development Goals (the United Nations targets to which world leaders agreed in 2015), from eliminating poverty to ending preventable deaths in children under age five. If we are to win the fight, more financing from funds like the LLF, particularly in Sub-Saharan Africa, is the way to do it. Shamas-ur-RehmanToor is Senior Program Management Specialist at the Islamic Solidarity Fund for Development,Islamic Development BankGroup.

By Shamas-ur-RehmanToor

Trade Truths for Trumpians and Brexiteers

LONDON – Here’s a reality check for British and American policymakers, and for the many pundits who frequently comment on world trade without understanding its realities: data on Germany’s total exports and imports in 2016 indicate that its largest trading partner is now China. France and the United States have been pushed into second and third place.

This news should not come as a surprise. I have often mused that, by 2020, German companies (and policymakers) might prefer a monetary union with China to one with France, given that German-Chinese trade would likely continue to grow.

And so it has, driven primarily by Chinese exports to Germany. But German exports to China have also been increasing. Notwithstanding a recent slowdown, Germany could soon export more to China than to its crucial neighbor and partner France, and it already exports more to China than it does to Italy. For German exporters, France and the UK are the only European national markets larger than China.

Seasoned observers of international trade tend to follow two general rules. First, the level of trade between two countries often decreases as the geographic distance between them increases. And, second, a country is likely to conduct more trade with big countries that have strong domestic demand, rather than with smaller countries that have weak demand.

The latest German trade data confirm both rules, but especially the second one. A big but geographically distant country is different not only in size, but also in kind from a smaller one. This is too often forgotten in discussions about trade agreements, especially in such charged political atmospheres as currently prevail in the United Kingdom and the US.

In the UK, the House of Commons has already adopted a bill to establish a process for withdrawing from the European Union; but the House of Lords is now demanding that the bill be amended to protect EU nationals living in the UK. In my own brief contribution to the marathon House of Lords debate last month, I argued that, even if Brexit is not the UK’s biggest economic-policy challenge today, it will likely exacerbate other problems, including persistently low productivity growth, weak education and skills-training programs, and geographic inequalities.

Moreover, I warned that the UK will need to adopt a far more focused and ambitious approach to trade, not unlike that of China or India, if it is to fare well after Brexit. Sadly, the UK’s post-Brexit trade strategy is being determined by internal politics, such that it is “patriotic” to focus on new trade deals with Australia, Canada, New Zealand, and others in the Commonwealth, while ignoring harsh economic realities.

New Zealand may be a beautiful country, but it does not have an especially large economy, and it is a very long way from the UK. In fact, despite its massive problems, Greece’s economy is still larger than New Zealand’s.

Many UK policymakers – and all members of the “Leave” campaign – are ignoring the likely costs of exiting the EU single market. But this factor alone demands serious attention, given the single market’s size and close geographic proximity. It is very important that the UK maintain strong trade ties with many EU member states after Brexit. To that end, Britain should be shoring up its exports of services, a sector where it arguably still has a real net natural advantage.

At the same time, the UK should urgently be trying to take its relationship with China – or what former British Prime Minister David Cameron called the “golden relationship” – to a new level. If there is any country with which the UK should want to strike a new trade agreement, surely it is China. During my brief spell in the British government, I helped then-Chancellor George Osborne persuade Cameron that we should aspire to make China our third-largest export market within a decade. Does the new government still consider this a priority?

Beyond China, Britain also needs to be far more focused on its trade ties with India, Indonesia, and Nigeria, all of which will have significant influence in the world economy and global trading patterns in the coming decades.

In the US, President Donald Trump and his economic-policy advisers need to return to reality, especially on trade. They can start by studying Germany’s trade patterns, especially vis-à-vis China. To be sure, China has a large bilateral trade surplus with the US; but it also constitutes an expanding export market for US companies. And if trends from the last 10-15 years continue, China could soon supplant Canada and Mexico as America’s most important export market.

As Chinese household income continues to rise, demand for some of the US’s most competitive goods and services will only increase. Trump, rather than spewing nonsense about China manipulating its currency, should be encouraging market forces to rebalance bilateral trade.

The same can be said for the US’s overall external deficit. Unless the US can boost its savings rate relative to its internal investment needs, it will continue to need foreign capital inflows. And this, in turn, will require it to maintain a trade and current-account imbalance.

