Archive for the ‘Economics’ Category

Read my posts on Practical Action’s blog pages

December 20, 2011

Some of the exclusive content on Practical Action’s pages: Recipe for a high nutrient lollipop for cows; text messaging extension service in Nepal.

I try to cross-post, but don’t always keep up. See read it directly from Practical Action’s pages here!

Bermuda Triangle of Economic Empowerment

December 20, 2011

Read my review of the conversations, sharing and  learning that went on at the SEEP Network Annual Conference and find out what the Bermuda Triangle of economic empowerment is all about.

I presented Practical Action’s Bangladesh work in one of the Vulnerable Populations workshops. Alison Griffith and Lucho Osorio were also at the conference, presenting  lessons of engaging with the national level private sector in Nepal and managing complexity in market development, respectively.

Engaging with the elephant in the room – Nepal’s exodus

June 6, 2011

Youth migration, remittances and skill development in Nepal.

Read my latest post here!

Facilitating two approaches to cattle feed in Nepal

May 22, 2011

Another Practical Action comms. blog from me available here. Please read critically 😛

Roots, perfume, herbal tea and cheese: Ground-up market development in Nepal

March 12, 2010

The debate continues across development studies about the centrality of economic growth as a driver for development understood in wider terms. But from inside Nepal, a country burdened by critical human underdevelopment, stunted by economic stagnation, and hindered by political deadlock, the view is clear enough: economic growth is the engine of development. And although optimal performance requires more than just a big engine, as the BBC’s Top Gear team will tell you, without it a country doesn’t even get moving.

Our understanding of the drivers of growth is still limited, and the application of what wisdom we do have to inform policy decisions is often difficult. After all, designing country-specific policy conducive to sustainable, and ideally inclusive, growth is no simple matter, nor should it be. ‘On the ground’ even benign decision-makers lack the information to foresee how best to manage the economy to achieve sustained growth. The advisors they turn to, while better informed by research, often lack a perspective contextualised enough to withstand the idiosyncrasies of country specificity. Furthermore, this analysis doesn’t even take into account the inevitability of politics in decision-making, and the technical constraints to research.

Notwithstanding the epistemological constraints, law, policy and intervention are being designed across the world to support and enhance economic growth in developing countries. The tools deployed are diverse: macro-economic policies encourage domestic and foreign investment and balance the cost of importing intermediate goods required as inputs in the economy with the relative prices of export-oriented producers; domestic laws and regulations are instituted that help enterprises and business get off the ground and prosper; government funds are directed to help industries overcome expensive hurdles to growth, from start-up costs and difficulties in coordinating within and across industries, to information-gathering activities.

All of these tools are controversial, for more reasons than can be enumerated here. For a few examples though, pro-growth macro-economic policies have in the past been accompanied with strong pressures to minimise the role of the state, leading to vast cuts in health and educational spending. Pro-business law and regulation make concessions in labour protection. And government intervention in industrial development, known as industrial policy, involves supporting some industries over others, and thus can lead to countries ‘betting on the wrong horse’. This results in a misallocation of resources, stunting rather than enabling growth. Industrial policy can also lead to corruption, where government officials support industries they have a political or private  interest in.

Nonetheless, all of these approaches are deployed in some form wherever economic growth is a priority (probably everywhere), with varying success.

Market-chain development is a practical, ground-up approach to industrial policy, often implemented by INGOs and NGOs in partnership with government ministries. In principle underdeveloped markets are encouraged to blossom by enabling a conducive policy, legal and regulatory environment  and by intervening to ensure that the services that support enterprise development are in place and properly functioning.

Effective market-chain development must balance industrial upgrading potential with market viability. Intervention planning must carefully choose potential markets for development that will self-sustain after the project cycle support is removed. In Nepal this means targeting agricultural markets, such as dairy products, forestry related markets, non-timber forest products (NTFPs) and medicinal and aromatic plants (MAPs) in particular, and the tourism sector. Not only are these the markets that are likely to survive once subsidy support is pulled, but they are the ones that will alleviate poverty directly. In a country where over 80% of the population is rural, and where poverty is strongly correlated to natural resource dependence in particular, market development support in these areas offers opportunities to provide new, sustainable income-generating activities for the poorest in Nepal.

