Corruption in Italy Threatens the Efficacy of Fiscal Stimulus

Sources:

The Telegraph (U.K.):  Making a killing on contracts: how Italy's Mafia has plundered EU building funds

NYT:  Corruption Is Seen as a Drain on Italy’s South 

BBC: Italy sacks Reggio Calabria council over 'mafia ties'

US DOS: 2012 INCSR: Country Reports - Honduras through Mexico: Italy

Mafia led corruption continues to plague Southern Italy, leading to government inefficiency and a reduction in the efficacy of domestic and international infrastructural spending. 

The A3 highway has been at the epicenter of Italian corruption scandals. The highway, which spans an area from Salerno to Reggio Calabria, lies in one of the poorest regions in Italy. Located at the tip of the Southern peninsula, the area lacks high-speed rails, many other infrastructural amenities found elsewhere in the country, and has close to a 20 percent unemployment rate. The Italian government embarked on a plan to renovate the A3, along with other infrastructural projects, in 2001 after receiving funding from the European Union (EU). Since the inception of the project, construction has been completed on 169 miles of the 309-mile highway, and hundreds of people have been arrested in association with their involvement on the highway, mostly on charges of corruption and extortion. Sergio Rizzo, an author who focuses on political corruption, says that European money “did tremendous damage because the funds were used badly and, as some magistrates say, they also fed organized crime.”

             

Calabria, the region located in Italy’s Southern peninsula is dominated by the ‘Ndrangheta, an international crime syndicate. The ‘Ndrangheta has an annual income of €44 billion from a combination of drug smuggling, extortion, and public-sector graft, and while lesser know than its peers in Sicily or Naples, the ‘Ndrangheta’s reputation has increased greatly over the past decade.

            

 The ‘Ndrangheta plays a major role in public sector life in Calabria. On October 9, the provincial capital of Calabria, Reggio Calabria, dismissed all 30 members of the City Council and the mayor for suspected ties to the ‘Ndrangheta.  The move, which Italian Interior Minister Annamaria Cancelleri said was designed to prevent “mafia contagion,” came after months of criminal investigation.

             

Since 2007, over €3 billion has gone from the EU to Calabria, much of that for infrastructure projects, much of that to the ‘Ndrangheta.  While the EU has been able to recover €383 million appropriated to the A3, the potential for future fraud and mismanagement remains high. “The ‘Ndrangheta is like an octopus,” said anti-mafia magistrate Roberto di Palma, “whenever there is money, you will find its tentacles.”

             

The revelations into the corruption scandals come as the European Commission pushes for a 6.8 percent increase in its annual budget, much of that money going towards funding infrastructural projects in Southern and Eastern Europe. The A3 highways symbolizes a fear for many northern European countries that the Eurozone will develop into a welfare state where fiscal stimulus is misspent or lost to graft at taxpayers expense. While infrastructure spending can have enormous benefit, a challenge for the EU will be increasing oversight and accountability as they continue to fund infrastructural projects.

Questions and Opportunities for Myanmar’s Telecommunications Industry

ADB: Myanmar in Transition: Opportunities and Challenges
ADB: Asian Development Bank & Myanmar: Fact Sheet
Ash Center: Electricity in Myanmar: The Missing Prerequisite for Development
Economist: Triplicating Success
UNdata: Myanmar
The Nation: Myanmar: a Land of Opportunity and Inequality
Reuters: Insight: Disconnected for Decades, Myanmar Poised for Telecoms Boom
TrustLaw: Corruption and Unsophisticated Legal System Topped List of Risks in Myanmar, Experts Say
WSJ: Myanmar Considers Letting Outsiders into Telecom Market Amid Overhauls

Myanmar’s government recently began plans to liberalize and expand its underdeveloped telecommunications (telecom) industry. Historically, Myanmar’s government has largely controlled the telecom industry and foreign investors were unable to obtain operating licenses in the country. However, a new investment law will give investors the opportunity to participate in the growth and development of the telecom industry by making additional operating licenses available to both foreign and domestic investors. Nevertheless, questions remain about how exactly the expansion and development of the industry will proceed. Some analysts have expressed concern that urban areas will receive priority over rural ones in terms of investment, which will exacerbate existing disparities between the rural and urban populations.

