Q. The popular discourse today is that ‘growth is getting redistributed’. However, growth alone is still not achieving development in the true sense. In your opinion, what is the single-biggest drawback of today’s economic growth models that is still constraining inclusive development?
A. In my view, there is no such this as capitalism in its generic sense. Most markets are hybrids, with some markets more equitable than others. Despite the claims of the World Bank and the UN about the reduction in poverty rates, the reality is that we live in one of the most inequitable periods of capital accumulation ever. I personally believe that living on less than US$ 10 a day is still extremely poor, and that using such a measure would place upwards of 50-60% of the world’s population below the poverty line. Certainly, if one moves beyond the rather narrow measure of food poverty (i.e. 2,100 Kcal a day) to perhaps include a minimum basket of legal entitlements too, the world is a very long way from being equitable. Merely having a bank account, a smart phone or a Facebook account does not make you part of the global capital class.
Moreover, with a vast majority of the global GDP (circa US$ 75 trillion) still being derived from the extraction of natural resources, it is clear that the world must urgently move towards an economic system that is less extractive and far more equitably distributed. The odds of that happening within the existing dispensation are remote, not least because the world is still very substantially controlled by wealthy families, often supported by a banking industry whose growth model is, in essence, derived through debt.
Q. Tell us about Geopolicity’s current engagements in the developing markets? Do you have plans to target projects in South Asian markets like Bangladesh, Pakistan, India, etc.?
A. We are heavily invested in emerging and frontier markets and are actively seeking strong partners across South Asia in multiple sectors. We have a strong track record in India, Pakistan, Bangladesh and of course in Central Asia, largely focused on economic governance, investment financing, public sector management and public private partnerships. We have recently concluded economic growth diagnostic work from Egypt to Tajikistan, investment project financing work for large infrastructure investments from Somalia to Iraq, and establishing blended finance funds to improve the penetration of private capital. We are looking to expand, and are keen to hear from long term investment partners. We are also acquiring new partnerships and looking to assist governments around the world in deploying a new round of technology that can transform services. We are also looking at blockchains and their role in payments for ecological services.
Q. An interesting finding is that many emerging markets today do not take donor aid, or are taking less and less of it. In other words, the growth models in many countries now is not aid-driven, but driven by their inherent policies. Based on your experience, what is the combination of factors that helps achieve this? What can aid-dependent countries learn from such cases?
A. Money does not make development, development makes money – period! Many years of ODA (official development assistance) has shown that for middle-income economies, where improving the enabling environment has led to increased private investment, aid has been a useful tool for market expansion. However, following the 2007/08 financing crisis and with central banks putting interest rates to the floor, many middle-income countries can now access concessional lending for infrastructure, for example, from multiple sources. Moreover, with the annual financing gap for funding SDGs (sustainable development goals) at over US$ 4 trillion annually, the reality is that private capital is now expected to fill this gap, leading to new models of blended finance including PPPs.
I personally see ODA (often) as providing a distraction, particularly in weak and fragile states where whole national capacities are diverted to manage aid money, leading to perverse incentives and often corruption. In my view, governments must be clear on their economic policy, identify anchor, ancillary and spinoff investments, and focus on product space development in order to encourage import substitution wherever logical. In the context of the fragile states, I am keen to expand ports, inland multi-modal hubs, special economic zones and to have a strong focus on SME (small and medium enterprises) development. In the future, moving towards a cashless economy will also dissolve the difference between the formal (taxable) and informal (untaxable) economy; in essence bringing all transactions within the purview of the state. I am not a fan of big governments, and if increasing the tax across the board can lower government taxation in primary growth sectors, the potential for expansion would be considerable.
Q. Based on Geopolicity’s projects, do you think the growing concentration of income and wealth is as bad as we think it to be. Forget low-income countries, even higher-income emerging markets like Malaysia and developed markets like USA suffer from growing income inequality. In your experience, what is really causing this global phenomenon?
A. A new billionaire was born every two days in 2017. The wealth of billionaires increased by US$ 762 billion in one year alone; which is 5 times the value of all global ODA and sufficient to wipe out extreme poverty seven times over. The growing problem of income inequality impacts poverty rates; but also undermines citizen’s belief in democracy itself. Part of the rise of populist movements feeds off perception of wealth inequality, and the growth of self-serving politicians.
On the other hand, equality by definition does not just mean one-person one-vote; given that it is often the capital advantage that one person has over another that determines future potential. Merely holding elections and separating the powers of the state does not, by itself, determine whether a society is equitable or not. Power still remains with those who control the means of production. Moreover, given that many societies are still going through their demographic transition, accelerating growth when populations are increasing at between 2-3 % a year and when inflation is high is impossible.
Q. Digital models are now extending beyond services & manufacturing, to soft infrastructure areas like healthcare, education, environment, etc. Do you think it will be as effective in solving the on-ground challenges in developing countries? What is your opinion?
A. This is a complex question. Automated systems are here to stay, as are crypto-currencies and blockchain. The recent round of disruptive technologies has been very much driven by millennials, and we still have no idea what post-millennial generations will bring to old systems. I personally believe that the biggest threat to the old order is non-participation. Not participating in an existing governance system is a revolutionary act. Decentralized applications will bring services closer to people, and disruption will drive down prices. I like to think that societies can bounce forward, and not just back, though the risk, for Asia in particular, will be adopting an efficient economic system over one that actually generates full employment. In the US, the 17 million drivers will be replaced by driverless cars. What will those workers do? There will be no accidents, and so the vehicle insurance industry will die. We will not need traffic lights either.
Q. Emerging and frontier economies aside, there is opportunity existing even in the most un-hyped of markets. You were recently in Somalia speaking at the launch of its National Economic Council. What is your view on such markets where the media paints an image that deters investors, despite growing pockets of opportunity?
A. Somalia – and other countries recovering from conflict – are unique investment opportunities for those wishing to enter the market at a low base, and invest for the longer term. In Somalia – where I am now honored to be decreed a member of the National Economic Council – we hope to identify both large scale investments (corridors, special economic zones etc.) and focus in on growth sectors such as the blue economy. Where there are problems I see opportunity. I wish the next generation of Somalis – the young girls and boys born today – a better future than those who have lived through conflict since 1991.
Q. Lastly, how do you view the challenge of project funding? What is your opinion of the best mechanisms that developing countries should look for without falling into a debt trap?
A. A good question. We manage project funding for large investments. We focus on innovative solutions and disruption, but also on productivity and value. We have several new products that can change the way traditional problems are overcome, including real time mapping of services for municipalities and corporations.