Thursday, June 28, 2007

Zimbabwe to consider controversial legislation, investor confidence predicted to plummet.

Source: Business Day (Johannesburg)—“Zimbabwe: Mugabe Wants 51 Percent Stake in Companies”

The government of President Robert Mugabe is moving forward with its Indigenisation Program, an effort to redistribute the resources and wealth of that nation to native Zimbabweans.

Perhaps one of the more recognizable programs advanced through Indigenisation in Zimbabwe was the seizing of white-owned farms by the government to resettle blacks. The latest move is legislation that will transfer majority control of “public companies and any other business” to black Zimbabweans.

Critics and observers have forecasted that implementation of the legislation—should it become law—will likely be highly chaotic and counter-productive, particularly with relation to private industry. Concerns have been expressed that the move will further dampen investor confidence and fuel the recession that has persisted in Zimbabwe for almost a decade.

Zimbabwe currently has the unpleasant distinction of having the highest inflation rate in the world. The country is also suffering from epidemic unemployment and massive shortages in food, fuel, and foreign currency.

Critics of Mugabe—who highlight the oppressive tactics he uses to quell political dissent—say that the latest inception of Indigenisation could destabilize the situation enough in that country to result in his ouster. Mugabe counters that such statements are malicious and blames the economic problems of his country on sanctions by the European Union and the United States that have been in effect since 2002 and 2001, respectively.

FOR DISCUSSION:
Are sanctions an effective mechanism for influencing government behavior?

Tuesday, June 26, 2007

Venezuela ruffles feathers in the U.S. as it moves forward to nationalize its petroleum sector.

Source: ABC--"Venezuela Forces US Oil Giants Out."

Since January, Venezuela has been on track to nationalize its petroleum sector. Today, it moved a significant step forward in that regard by signing agreements with four multinational corporations that give it the lion’s share of the profits that result from reserves found in the nation's Orinoco Basin. Two U.S. companies, ExxonMobil and ConocoPhillips, pulled out entirely, being dissatisfied with the terms developed by the Venezuelan government.

In the past, foreign ventures like ExxonMobil and ConocoPhillips paid only a 1% royalty on the Venezuelan oil they extracted. Changes in regulatory requirements in that nation raised royalties to 33.2%. Additionally, taxes on the sector were raised from 34% to 50%. Essentially, the Venezuelan government has found a way to muscle in to the sector by virtue of a regulatory regime that they feel will ensure that the people of Venezuela profit from that nation’s national resources.

The news was met with criticism in the U.S., with the Trade Representative noting that he expects Venezuela to award big oil companies “fair and just compensation” according to international agreements. Additionally, U.S. analysts predict that this move by the Chavez administration will result in the Venezuelan oil industry being in a “shambles.”
However, Venezuela’s Energy Minister counters that nationalization of the petroleum industry is not simply an economic matter, but also an issue of national sovereignty.

For discussion:

An interesting parallel may be made to the current situation with Venezuela’s nationalization of its petroleum resources with the nationalization of Mexican petroleum in 1938.

Should developing countries cede their natural resources to foreign multinationals?

Is it unreasonable that a nation would want they ability to exercise more control over resources that directly affect its national security? For example, would the United States welcome almost exclusive foreign control of its domestic energy sector? Recall the recent upset in Congress over a domestic oil firm Halliburton's plans to move its headquarters to Dubai.

Friday, June 22, 2007

Latin American countries will join to create Banco del Sur, a regional alternative to the World Bank and IMF

Sources:

Montevideo COMM—“Crearan Banco del Sur en Julio”

Reuters America Latina—“Venezuela espera firmar creacion del Banco del Sur en julio”


Next month the leaders of seven Latin American states—Argentina, Brazil, Bolivia, Ecuador, Nicaragua, Paraguay and Venezuela—hope to finalize the creation of a regional development bank that is to be called Banco del Sur (trans. Bank of the South). Originally, the plan had been to kick-off the new institution on June 26, but delays were caused by disagreements between the leaders of the six states, according to the Venezuelan finance minister. Nicaragua is the latest addition to the states that will form Banco del Sur, announcing its intent to be a part of this venture today.

July will mark the signing of an act to create Banco del Sur; the constitution and implementing instruments of the new institution will follow. However, there is little doubt that Banco del Sur’s creators intend to use this entity to support a different approach to development than the brand they claim has been advanced by the World Bank and IMF.

Banco del Sur, the brainchild of Venezuelan President Hugo Chavez, is intended to offer Latin American countries an alternative to the World Bank and IMF models of development. The World Bank and IMF have been criticized—particularly by Latin American states—for focusing only on liberalized free market models of development, an approach which some believe is at cross-purposes with the World Bank and IMF’s stated goals of poverty reduction and sustainable development. Specifically, President Chavez has accused the World Bank and IMF of serving as little more than instruments of the United States’ imperialism.

Each of the soon-to-be member states of Banco del Sur have expressed confidence that the act to form this new institution will be signed in July, according to schedule.