Currently, only about 5.6% of Myanmar’s population has access to cell phones. The cost of SIM cards has gone down from about $1000 in 2011 to just $250 in some areas of the country, but this is still prohibitively expensive for a large percentage of the population—Myanmar’s average per capita income in 2009 was only about $379. SIM cards are expensive because Myanmar’s cell phone networks do not have enough capacity to handle many users. Yet, the head of Myanmar’s Post and Telecommunications Department aims for 50% of the population to have cell phone access by 2015.

Despite the prospect of a newly open telecom industry with a largely untapped market, investors continue to worry about the predictability of Myanmar’s legal system, as well as the adequacy of Myanmar’s infrastructure. Myanmar’s legal system is ill equipped to accommodate modern business practices because many of the country’s laws date back to the early 20th Century. Moreover, equal application of Myanmar’s laws is dubious because of corruption and a lack of judicial independence. Thus, investors cannot be sure that the judiciary will enforce their contracts. In terms of infrastructure, Myanmar has no major highways, no deep-sea ports as of yet (although, one is expected to be completed by the end of the year), and electricity is inadequate. Less than 25% of the population had access to electricity from Myanmar’s power grid in 2011, but demand still outstripped supply by about 100%. Moreover, plans to increase capacity will only do so by about 5% per year and the source of this new capacity, hydroelectricity, will not be available year round because of Myanmar’s dry season. The problems with the country’s infrastructure will make it more time consuming, expensive, and less profitable to invest in Myanmar’s telecom industry because the country is not immediately prepared to support new and improved telecom networks.

Moreover, although growth in the telecom industry will create new job opportunities for the Burmese people and give the rural population access to new services, such as mobile banking, some analysts worry that development will not occur evenly across the country. Already, there are large disparities between urban and rural populations. For example, about 84% of impoverished individuals live in rural areas. Moreover, only 34% of the rural population has access to electricity in some form compared with 89% of the urban population. If investment in telecoms is concentrated in urban areas, these disparities will only grow, which could hinder Myanmar’s social cohesion, political stability and human development.

Rwandan Government Uses Ecological Diversity to Energize Electricity Production

AA: Geothermal Drilling Begins in December

AA: Contourglobal Wins Award for Kivuwatt Project

AA: Turkish Investor to Double Power Output

AfDB: KivuWatt ESIA Summary

BBC: Lake Kivu gas: Turning an Explosion Risk into a Power Source

Bloomberg: Rwanda Aims to Boost Electricity Capacity by as Much as 1,000 Megawatts

ContourGlobal: KivuWatt

RDB: Energy Brochure 2012

In 2011, Rwanda enacted a plan to generate more electricity at cheaper prices by diversifying its production methods to include domestic sources of power. Currently, Rwanda produces approximately 85 MW (megawatts) of electricity—40% of which originates from expensive imported diesel fuel and 59% from geothermal sources. As a result of Rwanda’s reliance on imported diesel, the price of electricity in Rwanda is expensive at 22 cents/kwh (kilowatt hour), compared to neighboring countries Burundi and Uganda at 8.19 and 11.22 cents/kwh, respectively.

Rwanda plans to expand its power generation to 1000MW by 2017 by utilizing inexpensive domestic biomass, methane, geothermal, and hydropower sources. Dry peat (biomass composed of an accumulation of partially decayed vegetation) is a valuable natural resource for Rwanda. A Turkish investor, Hakan Mining and Generation Industry and Trade Inc.is building a 100MW peat power plant. The plant will be built along Rwanda’s southern border in Akanyaru with the goal of producing power in 3-5 years. Rwanda has enough peat to fuel that plant for approximately a hundred years if it maintains a 100MW capacity. Rwanda is also investing in a unique power plant which burns methane gas harvested from the explosive waters of Lake Kivu. The Lake Kivu project is expected to produce 100MW of power by 2014. Also, Rwanda’s nascent geothermal resources on the southern slopes of the Karisimbi volcano could generate up to 700MW of power, once they are developed in December, 2012. Last but not least, Rwanda is partnering with Burundi and Tanzania to build four regional hydro-electric plants that will generate 174MW of electricity for the Rwandan people. These domestic sources of power will produce electricity that is considerably less expensive than the diesel fuel that Rwanda currently uses.

Rwanda’s natural resources present opportunities to reduce the price of electricity by reducing the cost of generating it, but the goal to increase power supply from 100MW to 1000MW will be difficult to achieve in five years.

