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The financial crisis is hitting but not crippling African airlines. And those that are performing poorly, particularly SAA and Kenya Airways, are doing so owing to poor hedging strategies over oil prices rather than passenger and cargo management, which for KA volumes are up 10%.focus-4

And some, like Ethiopia Airlines, are booming, up 45% this calendar year. And investments in new airports, and new hubs – in Rwanda and Swaziland, indicate the private sector share confidence in the projected 9% year-on-year expansion in passenger numbers, which is estimated by IATA.

From an economic development viewpoint, aviation has an immediate impact on land use as options for marketing produce change. Managing this change is key to dictating whether the impact of more aviation in a new place is good, sustainable and viable. Once establised, the gradual growth over time of aviation has more mixed benefits.

The transfer of technology (soft and hard) is a key enduring benefit for many developing countries. There are legitimate concerns however that this is always in the interests of the nation, the workers, and particularly smaller businesses, and the poor.

Is this resilience in the aviation sector in Africa a sign of buoyant economies, fertile trades? What role can aviation play in securing sustainable economic development in the continent?

The need for host governments with growing aviation sectors to invest rents in ensuring that development is appropriate and managed.

World wide the informal economy is booming during recession with OECD estimating more people employed in informal sector than the formal – 1.8 bn to 1.2bn. The constituency of this growth is worrying with ILO estimating an extra 200 million people earning less than $2 per day by 2010 – all in the informal economy. Yet some are from formal jobs, using the informal sector as a cushion, an insurance, until things pick u again. photo-1

Historically, the informal economy has been seen as problematic by developed country governments owing to lost tax revenues, workers’ lack of unions rights, low wages and the exploitation of the poorest. And developing country policies and approaches to economic planning and management are largely apeing the developed world’s model.

Yet, the recession is alerting us to the inherent resilience in the informal economy globally. It has existed for far longer. It is an evolved, even natural economy, suitable for local interactions. It cushions formal employment dropouts. And in developing countries it is larger, on average 40% of GDP over 17%.

But right now it is being stretched in developing countries. More informality coupled with less demand, owing to the recession’s cumulative impact, equals lower prices, and an even more competitive market. While the informal economy might be able to apparently support growing numbers of entrants (see this India example), it is unclear if this means lower overall individual earnings and margins? “Smaller-and-Smaller Slivers of a Shrinking Pie

The simultaneous growing informality and poverty is clearly a worry. Yet the apparent resilience of the informal sector hints at a solution; that developing country governments would be wise to reroute their economic development planning from the path of the developed world, and to make visible the informal economy, give voice to its participants and begin to validate their presence as useful and welcome economic actors through targeting them with appropriate economic policies. How can the developing world’ governments help the informal economy without formalising it?

Despite many experts arguing (and hoping) that the developing world would be sheltered from the economic crisis, it appears that the answer to the question ‘will the recession impact developing countries?’ is yes. And not only yes, but that the impact has been more severe than we might have expected.

2009 will be worse in terms of the severity of the impact than 2008 as the recession really begins to take hold, and much of the economic growth to date and the associated development gains will be undone throughout this period of global financial turmoil. A depressing story has begun to emerge. By the end of 2009, developing countries are expected to lose incomes worth at least $750 billion. In sub-Saharan Africa, the figure is over $50 billion. The consequences of this fall in income will be increases in unemployment, poverty and hunger. The ODI estimates that an extra 50 million people will be trapped in absolute poverty, with the number expected to rise to 90 million. As previously mentioned, hunger is going to increase significantly and is already on the rise, with 100 million more expected to go hungry because of the recession – having risen for the first time in 20 years.

There are a number of key ‘transmission belts’ which transmit the impacts of the recession to the developing world. These are explored further below:

1) Trade

The value of trade has been falling in some countries. Japan recently reported that it exported 50% less in February than it did a year ago. Falling trade is argued to be a result of a combination of falling demand for goods and a credit squeeze (npr). The ODI found that tightening credit conditions were happening for domestic bank lending in Cambodia, Ghana and Zambia.