Finally, by pushing for a renegotiation of the North American Free Trade Agreement, Trump is taking a risk similar to that of the Brexiteers. Despite China’s recent gains, Canada and Mexico are still close neighbors and crucial trade partners. By potentially disrupting import patterns with all three countries, Trump’s policies are more likely to push up import prices, while jeopardizing US export growth.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and former Commercial Secretary to the UK Treasury, is Honorary Professor of Economics at Manchester University and former Chairman of the British government’s Review on Antimicrobial Resistance.

By Jim O’Neill

Growing Out of Populism?

CAMBRIDGE – After nine dreary years of downgrading their GDP forecasts, macroeconomic policymakers around the world are shaking their heads in disbelief: Despite a populist-propelled wave of political tumult, global growth is actually set to outperform expectations in 2017.

It’s not just American exceptionalism. Although US growth is very strong, Europe has been outperforming expectations by more. There is even happy news for emerging markets, which are still bracing for US Federal Reserve interest-rate hikes but have gained a better backdrop against which to adjust.

The broad story behind the global reflation is easy enough to understand. Deep, systemic financial crises lead to deep, prolonged recessions. As Carmen Reinhart and I predicted a decade ago (and as numerous other scholars have since corroborated using our data), periods of 6-8 years of very slow growth are not at all unusual in such circumstances. True, many problems remain, including weak banks in Europe, over-leveraged local governments in China, and needlessly complicated financial regulation in the United States. Nonetheless, the seeds of a sustained period of more solid growth have been planted.

But will the populist tide surging across the advanced economies drown the accelerating recovery? Or will the recovery stifle leaders who confidently espouse seductively simple solutions to genuinely complex problems?

With the International Monetary Fund/World Bank meetings coming up later this month in Washington, DC, leading central bankers and finance ministers will have ringside seats at Ground Zero. Who can doubt that US President Donald Trump will make a Twitter punching bag out of any of them who dares criticize his administration’s planned retreat from open trade and leadership in multilateral financial institutions?

Before then, Trump will host Chinese President Xi Jinping at Mar-a-Lago, his “winter White House.” It is hard to overstate how much rides on the Sino-US relationship, and how damaging it would be if the two sides could not find a way to work together constructively. The Trump administration believes that it has the bargaining tools to recalibrate the relationship to America’s advantage, including a tariff on Chinese imports or even selectively defaulting on the more than $1 trillion the US owes to China. But a tariff would eventually be overturned by the World Trade Organization, and a default on US debt would be even more reckless.

If Trump can persuade China to open up its economy more to US exports, and to help rein in North Korea, he will have achieved something. But if his plan is for the US to retreat unilaterally from global trade, the outcome is likely to hurt many US workers for the benefit of a few.

The threat to globalism seems to have waned in Europe, with populist candidates having lost elections in Austria, the Netherlands, and now Germany. But a populist turn in upcoming elections in either France or Italy could still tear apart the European Union, causing massive collateral damage to the rest of the world.

French Presidential candidate Marine Le Pen wants to kill off the EU because, she says, “the people of Europe do not want it anymore.” And while opinion polls have the pro-EU Emmanuel Macron beating Le Pen decisively in the election’s second-round runoff on May 7, it is hard to be confident in the outcome of a two-person race, especially given Russian President Vladimir Putin’s support for Le Pen. Given the unpredictability of an angry electorate, and Russia’s proven capacity to manipulate news and social media, it would be folly to think that Macron is a lock.

Italy’s election is not for another year, but the situation is even worse. There, populist candidate BeppeGrillo is leading polls and is expected to pull in about a third of the popular vote. Like Le Pen, Grillo wants to pull the plug on the euro. And, while it is hard to imagine a more chaotic event for the global economy, it is also hard to know the way forward for Italy, where per capita income has actually fallen slightly during the euro era. With flat population growth and swelling debt (over 140% of GDP), Italy’s economic prospects appear bleak. Though most economists still think exiting the euro would be profoundly self-destructive, a growing number have come to believe that the euro will never work for Italy, and that the sooner it leaves the better.

Many emerging-market countries are dealing with populists of their own, or in the case of Poland, Hungary, and Turkey, with populists who have already turned into autocrats. Fortunately, a patient Fed, a resilient (for now) China, and a growing Europe and US will help most emerging economies.