Troubles With India’s Power Grid

The Economist: An Area of Darkness
The Economist: The Future is Black
The Economist: Powerless
Ernst & Young: Ready for the Transition
FT: Fantasies of Power in Muddle-Along India
NatGeo: Indian Power Outage Spotlights Energy Planning Failure
NYT: An Electrical Grid is Pressed to Its Limit
RBI: RBI Releases Annual Report for 2011–12
WSJ: India’s Power Network Breaks Down
WSJ: Investment in Infrastructure is Plunging

On July 30 and 31 of this year, two blackouts in northern and eastern India caused more than half of the country’s population to lose power for multiple hours. Power outages of shorter duration and effect have become a daily part of Indians’ lives, and they are indicative of serious problems with India’s power supply system. India’s power grid will become a hindrance to future economic growth if India does not address the grid’s weaknesses. Underinvestment in energy infrastructure, a poor system of energy allocation, and environmental and resource constraints on India’s power supply are some of the problems with India’s power supply chain.

The Indian government must invest in energy infrastructure to accommodate a modern industrialized economy that is heavily reliant upon electricity and connectivity for daily business operations. Many industries in India are struggling in part because India’s power supply chain is unreliable, outdated and non-existent in many parts of the country. Currently, 300 million people are permanently without power, and, in the areas that do have power, supply is consistently below the levels needed to keep the electricity running without interruption. For example, some villages only have electricity for four to six hours a day. The distribution of the electricity from the grid to users is also problematic because the government sets artificially low electricity prices that bankrupt state-owned firms responsible for distribution, and thus, these firms cannot afford to purchase all of the needed electricity from the power companies. Moreover, the delivery system itself needs updating to address reliability concerns, which could cost about $110 billion to accomplish, according to one study. Despite these issues, the government plans to invest only 2.1 trillion rupees (about $38 billion) this year in infrastructure, down from 3.9 trillion rupees (about $70 billion) last year.

The way that India allocates energy is also flawed. States give a daily estimate to the government of how much power they expect to need the following day. The government imposes fines if states exceed the quotas calculated based on these daily forecasts, but these fines are not enough to maintain energy discipline. When demand upon the grid exceeds the available capacity, generators automatically shut down in the areas of excess demand to prevent damage to the system. Many government officials and analysts blame the power outages on the fact that some Indian states exceeded their electricity quota and triggered large numbers of generator shut downs. However, India’s power grid does not have enough capacity to tolerate much demand volatility.

India’s electricity capacity has been strained by environmental and resource issues. This year’s drought negatively affected hydroelectric power generation and increased demand for electricity at the same time. Farmers have had to increase their normal electricity usage in order to hydrate their crops, and they have no incentive to conserve energy because they receive free electricity. Coal production, which state-owned Coal India controls, has also been inadequate. Thus, for power companies to keep up with demand, they have to purchase coal from foreign sources, which is more expensive than domestic coal. Low coal production has a significant effect upon the country’s power supply because about 70% of India’s power is coal generated.

In its current state, India’s power grid will be unable to cope with the demand for electricity, which is likely to double by 2020. Currently, India’s plans for developing energy infrastructure depend on nuclear energy and coal. Nuclear energy is unpopular, especially in light of the nuclear disaster in Japan last year. Moreover, the most modern coal-based power plants require a higher grade of coal than that found in India. This hurts demand for domestic coal sources and creates financial difficulties for the companies investing in such modernizing projects. India must address the investment, allocation and capacity problems that are hurting the power supply chain to guarantee its ascendency to developed nation status.

Asian Development Bank Extends Aid to India

ADB: Railway Sector Improvement Project: India
ET: Asian Development Bank to Provide a $150 million Loan to Indian Govt to Improve Rail Freight Services
India Government Bureau: India Gets $150mn ADB Loan for Rail Development
News Track India: Asian Development Bank Provides 67.6 Million Dollar Loan to Bihar Agribusiness
PIB: ADB Extends $150 million Loan to Develop India’s Railway System

On July 11, the Asian Development Bank (ADB) announced that it had granted a loan of $150 million to India as the first part of the Railway Sector Investment Program, to improve passenger transport routes and rail freight services. The total cost of the Railway Investment Program is $1.14 billion, of which the ADB will provide $500 million in four installments while the government of India will contribute a total of $644.6 million.