Indonesian exports of electronic products experienced a fall of 25% (in value terms) in January 2009 compared to the previous year. Similarly the value of garment export in Cambodia has dropped from a monthly average of $250 million in 2008 to $100 million in January 2009 (ODI). This has inevitably led to decreases in employment, for example, Cambodia laid-off 15,000 construction workers in mid-2008 and 51,000 were laid off in the garment industry. Kenya, which is highly reliant on the labour-intensive horticultural industry, saw 1200 jobs lost this year and a 35% decrease in exports of flowers. Uganda, a traditional commodity exporter, has faced significant declines in the value of its exports, because of falling prices for coffee, flowers and cotton and declining demand since November 2008. The recession has been particularly damaging for countries highly reliant on one or very few commodities that have experienced falling commodity prices.

2) Remittances

The World Bank revised its estimates of remittances downwards, after remittances reached $305 billion in 2008, to $290 billion in 2009, the first decrease in a decade.

In all countries studied, remittances had decreased, but Africa is thought to have seen the most significant decline.  In Kenya, for example, remittances were down by 27% in January 2009 compared to January 2008, following a volatile year. In Bangladesh emigration fell by 38.8% between February 2008 and February 2009, jeopardising future remittances.

3) Private financial flows

Private financial flows have been affected by the downturn. In particular portfolio investment flows fell significantly in 2008, with some signs of significant shifts from inflows to net outflows. For example, in Bangladesh and Kenya, studied by the ODI, experienced net outflows of portfolio investment flows worth $48 million in July-December 2008 (for Bangladesh) and $48 million in June 2oo8 and $12 million in October 2008 (in Kenya).

Net private capital inflows to developing countries fell to $707 billion in 2008, a sharp drop from a peak of $1.2 trillion in 2007. International capital flows are projected to fall further in 2009, to $363 billion (World Bank). In Indonesia, there has been a massive sell-off of government bonds and in Kenya and Nigeria there has been a significant drop in portfolio equity flows, consistent with the sharp fall of their stock markets (ODI).

The World Bank noted this trend in South Asia. It estimates flows to South Asia fell by 29% in 2008, among the sharpest declines posted among developing regions.  Credit conditions for bank lending has been tightening in Cambodia, Ghana and Zambia. Foreign Direct Investment has been less severely affected, but this has varied by country.

Economic policy and social protection provision responses

Economic and social protection policy responses have been extremely varied across countries in the developing world, with some adopting a business as usual approach and others being more-proactive (ODI). For example, Cambodia is implementing growth accelerating policies whereas Indonesia is implementing fiscal stimuli. Kenya, on the other hand, has done relatively little.

In terms of social protections, some countries are struggling to implement anything that even meets existing commitments such as Kenya and Uganda, whilst others are attempting to extend coverage of social protection provision to respond to the crisis (Bangladesh, Ghana and Cambodia).

During the recession it will be important to continue monitoring the impacts and the effectiveness of policy approaches, and building on any lessons learnt. This may enable developing countries and the developed world to better support the most vulnerable and avoid the further undoing of past progress.


Meat eating and its connection to climate change has suddenly come to dominate the media, with the likes of celebrities Paul McCartney, Kevin Spacey and Chris Martin (Coldplay) urging people to have one meat free day a week (Reuters, Bloomberg). As mentioned in a previous post, animal protein production (particularly large-scale) is a bigger contributor to greenhouse gas emissions globally than the transport sector – it is responsible for 18% of greenhouse gases (this includes both gases emitted from livestock and land use change). Greenpeace estimates every kilo (2.2 pounds) of beef eaten represents about the same greenhouse-gas emissions as flying 100 kilometers (62 miles).

meat free mondays

Unfortunately the types of gases livestock release (Methane, Nitrous Oxide) have far more powerful global warming power and potential than the typically demonised CO2 (nitrous oxide, for example, has 296 the global warming potential of CO2). This direct impact on climate change is exacerbated by the loss of forests to accommodate this growing industry, particularly in tropical zones such as Brazil and South America, that have significant potential to store carbon and help slow the current alarming rate of climate change. To add to the severity of the situation, production of meat is estimated to double from 2006 to 2050 (FAO, 2006), driven by growing demand in low and middle income countries as incomes rise.

