Infrastructure

Social Capital: The Critical Factor for Developmental Success

Posted on Jun 9, 2014 in Development, Economy, Featured, Infrastructure

Social Capital: The Critical Factor for Developmental Success

Developmental success of nations, broadly speaking, depends on two forms of capital. One is the natural and inherited capital, the other ‘made-capital” accumulated over time.   As important as the natural resources are the human-made resources and capabilities too collectively constitute a critical and dynamic ingredient of the nations’ success. In econometric literature this is often referred to as the “made-capital” of a nation, in contrast with the natural endowment of the country. For each generation, then, the national resource (or capital) endowment is made of the natural endowment plus the inherited “made-capital”.   In this regard each generation’s heritage subsumes vital components such as culture, knowledge, socio-economic and political institutions, logistical infrastructure, and the effective governing legal paradigm. It may be argued that without this mad-capital, the development process is doomed to dawdle or even fail.  Social capital is a critical component of made-capital.   Much like the other forms of capital, social capital is subject to a dynamic evolutionary process, and over time it may be augmented or destroyed, depending on the choices that a given nation makes. More specifically, each generation’s political economy and ethical choices either builds upon the historic stock of social capital or dilutes it to the detriment of the developmental process.   The reality of the social structure and its evolution over time is that both benefits and costs of political economy decisions are, more often than not, externalised. This means, neither the full benefits nor the entire costs of a given generation’s decisions are born by it or by its members. Thus, the substance of sustainable development and intergenerational equity is complex, and its operational requirements are made of both tangibles and intangibles. Importantly, the implications are not merely theoretical and academic: the future trajectory of the society’s developmental path is largely defined by an appropriate mix of the two forms of capital. Therefore, sustained commitment to the augmentation of social capital is indispensable.   Prosperity of nations thus requires a blend of pecuniary and non-pecuniary            variables. Important as the pecuniary variables are, so too are the                                 non-pecuniary investments for the sustainable of development and prosperity. At one end non-pecuniary variables pertain to foundational institutions of               the socio-political and economic institutions, and at the other end, they relate   to the significance of promoting social and personal value systemsthat help lay      the ground for defining the nation, its  social culture, its  internalised moral and ethical codes,  and its national welfare objectives.   Through the interplay of these two sub-systems of the non-pecuniary network of variables, social capital, may be created or destroyed. Contemporary research has underscored the importance of social capital as a critical ingredient of a sustainable political economy framework. The promotion of trust among diverse stakeholders is a key ingredient in the process of social capital formation. This is particularly so in heterogeneous societies where religious, tribal, cultural and racial differences abound. The accumulation of social trust augments intergenerational social capital via an array of interrelated processes that, inter alia, include trans-generational conversations within the family structures, the workplace, the community initiatives and not-for-profit enterprises. The promotion of reciprocity for the common good is a vital element of intra-generational and intergenerational social capital accumulation.   A significant contributor with long term impact on sustainability of social development and human prosperity is the embedded value system that prevails within society’s operations. Such values and codes of conduct need not be legislated or somewhat formalised; rather they need to be internalized within the society’s political economy organs.  With the help of such values, social trust is engendered and over time social capital...

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South Africa’s Evolving Democracy: Beyond Elections May 2014