The Indian government will use the loan to lay down double-track line for about 840 kilometers (km) of rail routes and set up electricity through about 640 km all to help improve its rail services along some of the busiest freight and passenger routes in the country. The program will reduce fuel consumption and pollution as the tracks will allow easier passage of freight trains, while the electricity lines laid along the routes will help lower the amount of fuel needed and the emissions from using fuel, because electricity will power some items that had been powered by fuel previously. The program will also enhance railroad safety, as there will be more available tracks to use along the busiest routes so trains will not be congested into small areas of track. In addition, the program will increase the capacity of railway tracks as there will be double track lines laid, meaning that double the amount of traffic can transport goods along the lines. The increased capacity of the Indian railroad system to carry products and people will benefit consumers and producers of goods and services because it will make it easier for the goods and products to get to other areas of the country in a faster and more efficient manner.

The program is also set to improve energy efficiency, reliability, affordability of travel and environmental sustainability along some of the busiest rail travel routes. The program will improve energy efficiency because it will shift a large amount of the transportation of goods from road to rail, which is more environmentally friendly as a railcar can take bigger loads, which means fewer emissions into the environment. The program will improve reliability on rail travel routes because the laying of double tracks along busy routes will lead to less trains waiting to use certain tracks. The program will also improve affordability of travel because more trains will be able to travel along the routes since there is more track, therefore there is not as limited a number of tickets available each day. Thus, more trains means more tickets available for sale; therefore, consumers will be able to find cheaper seats as rail companies lower their prices to fill the extra seats available.

A $300,000 portion of the program provided by ADB will also promote sustainable transportation--a means of transport with low impact on the environment--by monitoring carbon emission reductions. The reductions in carbon emission will come from the shifting of a large amount of the transportation of goods from road to rail. The Railway Sector Investment Program will also pursue carbon credits, or a tradable certificate representing the right to emit one ton of carbon dioxide, under the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC is an international environmental treaty was aimed at stabilizing greenhouse gas concentrations in the atmosphere at a level that is not dangerous to the climate of Earth.

The ADB supported the project because it believed that efficient transportation is essential for achieving higher levels of economic growth in India. The higher levels of economic growth will help sustain poverty reduction in the country and will contribute to more production and employment opportunities in India. Thus, the ADB is aiding India in modernizing their infrastructure and becoming more competitive in the global economy.

The Canadian Territory Nunavut Approves Uranium Mining for the First Time

Sources:

Alaska Dispatch: Canadian Federal Territory Supports Uranium Mining

CBC: Nunavut Government Announces Uranium Mining Policy

CBC: Nunavut Group Says Uranium Policy Process Biased

Nunatsiaq News: Areva Touts Proposed Kiggavik Uranium Mine on Eve of Nunavut Mining Symposium

Nunatsiaq News: Impact of Proposed Nunavut Uranium Mine Worries Baker Lake MLA, HTO

Nunatsiaq News: Nunavut Government Says Yes to Uranium Mining

Nunavut Government: Government of Nunavut Uranium Policy Statement

Nunavut Government: Nunavut Facts

Winnipeg Free Press: Ottawa, Nunavut Discuss Province-like Powers Over Natural Resources

On June 6, the government of the Nunavut Territory, Canada approved the creation of the first uranium mine within the territory. The Nunavut Government sees the mine as an opportunity for job and economic growth through the construction and operation of the mine and the taxes it would produce for the government. In giving its approval, the Nunavut government provided specific guiding principles that must govern any uranium mining, as explained below. While community groups express concern about the formulation of the policy and the environmental impact, local leaders continue to be open minded about the mine’s potential economic benefits.

Nunavut is a federal territory in northeastern Canada created in 1999. Its land covers 20% of Canada, and has a population of 33,330 as of 2011. While it currently does not have control over its natural resources, Nunavut is in negotiations with the Canadian federal government to obtain this control and to ensure any mining of natural resources would directly benefit Nunavut. In fact, the Nunavut government stated that its approval of uranium mining is specifically contingent on ensuring that Nunavut is the main beneficiary of government revenue from mining activities within the territory.

 

The Nunavut government created its uranium mining policy after a mining company named Areva Resources Canada expressed interest in creating a uranium mine within the territory. In its policy, the Nunavut government approves uranium mining, provided the five stated guiding principles are met. The five guiding principles came from consultations the Nunavut government held with local communities, particularly those close to the proposed mine. The guiding principles articulated by the Nunavut government include: 1) that the mined uranium only be used for peaceful purposes, such as producing energy, and not for nuclear weapons; 2) residents of Nunavut must be the primary beneficiaries of the mining revenue; 3) uranium mining must meet national health and safety standards of the Canadian Nuclear Safety Commission (CNSC); 4) high environmental standards must be met, as approved by the Nunavut Impact Review Board (NIRB); and 5) Nunavut residents must approve the uranium mining. These principles are simply the first basic articulation of the Nunavut government policies, and any uranium mining operations require further approval from the NIRB and the CNSC.