Whilst climate change is evidently a serious issue, its consequences for society, particularly in the developing world, is of particular concern. Research suggests that the developing world is most vulnerable to climate change and its effects will be most strongly felt in the developing world. For example, whilst changes in the climate may be positive for agriculture in the developed world, the developing world is likely to see significant reductions in yields, due to decreases in rainfall and increases in temperature: ‘Results from a case study in Mali ..indicate that climate change could reduce forage yields by as much as 16 to 25% by 2050 and crop yields with a reduction from 9% to 17% for sorghum. In contrast pastures in cold areas are expected to benefit from rising temperatures’ (FAO, 2006).

I previously asked how the recession might impact demand for meat – suggesting that the recession could both reduce the amount of meat being bought (as a relatively expensive protein source and consumption being strongly correlated with income) and reduce the quality and types of meat being purchased. Some anecdotal trends suggest that this has been happening, particularly in the US. One industry expert argues that people are eating less beef, pork and poultry and that per capita consumption in the US is the lowest its been since 1982. In addition, people have been buying cheaper cuts of meat. This fall in consumption may give sustainable development a temporary reprieve from the negative impacts of animal protein production, but there are equity issues to bear in mind.

There are important differences in regards to global patterns of meat consumption. Whilst 100 million people go hungry and could benefit vastly (both in regards to physical and mental capacity, particularly children) from an introduction of more meat and dairy products into their diets, 1 billion people are either overweight or clinically obese and are far more prone to suffering from cardio-vascular disease, diabetes mellitus and some cancers because of excessive meat consumption. In India people consume 5kg per year of meat on average whilst in the US people consume 123 kg of meat, on average, per year.

The recession is likely to undo some of the economic growth and associated income gains in the developing world, potentially reducing any increases in animal protein consumption that are much needed. Meanwhile, for a vast majority in the developed world, the recession and any reductions in consumption may bring much needed health advantages and be benefical for the environment and society. Let’s hope the recession instills deep-seated changes in regard to how much animal protein consumption is necessary and ethical in the developed world. Maybe, just maybe, the recession has added fuel to Paul McCartney’s fire.

The UN approximates that an additional 100 million people will now go hungry as a result of the recession, as total numbers of those suffering from hunger hit 1 billion – a 6th of the world’s population. Many experts predicted that the recession would impact poverty levels, despite the recession’s origins in the West, and that through rising unemployment and food prices and falling incomes, hunger would be ever more pervasive. Despite these predictions they had not been quantified, until now. And what a depressing figure it is, demonstrating how something so seemingly detached (sub-prime mortgages) has led to the undoing of significant progress made to date. This number has fed fuel to the debate of just how globalised the economy has become.

In Asia and the Pacific, an estimated 642 million people are suffering from chronic hunger; in Sub-Saharan Africa 265 million; in Latin America and the Caribbean 53 million; in the Near East and North Africa 42 million; and in developed countries 15 million in total (FAO).

Whilst the crisis appears to have been indiscriminate for the poor, it is thought to have affected urban populations more severely than rural areas, due to the stronger connection between jobs in urban areas and falling export demand and foreign direct investment. However, rural areas have been by no means immune and migration from urban to rural areas has become a phenomenon. Remittances have also thought to have declined this year as a result of the recession, delivering another blow to the poor, whilst more recent falls in food prices have yet to benefit the developing world:

“While food prices in world markets declined over the past months, domestic prices in developing countries came down more slowly. They remained on average 24 percent higher in real terms by the end of 2008 compared to 2006. For poor consumers, who spend up to 60 percent of their incomes on staple foods, this means a strong reduction in their effective purchasing power.” (FAO).

The FAO Director-General, Jacques Diou, has argued that investment in agriculture is vital as a solid basis for further development and economic growth and because of the dominance of agriculture as the mainstay for a significant proportion of the developing world.

Whilst a clear solution may not be obvious, what is clear, is that this is a global recession, with global ramifications and one that makes us all responsible for its solutions. Even though the ethical and moral grounds for eradicating hunger are powerfully clear, the threat posed to global peace and security makes finding a solution a global imperative.

During the recession, consumption has been changing for a range of products. But we are concerned with how products that are sustainable [for environment and development] are faring. This graph [“recession’s crosshairs”] attempts to capture two simultaneous trends — in total product sales during recession and in those sustainable niches. untitled1While this graph has its problems — for instance, quality issues are not displayed — broad trends and crucially differences among products is evident. This means, different policy prescriptions for different economic times. Here, coffee category sales are up, but niche sales [e.g. Rainforest Alliance] way down; while chocolate [Fair Trade] up – partially owing to chocolate’s role as a “treat” but also owing to Cadbury’s inclusion of Fair Trade cocoa in its Dairy Milk bars.