For discussion:

In the last decade, Latin America was rocked by financial crises that resulted in economic and political destabilization across the region—detailed in the E-Book found on this website at Part 3, Section VI. Is it arguable that this episode served to foster distrust and disenchantment with the development approaches advanced by the World Bank and IMF?

Do you think Banco del Sur is necessary in Latin America, that is, are there viable alternative to liberalized free market development models?

Should the creation of Banco del Sur act as a wake-up call to the World Bank and IMF, and by extension to the United States and Europe (the two countries that exercise the most control over these institutions)?

Tuesday, June 19, 2007

Germany to consider minimum wage

Source: Associated Press--" Germany debates a minimum wage"

The German legislature is considering establishing a minimum wage floor for all workers. While most German laborers are represented by unions that negotiate worker pay at a level higher than “minimum,” the law would standard would include non-union workers such as hair dressers and dog walkers who are reputed to often work for “starvation wages.” Additionally, concern over the possibility of a wage race to the bottom resulting from cheap labor from newer European Union members has prompted the call for a standard.

The move is supported by Germany’s Social Democrats, while the Christian Democrats fear that setting such a standard would hurt the recovery of the European Union’s largest economy. However, supporters note that large corporations are unlikely to be affected because of the union presence and will most likely already be making more than whatever standard the government sets.

For discussion:

Are minimum wage standards necessary?

Are the jobs performed by low-wage earners valuable enough to society that there should be minimum compensation standards set?

Thursday, June 14, 2007

Ban on International Ivory Trade Approved

Sources:
AFP-"African Nations Strike Landmark Ivory Trade Ban"
Japan Today-"China Needs to Act on Illegal Ivory Trade: EIA"
Species Survival Network-"China and Japan Compete for Southern Ivory Exports, Conservationists Fear Renewed Slaughter
EWEEK.com-"Ebay to Ban Global Ivory Trade on Its Sites"

Today a United Nations forum approved a nine-year ban on the international ivory trade, in what appears to be at least a temporary resolution of a contentious issue that has involved fierce debate amongst African countries, (re)sparked an East Asian rivalry, and also resulted in a voluntary moratorium on ivory trade by online auction giant Ebay.

The impetus for approval of the ban was a surge in poaching that threatens the existence of African and Asian elephants. It is estimated that as many as 20,000 elephants have been killed every year in furtherance of the illegal ivory trade. The African elephant population has been particularly hard hit; the population is now down to a mere 500,000 animals.

The decision was hailed by the Secretary General of the Convention on International Trade in Endangered Species (CITES), an international agreement to which 171 nations have agreed. Additionally, 20 African nations, led by Kenya and Mali, had originally approached CITES with a proposal for a 20-year ban on the international ivory trade. While Africa is the source of the ivory illegally traded, East Asia—and China and Japan in particular—is the primary destination market.

Those who criticize the ban and limited sales programs claim that these efforts only drive the market further underground and do little to stem poaching. Ban proponents note that when bans have been in effect the number of illegally killed elephants plummets and view this approach as the most effective way of preserving the species.

Before the ban takes effect there will be a final “one-off” sale of ivory to Japan, which is the only country authorized under CITES to purchase ivory. This situation has caused dissatisfaction on the part of China, the world’s other top ivory consumer.

The justification for favoring ivory trade with Japan and not China is rooted in the assertion that there are better regulatory controls in Japan, according to CITES. While conservationists agree that China’s controls are lax, they claim that Japan’s regulatory system is weak as well and assert that permitting any trade in ivory serves only to exacerbate the problem.

Interestingly, the internet is a growing venue for illegal ivory trade. Earlier this month, the auction giant Ebay agreed to ban all international sales of ivory on its website.

FOR DISCUSSION:

What do you think is the best approach: banning the trade? Reduced sales? A different approach?

Do you think it is proper for one nation to be excluded from participating in trade when another nation is permitted to do so? How can such decisions be made without risking political favoritism?

Tuesday, June 12, 2007

In India, a different approach to compensation for land acquisition

Source: Business Standard: "Share-for-land model catching on in the east"

Corporations and multinational development institutions have in the past come under fire for spearheading or supporting development projects that displace people. Critics have asserted that such projects often involve relocation to sites that are unfit for settlement, thus exacerbating problems such as poverty and disease.

However, private enterprises in India are beginning to experiment with a different kind of model for land acquisition. This new and innovative approach to development projects involves compensation packages for “land-losers”—individuals who lose their land as a result of a project. To date, the compensation packages have included some combination of the following: cash, shares in the enterprise, employment, and insurance annuities based on the price of the land.

This innovative approach was pioneered by Sajjan Jindal, Vice Chairman and Managing Director of JSW Steel, Ltd. for a project in Bengal. It appears to have enjoyed a favorable reception by the public. While there is no uniform compensation package for land-losers as of yet, others involved in projects in India that have land acquisition components, including Posco, a South Korean steel interest and Videocon, have taken notice and are experimenting with their own variations on compensation packages for land-losers.

For discussion:

Do you think this is a good approach to dealing with land acquisition issues?

Should it be left to private entities to design compensation packages or should the government step in to regulate the process, perhaps setting minimum standards for compensation packages?