The outlook for global growth is improving, and, with sensible policies, the next several years could be quite a bit better than the last – certainly for advanced economies, and perhaps for most others as well. But populism remains a wildcard, and only if growth picks up fast enough is it likely to be kept out of play. Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

By Kenneth Rogoff

The Truth AboutDevelopment Aid

SEATTLE – US President Donald Trump’s recently released 2018 budget blueprint proposesdeep cuts in US foreign aid, prompting a discussion onthe role of such spendingin improving the health and wellbeing of the world’s most vulnerable people. This discussion is important, because, when it comes to reducing many of the world’s greatest inequities, aid matters as much as ever – and perhaps even more – for reasons that are not widely understood.

In the last 25 years, foreign-aid programs have helped usher in an era of unprecedented progress in the developing world. Child mortality and extreme poverty have been halved. Innovative multilateral partnerships like the Global Fund and Gavi, the Vaccine Alliance – of which the United States is the largest funder – have saved millions of lives, as they have reduced the burden of infectious diseases such as malaria, HIV, and tuberculosis. The Bill & Melinda Gates Foundation has been proud to collaboratewith these initiatives in reducing the costs of vaccinations and other interventions, thereby boostingtheir measurable impact on global health.

Experience shows that health and development programs pay enormous economic dividends. For every dollar invested in childhood immunizations, for example, developing countries realize $44 in economic benefits.

Yet most people are unaware of the tremendous progress thatdevelopment aid has enabled. In a recentsurvey of 56,409 people in 24 countries, only onein 100knew that global poverty has been reduced by half. More than two-thirds thought extreme poverty hasincreased.Suchpopular misperceptions reinforcea pessimistic narrative thatrendersforeign aid budgets politically vulnerable.

Compounding the problem,donor-country populationsoften overestimate theamount of money their governments spend on aid. In the US, foreign aid comprises less than 1% of the federal budget, yet a recent public opinion surveyfound that 73% of Americans believe aid contributes “a great deal” or “a fair amount” to the national debt.

There is one more misperception clouding donor countries’ judgment: the idea that aid to developing countries is an act of sheer generosity, with no tangible benefits for the donor. The truth is quite the opposite. Indeed, it is in developed countries’ own interest, in both security and economic terms, to help fund development programs.

Without aid funding, rising poverty and instabilitycan draw developed countriesinto faraway conflicts and bring instability to their doorsteps, in the form of immigration and refugee crises, as well aspandemics.By contrast, when aid is used to support rising incomes in developing economies, it can create export-oriented jobs at home. Of America’s top 15 trading partners – that is, self-sufficient countries that consume US goods and services –11 are former aid recipients.

Many more developing countries are taking ownership of their future. They are contributing more to their own development, through domestic public programs supported by smart tax and fiscal policies. And they are placing a high priority oninvestments in critical areas,including education, basic health care, and increased agricultural productivity – the building blocks of a self-sufficient and prosperous future. Private business and capital are also expanding their role in development projects.

Still, for now, donor aid remains essential to fill gaps in domestic funding, to address market failures, and to encourage moreprivate-sector investment. And make no mistake: despite the tremendous gains of the last couple of decades, much work remains to be doneto sustain progress on health and development.

More than a billion people still live on less than a dollar per day. Every year, more than three million babies die in their first month of life. Addressing these and other enduring problems – part of the ambitious set of health and development targets that United Nationshas set for 2030, as part of the Sustainable Development Goals – would be all but impossible without the continued delivery of development aid.

This is not to say that existing aid programs are perfect. On the contrary, we must be vigilant about continuing to improve them. But complaints that aidmoneyis not being used as effectively as itcould be greatly exaggerate the problem. The truth is that, thanks to extensive experience designing and implementing cost-effective aid programs,poorly used funds represent a tiny fraction of the total invested in aid.

The bigger problem is a lack of information. That is why those of us in the development field must work hard to improve communication with policymakers and the public, demonstrating how development aid works and the progress it has facilitated.

Despite current uncertainties, I am optimistic that progress in global health and development will continue. Having been involved in theseareasfor nearly two decades, at the UN and now at the Gates Foundation, I know that the case for development aid is clear and compelling. I believe the world will not turn its back on the historic challenge of reducingdisparities in global health, eliminating extreme poverty, and building a more equitable and secure world. Mark Suzman is Chief Strategy Officer and President of Global Policy and Advocacy at the Bill & Melinda Gates Foundation.