 

The Nunavut government’s approval of uranium mining has been met by opposition and concerns from local community groups. An environmentalist group called Nunavummiut Makitagunarningit claims that the process for creating the territorial government’s policy was biased because the government hired a consultation company whose primary clients are in the mining industry and stand to directly benefit from governmental approval. Meanwhile, a local community group of hunters and trappers expressed concern about the uranium mine’s potential negative impact on the migration patterns of local caribou populations, a major source of food and income for communities around the proposed mine. The community worries that if the mine is built, the caribou would change their migration pattern to avoid the mine, and thus no longer come near the village.

 

In spite of these concerns, however, local leaders have expressed support for the mine as a source for increased employment and economic development. The Areva mine would provide 700 jobs during its construction and 600 jobs during its projected 14-year operation. In addition, the mine would bring an increase in infrastructure necessary for the mine—such as roads and telecommunications—which would also benefit local communities by providing greater access to economic activities.

 

Seeking to broaden opportunities for economic growth, the Nunavut government approved uranium mining within the territory. In doing so, it provided specific guiding principles for any uranium mining. Although local communities have environmental concerns, many residents of Nunavut are interested in the economic development a uranium mine could provide for the territory.

Maine East-West Highway Idea Revived as Potential Impetus for Economic Development

Sources:
Bangor Daily News: East-west highway critics mislead, bully, Cianbro chief Peter Vigue says
Down East Magazine: The East-West Highway: Gateway to opportunity or toll on the environment?
Kennebec Journal: Vigue turns ambition to an East-West Highway
Maine Dept. of Transportation: 1999 East-West Highway Study
The Philippines Dept. of Foreign Affairs: The Philippines Eyes Economic Collaboration in the Canadian Maritimes
The Portland Press Herald: East-West Highway: Savior or Albatross?
Seacoast Online News: A Maine east-west highway is an intriguing proposal

As Maine looks for opportunities for economic growth, a prominent construction company owner has revived the idea for an East-West Highway through the middle of Maine. In 1999, the state government seriously considered the idea, which has been around for at least 30 years, but rejected it because of a lack of public funds. Now, construction company owner Peter Vigue proposes a private East-West highway with tolls to help recover the cost of construction and maintenance. Vigue’s proposal is being met with concerns from environmental groups and some members of the general public, yet it may have potential for increased economic development for Maine.
          
The proposed East-West Highway crosscuts the middle of Maine, removing the need for automobile transportation in Canada to edge around Maine’s northern border. Maine is surrounded on three sides by Canada, and current automobile transportation from Canada’s eastern Maritime Provinces to Montreal and Toronto must go around the north of Maine. The proposed East-West Highway would have the potential to reduce such travel by more than an hour (from about eleven hours to under ten). In addition, the proposed highway would make Eastport, Maine, one of the deepest ports in eastern United States, within a day’s travel of Montreal, Toronto, New York, Detroit, and even Chicago.

Concerns about the East-West Highway center on the environment and the potential failure to bring in financial benefits to Maine. Environmental concerns focus on the conservation of Maine’s extensive forests; because the highway would cut through portions of Maine’s forests, it risks disrupting natural migration patterns for animals that travel through the area. Economically, many citizens view the proposed highway as a gamble that may not pay off. The state government performed the last major studies on the economic feasibility of such a highway in 1999 which concluded that the benefits of the proposed highway were not sufficient to justify the costs of construction and maintenance.

Even with these concerns, however, the proposed highway has the potential to provide for greater economic development in a state that has had very little recent growth. By creating an easier connection between eastern and central Canada, Maine would be connecting with the current increased economic growth of the Canadian Maritime Provinces coming from recent oil and natural gas developments. In addition, the proposed highway would enable Maine’s seaports to increase their economic competitiveness by allowing Maine to attract more freight shipping. The highway would also increase access to tourism in central and coastal Maine.

With a new economic and feasibility study due in January 2013, the proponents of the proposed East-West Highway hope to demonstrate that the benefits to the economic growth for Maine outweigh the costs of associated with building the highway.