Posted on Jun 9, 2014 in Economy, Ethics, Featured, Infrastructure, Politics

South Africa’s Evolving Democracy: Beyond Elections May 2014

SA national elections on May 7th 2014 marked the 20th anniversary of the country’s constitutional democracy. Whilst the ANC maintained its control over the national government with a 62% majority, it had much to worry when examining the details of voting patterns across the 9 provinces and the major metropolitan centres. Nationally, the ANC lost just over 3% of the votes compared with the previous elections five years ago. The party also maintained control of 8 of the 9 provinces, albeit with a declining majority in every single one of them. More revealing was the fact that the ANC’s majority in the Gauteng Province was reduced to 53% of the votes. This was the shocking revelation for the ANC.   The significance of Gauteng is three folds. Firstly, it is SA’s most populated province, it contributes over 1/3 of the country’s GDP and as the country’s only metropolis region, it has by all measures the most informed and diverse population. ANC’s loss of considerable support in Gauteng almost overshadows the party’s continued success nationally. Overall, ANC is shown to have lost much support amongst the middle class in the country.   A number of factors have led to this outcome. Most detrimental has been ANC’s own organizational in-fighting and precipitous moral decay. Continuous allegations and revelations of corruptions and misuse of public resources have tarnished the image of the party, and its top leadership. The party leaders at local, provincial and national levels appear oblivious to the damage that their misconduct and abuse of public resources are bound to raise the ire of the citizens. Given the rapid rate of urbanization, and accessibility to real time information amongst the citizens, gone are the days that the political leaders and their administrative stooges, could obfuscate their abuses of power or extraction of public resources. Yet, the ANC leaders over the past five years appeared determined to swim against the tide!   Both on the right and on the left of the political spectrum, the ANC found itself under pressure. The emergence of Economic Freedom Fighters (EFF), led by the ANC’s previous youth league leader, Julius Malema, was a game-changing phenomenon during the 2014 elections. The EFF is the political voice of nearly 4 million youths in the country. The bitter reality is that ANC’s education policy failures since 1994 have left the youths unemployed, unemployable, marginalized and radicalized. This lethal cocktail compounds the structural and widespread poverty left behind by Aparthied twenty years ago. Although EFF managed to garner only 6% of the votes in the 2014 elections, this understates the party’s inherent appeal and widespread political support. If properly resourced and appropriately structured, the EFF could well increase its actual voter support by a factor of 3 to 4 in the next election cycle. For as long as unemployment rate of over 25% persists, the EFF has a fertile ground for consolidating its power base.   From the viewpoint of economic policy, the ANC has made considerable errors of judgment over the past few years. Nearly five years have been squandered in dabbling in contradictory and counter-productive policy positions within the government. Under the rubric of “developmental state’, the government policy has become a great deal more interventionist, at times contradictory, and by extension operationally ineffective. Ministerial involvements in corporate operations, supply chain management, and organizational issues have risen sharply. State-owned enterprises have lost much of their technocratic capabilities and have been reduced to proxy political agencies for supporting crony capitalism and political agendas. Enterprises such as Eskom, the Industrial Development Corporation (IDC), and The Development Bank of Southern...

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Dr. Iraj Abedian Appears on the “First Name Basis” Talk Show

Posted on Jun 9, 2014 in Economy, Infrastructure

Dr. Iraj Abedian Appears on the “First Name Basis” Talk Show

To view the full episode and interview with Dr. Abedian on the economics based internet talk show “First Name Basis”, please click the link below. http://www.youtube.com/watch?v=n3yVoT0VBiE&list=PLAGrZXEKYsaa-IBsJgF374fqmJ919jrlK&feature=share&index=2

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Africa Within a World in Transition