This goes against the growing consensus that the markets that should be targeted are those where there is a potential over time to move into products that have a higher value, and therefore bring greater benefits to the economy. Traditionally these are deemed to be in the manufacturing and industrial sectors. Given Nepal’s infrastructure and international trade relations, this alternative is not currently viable however.

At the time of writing, Kathmandu faces 10 hours of electricity load-shedding a day. This is likely to rise until significant rains replenish the mountain lakes that drive Nepal’s hydro-electricity reliant power grid. This failure in the supply of a good that is used as an essential, and non-substitutable, input for so much of the economy creates a crippling bottleneck for manufacturing, industrial and service sector development. Poor transport infrastructure further compounds domestic and export difficulties – Nepal, being landlocked, has no ports, only one international runway, and few, poorly maintained roads.

Nepal’s free trade accord with SAARC countries floods it with cheap Indian goods, limiting domestic market development. Furthermore, low-value industry and manufacturing struggle to compete internationally without special support which competitors in Africa benefit from through the US African Growth and Opportunities Act (AGOA). At the beginning of 2005 the World Trade Organization’s Agreement on Textile and Clothing (ATC) came to an end, and the poorest countries, who had been exempt from the quota system and thus had preferential market access to the USA and other industrialised countries, were made to compete with less poor countries such as China. AGOA cushioned Africa’s situation but doubled the blow to poor Asian countries such as Nepal. Nepal’s readymade garment (RMG) exports to the USA, its biggest market, collapsed to one-tenth of its pre-2005 level in 5 years. Its RMG exports to India died similarly.

In contrast, markets in tea, coffee, essential oils, plant products used in fragrances and dairy products are underdeveloped domestically in Nepal, and have the potential to be competitive internationally. Furthermore, many of these products tap niche markets where demand is dependable and growing, and are thus somewhat protected from international price fluctuations.

Forest Management and Child Labour

November 5, 2009

The tracks out of the forest near Nepalgunj in south western Nepal are very busy today with people carrying large bunches of firewood. The vast majority are women and children. It’s Friday, the only day of the week communities are allowed to forage dead wood, as designated by the local Community Forestry Coordination Committee.

I saw a girl who couldn’t have been more than eight years old carrying a bunch of wood that probably weighed over ten kilograms. Later, I asked another girl who was resting from carrying a bunch that wouldn’t have passed long-haul flight baggage restrictions her age: 10. (Nearby I saw a large group of teenage boys and men playing cards. When I passed again an hour later, they were still playing.)

Rishi Bastakoti, of Resource Identification and Management Society (RIMS) – Nepal, explains that the one-day-a-week regime is intended to make communities use fire wood more economically. When locals could collect wood every day they tended to stock pile the resource and over time increase their consumption of it due of perceptions of abundance. The one-day-a-week system allows households to collect enough wood for the week but not stockpile, curbing the consumption increase trend.

Mr. Bastakoti also says that the regime has led to a shift to the use of other fuels for cooking and heating, such as kerosene, further protecting the sustainability of the forest. It must be said however that in three weeks of field work in rural Dang and Banke districts, I not once saw the use of alternative fuel.

In addition to the effectiveness at managing the tension between livelihood needs and ecosystem sustainability, the success of a natural resource regime must also be measured on its wider social impacts, such as child manual labour.

The one-day-a-week system creates a labour-time management bottleneck. Households must fit all their wood-collecting labour hours into a single day. If the labour hour demands exceed those providable by able-bodied adults, children will be mobilised. In contrast, if households could spread the wood-collecting hours across the whole week, the hours could in principle be allocated entirely to adults without needing to resort to child labour.

Child labour is often determined as much by labour-time management constraints as economic pressure. This is well documented in long term farming cycles. Child labour is often mobilised during harvest when labour shortage is common. At these times, school attendance drops sharply, and often school holidays are scheduled to coincide with harvest time to address this problem. The example of community forestry practice suggests that time management and labour hour shortages can have the same effect in much shorter cycles too.