  • Is this a good way to represent these Slump-induced changes?
  • Are our calculations/positionings correct?
  • How could all this be improved?

I recently posted a piece, admittedly riddled mainly with questions, about how the recession would impact wildlife trade, land use, conservation and the balance between legal and illegal trade. Although a relatively small case-study in the global scheme of things, Argyll in Scotland, has demonstrated just what could happen as the economic going gets tough:

One unexpected consequence of the recession is that the needs for cheap meat and money-making are combining to bring DIY wildlife crime gangs to Scotland to poach Roe, Red, Fallow and Sika deer. There is already a lively black market for cuts of meat from these animals (Strathclyde Police).

Other anecdotal trends do suggests that this rise in poaching is not necessarily confined to Argyll and may be having more serious effects in terms of undermining sustainability, elsewhere. The Born Free Foundation has argued that ‘rising food prices, another rash of crop failures, wide-ranging impacts of the global recession, will lead to a rise in the ‘bushmeat’ trade in Kenya’. This is thought to be detrimental to conservation because a portion of the bush meat contains endangered species. A survey in 2004 revealed that 40% of meat being sold as beef or goat in certain Nairobi butcheries was either wholly or partially bushmeat – it would be useful to update this research and understand the extent to which the recession is impacting illegal wildlife trade.

Wildlife_Works_Ltd_Rukinga

Source: Wildlife Works Ltd

Whilst on the surface it may seem that trade in illegal bushmeat is only damaging to the wildlife it affects, Born Free’s Senior Wildlife Consultant argues that “this is not just about saving individual animals, important as that is.  It is about preserving functioning eco-systems that bring benefits to every person on the planet.  The ecosystem services provided by Africa’s forests and savannahs include rainfall, carbon storage and stabilizing the global climate, so we all have an interest in preventing a few profiteers from destroying these globally important ecosystems for personal gain.”

Illegal hunting and trade of wildlife, removes the economic connection between habitat (or land) and wildlife, undermining economic incentives to conserve habitats and, as a result, environmental sustainability – not just in the specific country concerned, but globally.

Africa’s deforestation rate is four times faster than the world average and is of particular concern for climate change because of its important role as a carbon sink.

Though the relationship between the economic crisis and deforestation isn’t on the surface an obvious one, the drivers of deforestation in Africa are only likely to become more pressing as the recession sends global shockwaves – affecting the cost of living for those who can least afford to spend more of their income on feeding themselves and their families. This is likely to exacerbate deforestation and the use of other natural resources as people seek to increase their income.

tree

Land tenure is thought to be a massive hurdle for conservation and particularly in the prevention of deforestation, with less than 2% of Africa’s forests under community control. The Guardian argues that in order for the currently negotiated Reduced Emissions from Deforestation and Degradation (REDD) credits to be effective  secure property rights are essential (REDD put simply is where you get paid for not destroying an ecosystem, providing financial incentives for conservation):

“Land tenure and forest governance are also key factors that will determine the success or failure of any REDD initiative, and the mechanisms by which payments and benefits are shared will be critical” (IIED).

The Economist argues that ‘The obvious economic explanation is that the over-exploitation of animals and plants is an example of the “tragedy of the commons”. If no one owns the wildlife or the land on which it lives, the behaviour that is individually rational—poaching, clearing land and so forth—may be collective folly. Trade ban or no trade ban, without enforceable property rights, the underlying tragedy remains’.

The logic is that, if communities have direct ownership of the land that are taking timber (or, indeed, any wildlife from) there is greater financial incentive for conservation: “Africa’s forest communities already generate millions of jobs and dollars in domestic and regional trade, and in indigenous livelihoods, but current laws keep some of these activities illegal and also undermine opportunities to improve forest management” (Rights and Resources Initiative). Resolving property rights, because of its direct link to resource use and deforestation is argued to be a first key step to addressing the causes of climate change.