Posted on Nov 6, 2013 in Development, Featured, Infrastructure, Politics

Africa Within a World in Transition

The world is indeed in the throes of one of the most profound transitions in history. Not only do technological and economic changes have world-embracing effects, but also the prevailing socio-political dynamics has no historical precedence. This is not to say that in the past the world has not had periods of deep and game-changing transitions. For example the advent of industrialization in the 17th and 18th century culminated in the dawn of a new world order in which the West emerged as a dominant economic, military and colonial power. The ancient civilizations of India, Africa, China, Ottomans and Persians were subjugated for a few centuries to come. Yet in comparison with the contemporary transformative forces, the industrial revolution had limited reach and its impact was slow.   The many forces of contemporary transformation in human and social life may be broadly divided into two categories. One group tends to integrate socio-political, economic, and cultural life across regions and continents. Such integrative forces tend to narrow the gaps across communities and nations, build bridges within and across cultures, and create rising levels of social capital even in the midst of very diverse and segmented groupings.  The emergence of a global and fully integrated financial market is a case in point. Within the socio-political arena, the rise and growth of “borderless associations” such as ‘doctors without borders’, or ‘environmental activists without borders’ (Green Peace), and the like are all but part of the same dynamics.   The other category of forces is inherently disintegrative. Whether in socio-political arena, or within the religious, cultural or economic sphere, such forces are inherently disruptive and conducive to the spread of mistrust within human communities. More often than not, such forces are driven by historic and failed ideologies of narrow self-protection and deep-rooted fear of “otherness”- I call this “otherphobia”.   At present, the integrative and disintegrative forces are at play in every land simultaneously. Interestingly, modern communication technologies and social media platforms have facilitated the spread of both these forces and processes. Access to the worldwide web in real time across the globe, the international availability of technology nearly in all sectors, and the rising awareness of what is possible, viable and desirable, have helped create a variety of new communities- mostly virtual. Such virtual and deeply connected communities are a real threat to the establishments across the world. Globally, financial, economic, cultural, religious, social and political establishments are vulnerable to attacks by these virtual communities.   Fairness and transparency, accountability and value-consistency appear to be the watchwords of the majority of these emerging virtual movements worldwide.  Increasingly, to them the national boundaries and the conventional sovereignty considerations are of little importance.   In this milieu, Africa is facing a multi-layered challenge. The continent’s economic growth has taken roots for the first time, and all indications are that industrial diversification could lead to sustainable growth. Yet on many other fronts the continent is struggling to establish institutions that are the effective conduits for channeling growth into social development and human welfare. Far too often, the post-colonial political establishments clash with the emerging social quest for accountability and transparency. A few exceptions aside, political institutions on the continent are largely extractive by nature. This means political leaders regard the machinery of the state as a means of self-enrichment and control. This, of course, they do in the name of sovereignty and political leadership. Legal and judicial institutions are equally and far too commonly bureaucratic, slow, and at time politically compromised. Economic and financial establishments are likewise typically dismissive of social and environmental care. Often...

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Modernizing Food Security in Africa

Posted on Nov 6, 2013 in Development, Featured, Infrastructure

Modernizing Food Security in Africa

One of the glaring ironies of Africa remains food insecurity and hunger in the midst of plenty. The continent has plenty of arable land, much of it is not used for cultivation and whatever is cultivated it is done so, by and large, without modern technology for production and with little, if any, consideration of optimal financial structuring for the farmers and for the society at large. Consequently, in effect when it comes to food security, much is left to chance and too many risks are unmitigated. Of course, commercial farmers on the continent do the best they can to insure against some of their risks. Te private sector insurance against agriculture is, however, known to be an incomplete market, it is as such inadequate and sub-optimal for meaningful risk mitigation in the sector.   Food security has a substantial ‘public good’ dimension. When droughts, floods, and disease wipe out production, the farmers do suffer, but so does the society at large. Food shortages and sharp price increases are hard to manage for most in the society. Significantly, in the process, the poor suffer the most- many of them go hungry. Widespread malnutrition and even death do obtain. More often than not, socio-political instability also follows.   Given the continent’s rapid growth over the past decade, and in view of the expected rise in living standards, it is a fact that food consumption is set to rise considerably and consistently. Meanwhile, worldwide food production has not kept pace with the acceleration in demand arising from the rapid increase in the standard of living of the population in the emerging economies. In South East Asia alone, an estimated one billion people have joined the rank of middle class with vastly different levels of food consumption. Africa’s own middle class is rising too. It is not surprising that access to land and investment in agriculture activities are in vogue again. On the continent there is a growing scramble by foreign investment houses for arable land. This has raised some socio-political concerns too. Given the history of colonialism and land dispossession, this is understandable.   Mitigating the various risks in food security in Africa requires a number of interventions, amongst them three are the most critical. First and foremost is the clarification of land use regime. Whether in the form of private ownership or via long-term lease arrangements, the commercial use of land requires socio-political and legal clarity.  Second is the application of modern production techniques and the promotion of sustainable institutional structures for ongoing research and development in the complex field of food and agriculture technologies. The third, and a vital, element is the use of appropriate public-private partnership to put in place an effective,efficient and sustainable crop insurance system.   Worldwide, crop insurance has, conventionally, been perceived as a private sector activity and as such left to the insurance market to provide solutions. And, the insurance industry has provided some solutions too. However, the existing solutions are, by and large, inadequate and do not take care of the public good dimensions of food security and agriculture production.   From a national and social interest perspective, crop insurance should be designed as a package of private and public risk mitigation solution. Internationally, there is a growing awareness that the existing private insurance market solutions are not effective. At the same time, governments’ support of the agriculture sector is often in the form of drought relief or some or other disaster relief interventions. These governmental schemes are typically neither timeous nor efficient. As such the combination of both private sector insurance and...