By Mark Suzman

France’s Extraordinary Election

PARIS – Sixty years after the signing of the Treaty of Rome, France is poised to hold an election that could make or break the European Union. A victory for the pro-EU independent centrist Emmanuel Macron could be a positive turning point, with France rejecting populism and deepening its connections with Germany. If, however, French voters hand the presidency to the far-right National Front’s Marine Le Pen – who was, tellingly, just warmly received by Vladimir Putin in Moscow – the long European project will be finished.

Clearly, this is no ordinary French election. With the EU’s survival on the line, the stakes are higher than in any election in the history of the Fifth Republic. So, does France’s nationalist, xenophobic right have a real chance of coming to power?

To be sure, the National Front is well established in French political life. Le Pen’s father, Jean-Marie Le Pen, founded the party in 1972, and led it until 2011, when his daughter took over. But its electoral success has so far been limited. While Jean-Marie made it to the second-round runoff in 2002, he ended up losing badly when the center and the left united behind Jacques Chirac.

Like her father, Marine Le Pen is likely to make it to the second round in May; indeed, polls have her winning the most votes in the first round. Many remain confident that she will be defeated in the runoff: Macron is projected to win 63% of the vote in a head-to-head contest against Le Pen. But populist victories in 2016 – particularly the Brexit vote in the United Kingdom and the election of Donald Trump as US president – have shown that the unthinkable can happen.

In fact, the old French proverb, “never two without three,” may seem to indicate that, after those two votes, a Le Pen victory is all but inevitable. Then again, maybe France will be the third electoral loss for extreme-right candidates, after those in Austria and the Netherlands, providing definitive proof that the populist tide can be resisted.

Exceptional circumstances do sometimes favor the emergence of exceptional personalities, as in the 1930s – a tragic decade to which today’s political hysteria has often been likened. But, like the proverbial “rule of three,” the results can be negative or positive. Just as US President Franklin D. Roosevelt emerged as a ray of hope during the worst economic crisis in America’s history, Macron is spreading optimism among a French public disillusioned by a combination of violence, mediocrity, corruption scandals, and ideological confusion.

Macron’s wife jokes that he takes himself for Joan of Arc, the French peasant who saved the country from the British in the Middle Ages. Physically, Macron evokes more the young general, Napoleon Bonaparte, during his first campaign in Italy. Some see in Macron a romantic figure straight out of a Stendhal novel, a modern Fabrice del Dongo, who decides not to be a mere spectator of the world, but to act on it. He advances his mission through a combination of youthful energy, self-confidence, political cunning, technocratic competence, and a sense of moderation.

Macron embodies a sea change in French electoral politics: the erosion of the traditional cleavage between right and left. He is representing his own centrist movement (En Marche !). No independent has ever won the French presidency, but, again, this is no ordinary election.

In fact, neither of the two main parties – the Socialists and the Conservatives (Les Republicains, as they now call themselves) – is likely even to reach the election’s second round. This rejection of traditional parties echoes the rejection of Socialist President François Hollande, whose popularity sank so low (to just 4% at one point) that he opted not to seek another term, a first in the Fifth Republic’s history. It is also reflected in the risk of substantial voter abstention, unusual for a country that takes presidential elections very seriously.

Many French have perceived this election as a kind of eternal reality-television show. It may be fascinating, but there is little confidence that the myriad issues that are shaping it, from unemployment to terrorism and security to retirement benefits to the moralization of political life, will be resolved. (Here lies another difference from previous elections, which were largely shaped by one or two major issues.)

Like Dongo – or Macron – the French people now will have their chance to go from spectators to autonomous actors. They can elect their candidate of hope, like Americans did in 2008, when they chose Barack Obama. Or they can elect their candidate of fear, like Americans did in 2016, when they chose Donald Trump. In either case, the effects of their choice – like the choices of their American counterparts – will be felt by countless others.

Of course, France is not America; it is, for one thing, less strategically important to the world. But France is strategically vital to the EU. And, in a sense, the composed and politically savvy Le Pen may be even more dangerous than the erratic political novice currently occupying the White House. That is why much of the world – at least the democratic part of it – is watching this most unusual of French elections unfold with bated breath. Dominique Moisi is Senior Counselor at the Institut Montaigne in Paris.