However, some argue that deforestation is less an issue of property rights and more about the lack of governments’ control of access to wildlife and the land it occupies, through both social structures and formal rules. Land reforms alone are unlikely to be a panacea for deforestation – governments need to support local management and enterprises so that people have direct control over the resource and more financial incentive to ensure the sustainability of it.

The recession has only served to bring the debate over conservation, deforestation and effective government solutions into even sharper focus.

The recession has drawn the aid debate into even sharper focus as ‘cash strapped’ governments in the West pledged to continue giving aid – G20 leaders agreed at last month’s summit London that an extra $50bn would be needed to assist the developing world through the global economic crisis.

Today’s global financial pressures place ever-heavier emphasis on the need for Aid to work, and the rising popularity of Zambian economist Dambisa Moyo has giving fuel to the debate of whether Aid should exist at all – the debate has raged between Moyo and Jeffry Sachs in particular. Moyo argues that Aid achieves the opposite of its desired effect, encouraging dependency, corruption and stifling enterprise and innovation:

“With aid’s help corruption fosters corruption, nations quickly descend into a vicious cycle of aid. Foreign aid props up corrupt governments – providing them with freely usable cash. These corrupt governments interfere with the rule of law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive.”

She argues that the success stories used to support those who are pro aid-giving vary hugely from the African countries still receiving aid today – notably the aid the ‘success stories’ received was smaller in amount and shorter in duration – they then moved on to adopt market-based, job-creation strategies. Holman, former Africa editor of the Financial Times argues that aid diminishes the role and responsibility of the State to its citizens – the basic contract between a citizen and the State breaks down as the State fails to deliver basic services – roads, water, schools and clinics – within the context of an aid-dependent state, these services are better delivered by a third party, such as an NGO.

Moyo and Holman make some very valid points and for countries who rely heavily on aid, adopting new financing and development strategies and ‘weening’ themselves off aid in the long-term can only be a good thing. However, Moyo’s argument can also be taken at face-value and very simplistically and misused, without more detailed understanding of the nuances of her argument and of the different forms of aid and the circumstances in which it is needed and can work. We can ill-afford to desert the poorest who can only be worse-off as a result of the financial crisis and who are in need of basic social protection.

Steve Radelet, senior fellow at the Center for Global development in Washington, poses some solutions in ensuring aid is used in the right way:

  1. Be more selective. Africa is not a monolithic entity. More aid should go to countries that can use it well, especially the emerging democracies that are implementing sensible economic policies.
  2. Set clear goals, set them publicly, and measure results with independent monitors.
  3. Streamline bureaucracies and make sure a larger share of funds gets to those that need it most.
  4. Listen more. Ask Africans – government officials and ordinary citizens – what they need most and how programs can best be implemented both to achieve immediate goals and build capacity over time.

There is an intriguing new paradigm stalking the developing world, of politicians, national governments renationalising the environment and economic development.

In light of financial mis-management in the developed world, some southern American governments are realising that externally-imposed policies, systems and principles of economic development, aid and structural adjustment [sold to them by these same people who created the financial crisis] are also founded on quicksand. The governments of Bolivia, Ecuador, Nicaragua and Venezuela have all taken steps back from a globalised system of economic development to a more nationalised system.

In these natural resource rich nations, it doesn’t take a great leap of economic thinking to begin re-investing resource rents in locally sustainable ways. Not in ways which perpetuate economic slavery to past loans and agreements with previous US administrations. And in ways that conform to good environmental economic management of non-renewable natural resources. Bolivia has renationalised natural gas reserves. And when Ecuadorians re-elected Rafael Correa on April 26, they fully endorsing his policies of “21st Century Socialism” and collectively lay blame at capitalism’s feet for the global economic crisis. Operationally, Correa’s New Socialism means refusing to repay some foreign debts and significantly increasing social programs for the poor. ACAIJKIB8CAGQVIEYCAMLUMJGCAH1JC58CAPFV6I4CAPKWE8ECAJBVE28CAWJWA4UCA04KWHLCABYYH2VCAI2MRL7CAI0HP6XCAS46ADKCA7ADKW4CA4GWZWECAWWIX3ICA28LM4DCAMBG11R

But the principles appear good, that by taking responsibility for their problems, and matching these solutions to their opportunities, that there is stronger economic systems and hope of being permanently de-linked from their developed northern cousins. There are the skeptics of course, but SustainableSlump is watching in tempered awe.