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SA Quagmire Plunges the Rand

Posted on Nov 6, 2013 in Economy, Featured, Infrastructure

SA Quagmire Plunges the Rand

On May 30th, soon after President Zuma addressed a hastily arranged press conference to deal with South Africa’ falling foreign exchange value, the currency plunged by another 2% breaking through the key level of 10 rand per US dollar- trading at R10.07/US$ at the time of writing! That was a shock to the economy and a culmination of a process questioning the president’s leadership and his approach to the complex issues of macroeconomic management. Whilst the President’s speech did not cause the rapid fall in the currency value, his cabinet’s inability to deal with the sophisticated structural issues of the SA economy has been the root cause of the steady decline in the value of the SA currency over the past few years. Despite the unprecedented and colossal “quantitative easing” in the global financial markets, the SA currency today is over 30% cheaper than when the Zuma administration took charge. In effect, in global currency terms, South Africans collectively are at least 30% poorer today than two years ago, and their average welfare has fallen accordingly.   The SA rand has been sliding for the past few years, after recovering from its rapid depreciation in 2009 which followed the sharp contraction in economic activity due to the global “great recession” of 2007/2008. The primary technical factor contributing to SA currency depreciation has been the steady fall in the country’s export earnings. In addition to the unfavourable global economic conditions and the fall in the price of commodities, the SA economy has been shackled by an interrelated set of structural bottlenecks. The shortage of energy, inadequate rail and export logistics and a perilously inefficient, and at times corrupt, public sector have combined to undermine the export sector and its ability to secure foreign earnings. Meanwhile, imports, especially those items needed for country’s infrastructure expansion programme, have continued apace. Consequently, a growing gap has emerged in the current account of the balance of payments, exceeding 6% of the GDP. In the recent past the shortfall in balance of trade was made up by the constant inflow of capital into South Africa’s equities and the bond markets.   The political economy events of the past year, however, have weighed heavily on the propensity of the domestic and foreign institutions and investors to buy exposure to South Africa and hence on the currency market. To begin with, over the past few years we have had a rising level of social discontent due to the government’s inability to deliver quality services to the communities. The average number of daily service delivery community protests has risen sharply and steadily over the period. In August 2012, a mix of labour relations issues within the mining sector, ultimately led to the tragic massacre of 44 mine workers by the police at Marikana. This marked the beginning of an ongoing violent disruption within the mining sector.  As the GDP contracted and tax revenues declined, the government’s fiscal position in the meantime deteriorated. This aggravated a pattern which had been building up since 2008. These trends together with a steady decline in the overall confidence level within the economy culminated in October 2012 of the first ever downgrade of the country’s sovereign credit rating since the inception of the new democratic dispensation in 1994.   This vicious circle of political economy trends was further exacerbated by the ongoing infighting within the ruling Tripartite Alliance (ANC, COSATU and SA Communist Party). Meanwhile, the continued workplace disruptions in the mining sector, and to a lesser extent within the agriculture sector, undermined production and exports. General business confidence was gradually eroded and...

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