By Dominique Moisi

How to Handle an Oil Shock

CAMBRIDGE – The global oil market is a volatile place. But, abstracting from high-frequency fluctuations, average annual world prices (in US dollars) plummeted about 60% between 2012 and 2016. So how do countries like Russia, Saudi Arabia, Iraq, and Venezuela cope with a collapse in the price of their dominant (and in some cases, only) export?

A textbook response suggests that a government should adjust fiscal expenditures in response to permanent (or very persistent) drops in export and budget revenues. A government can finance external and fiscal deficits if the shock is perceived as short-lived.

Highlighting the dramatic economic effects of oil producers’ reversal of fortune, the figure below compares the sum of the balances (surplus or deficit) in the general government’s budget and the external balance, as measured by the current account, for 18 oil producers, with both components scaled to nominal GDP. In the majority of cases, the twin surpluses of 2011, prior to the peak in oil prices, gave way to substantial twin deficits in 2016. A swing amounting to 30 percentage points of GDP (and sometimes much larger) is not uncommon in this group.


The fact that the twin deficits remain so large in most cases is an indication that even with substantial adjustment efforts in some countries, much of the shortfall in export and fiscal revenue was financed with new domestic and external debt. In hyperinflationary Venezuela, printing money was the primary method of government finance.

Some countries, notably Saudi Arabia, which issued the largest volume of external debt of any emerging market in October 2016, started with a clean balance sheet – no outstanding debt and a high stock of assets. But even with such favorable initial conditions in “stocks,” the combination of record or near-record twin deficits financed through reserve losses and US dollar-denominated debt has led to a spate of credit-rating downgrades, with the most recent coming from Fitch last week. Of course, not every downgrade is followed by a default; but the direction is hardly encouraging, especially given the pace of deterioration.

Will an oil-price recovery reverse this trend?

Cycles in oil and commodity prices are notoriously difficult to predict. Some oil-market bulls nowadays are pointing to a recovery in global demand. Arguments for this view range from those emphasizing comparatively low inventories in Europe, Japan, and other places, to those pointing to the recent surge in North America of consumer purchases of gas-guzzling vehicles, like SUVs and trucks.

But the bullish view is by no means unchallenged. Prevalent among the reasons listed by those forecasting a continued slump in oil prices are some of the old usual suspects. The Saudis’ inability to rein in production among some of OPEC’s poorer members in dire need of foreign exchange is an old (and usually relevant) story. Complicating matters for Saudi efforts to stabilize prices is the comparatively new challenge of rapid growth in US production.

Indeed, the most recent data indicate that the recent setback in the WTI Crude Oil price has not slowed the growth in the Crude Oil Rotary Rig Count, which increased sharply in the week ending March 24. The rise took the Rig Count to its highest level since September 2015, as US production has replaced cutbacks by OPEC and other producers, and US inventories have set new record highs each of the last five weeks.

Judging from their actions, the governments of several oil-producing countries appear to be betting that the slide in oil prices is either over or about to end soon. Gulf countries are forecast to issue sovereign debt in possibly record magnitudes. As for external debt, these countries are expected to drive the bulk of 2017 sovereign issuance, according to a recent report by Bank of America Merrill Lynch, which estimates that Saudi Arabia, Qatar, and Kuwait, together with Argentina, will account for 37% of the total. Like Saudi Arabia until recently, Kuwait has no external sovereign debt outstanding.

If oil prices fail to recover, however, this surge in debt issuance could backfire. Furthermore, issuing dollar-denominated debt carries an additional risk and cost in the event of currency depreciation (or devaluation) for those with an exchange rate pegged to the US dollar.

While the future of oil prices is uncertain, the fate of countries that have treated adverse shocks as temporary and reversible, and were then proven wrong, has seldom been encouraging. The fact that international financial markets welcome the placement of new debt by countries with obviously large and unresolved twin deficits primarily reflects their search for any kind of yield in an era of exceptionally low global interest rates. These countries’ leaders should not interpret demand for their debt as a vote of confidence in their policies and economies. Carmen Reinhart is Professor of the International Financial System at Harvard University’s Kennedy School of Government.

By Carmen M. Reinhart

Lessons from Trump’s Health-Care Debacle

WASHINGTON, DC – US President Donald Trump’s domestic economic agenda suffered a major setbacklast week, when the House Republican leadership decided to withdraw their hastily draftedbill to repeal and replacethe Affordable Care Act (ACA, or “Obamacare”). Given the high-profile effort the president devoted to the issue, the Republican majority’sfailure to produce a viable draft was deeply embarrassing.