Holistic ‘community-based’ or ‘co-management’ approaches to forestry popular with international non-governmental organisations promise to strike a balance between protecting ecosystem sustainability and safeguarding livelihoods. But if the cost of these systems is taking steps backward in social development it is arguable that priorities should be rethought. Certainly the sight of an eight year old missing school because her parents need all the hands they can get fetching firewood on Fridays invites considerable disillusionment in the new grass-roots empowering, integrated sustainable development paradigm.

Private Capital to Finance Climate Change

November 3, 2009

The latest World Bank calculations of the cost of climate change mitigation and adaptation confirm previous studies by the UN, and the recent IIED report, that there is a crisis in climate change funding. Even if the global economy were in a healthier shape, the challenge of covering the costs of weaning it off greenhouse gas emitting technologies and adapting to the already changing climate would be enormous.

Developing countries are facing the most acute difficulties. More socio-economically vulnerable to climate change than industrialised countries, and with less financial and technical capacity to adapt, developing countries also face the greatest barriers to changing their carbon-dependence to a more sustainable, yet still developmental, course. Again, lack of financial and technical capacity play a fundamental role.

Diverse stakeholders in the development and environment sectors have made their opinions heard in the lead up to Copenhagen. Governments must make unprecedented commitments to increase climate change funding to developing countries. But given the figures – WB estimates mitigation costs in developing countries at $140 – $675 billion and adaptation costs at $75 billion (an underestimate according to IIED’s report), while presently available funding stands at $8 billion and $1 billion respectively – it seems futile to expect public finance to be able to cover these costs.

The potential for private capital to play a leading role is not only seemingly necessary but, maybe surprisingly, it looks feasible. Given the right incentives by inter-governmental policy, private investment in clean technology development (for mitigation) and alternative economic activities (for adaptation) could make for an attractive profit-making proposition. A strong commitment to tax dirty businesses and possibly also dirty investment across borders, multi-laterally guaranteed bonds hedging otherwise risky clean investment (in otherwise risky countries), and the widespread adoption of a ‘green rating’ akin to credit ratings to help with signaling are all instruments that governments could agree on in December to push their limited public coffers to stimulate private capital not only to foot the bill, but also turn a profit.

In any case, a desperately needed first step to stimulate privately financed climate change mitigation and adaptation is a firm commitment signal from leaders in December. Policy over-shooting is probably a good way of sending that signal, though it must avoid regulation that might constrict the formation of mainstream green markets.

Adam Smith Avoids Extortionate Bus Fare

October 5, 2009

‘Adam Smith’s’ eyes glimmer with triumph as the frustrated bus conductor climbs down from the roof of the bus as it swerves down the pot-holled mountain road towards Pokhara Bazaar, in Nepal. The great economist has just dodged his fare.

“Good economics?” I facetiously ask the tenth grade economics student who introduced himself as the 18th century father of modern economics. He and his friends grin, their faces lit up by the mid-day September sun. Because it’s Dashain, Nepal’s biggest and most important festival, the local bus companies have raised their fares by over 100% to benefit from the increased, inelastic demand for transport, the young Smith explains.

In response, he and his friends have started using a variety of methods to avoid the extortionate rates: arguing with the conductors until they give up, producing student I.D. cards and claiming tenuous special rates, or as I saw Smith do, simply ignoring the conductor until he leaves.

There is evidence that price hikes are not limited to transport. It is traditional for families to sacrifice goats and other livestock during the festival. The market value of live goats during Dashain this year has fallen significantly due to high imported supply and decreased demand due to early departure of migrant workers (which make up half of Kathmandu’s sometime population). Cash shortages amongst consumers have also contributed. In the capital this has often left intermediary livestock dealers struggling to shift at profit, their stock bought at high import prices before the start of the festival, in expectation of higher consumer prices.

But outside the capital, stronger monopolistic power of the marketing Nepal Food Corporation (NFP) and greater inelasticity of demand – possibly due to more rigid cultural and religious norms – have led many rural families to pay NFP set prices, above market value. Many of these rural families pay for such celebratory purchases with funds informally borrowed at interests rates sometimes as high as 10% per month.

The comment sections of some of the papers call for national and local government regulations to prevent temporary, festival-time price hikes, and that’s what the 15 year-old Adam Smith said should happen. It is unclear what the 18th century Scot would think.