The key question now is whetherTrump will be able to move forward on other items on the Republicans’ economic agenda. And, for three reasons, Trump’s next majorpolicypush – on taxes –is in big trouble.

First, activism matters. Since November, many people have rediscovered that grass-roots political action in the United States – such as well-organized marches, visits to congressional offices, speaking out at town halls, and calling members of Congress– really does makes a difference.

Members of Congress listen, because their jobs depend on it. The entire House of Representatives faces reelection every two years – a termset by the US Constitution to force them to hew close to public opinion. If they don’t, they risk facing serious challengers in party primariesand reelection campaigns.

Likewise, whetherthe Senate votes to confirm ultra-conservative Neil Gorsuch to the US Supreme Court willdepend on how many phone calls Senators receive. Both Democratic and Republican Senators want to sense their constituents’mood – and there is no better way to get this across than through a phone call.

I am an adviser to a group at MIT that created a website,, designed to make it easy for Americans to use their social network to mobilize calls to Congress. The response has been very positive: for example, I made two calls myself in recent weeks, but my network has made more than 160 calls. And FiftyNifty itself has accounted for more than 1,200 calls lasting over 31 hours.

The second challenge for Republicans is thatpolitical morale changes quickly. The Democrats were defeated and depressed in November. Now they feel united and focused – and with good reason.Until recently, stopping Trump’s health-care proposal, which would have stripped insurance coverage from an estimated 24 million Americans over the next decade, looked tough. But the Republicans’ internal riftshave made it clear to Democrats that, if they stay united, they can put a serious crimp in the Trump agenda and claw back House seats in November 2018.

How many?As of March 1, there were 237 Republicans and 193 Democrats in the House (along with five vacancies). But there are 23 House Republicans who represent districts that voted for Hillary Clinton in November – and many of them look vulnerable today.

For example, Representative Mimi Walters, from California’s 45th District, looks increasingly out of touch with her voters. In committee discussions of Trump’s health-care proposal, she infamously remarked, “Let the games begin,” beforesupporting the legislationuntilit was withdrawn.To watch the pressure mount in coming months, follow the twitter feedof Dave Min, a law professor at the University of California, Irvine.The group Swing Lefthas a helpful website that enablespeopleto find the nearestcongressional swing district– the point being to identify where Democrats should focus their attention and donations.

The thirdmajor challenge facing Trump is structural.He has pandered to the farright by installing fanaticsin top White House posts, includingStephen K. Bannonas chief strategist,Betsy DeVosaseducation secretary, Scott Pruitt asadministrator of the Environmental Protection Agency, and Rick Perry asenergy secretary. These people – and their cabinet colleagues –areusing executive actionsto pursue an extreme agenda, such as removing environmental protections, which will result in more polluted air and water around the US.

At the same time, Trump realizes that if he embraceslegislationpreferredby the Freedom Caucus – a bloc comprisingthe most extreme conservatives in the House, whose members sank the effort to repeal Obamacare –he will lose the political center. In that case, congressional Republicans will suffer significantmidterm loses in 2018, and in 2020 Trumpwill face the prospect of one of the most humiliating defeats ever experienced by a sitting president.

On tax reform, the Freedom Caucus (and Speaker of the HousePaul Ryan) primarily wants to cut ratesfor the rich. Trump wants a broader tax cut, but one that will increase the deficit dramatically – which the Freedom Caucus will have a hard time swallowing, in part because doing so wouldexpose them to primary challenges.

Trump could in principle pick up Democratic support, for example if he adds some infrastructure spending. But why would any Democrat want to assist a president who not only appoints people like Bannon, DeVos, Pruitt, and Perry, but also gives those secretaries free rein to implement damaging and irresponsible policies at home and abroad?

When Trumphas been able to act without Congress, hisappointments and executive orders have been beyond extreme. On legislation, however,extremism will not work, owing to the need to attract some relatively centrist Republicans in order for it to pass.

In the meantime, the Democrats shouldmake that as difficult as possible and focus squarely on taking back the Housenext year.

Simon Johnson is a professor at MIT’s Sloan School of Management and the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.

By Simon Johnson

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