Causes, impact and resolution of the financial crises on environmntal development

28
Earth Day Causes, Impact, and Resolution of the current ‘Financial Crisis’ on Environment and Development in Ethiopia Ministry of Agriculture and PHE Network -Ethiopia Faculty of Business and Economics, Addis Ababa University April 22, 2009 BT Costantinos, PhD Centre for Human Environment Lem Ethiopia, The Environment and Development Society [email protected]

description

 

Transcript of Causes, impact and resolution of the financial crises on environmntal development

Page 1: Causes, impact and resolution of the financial crises on environmntal development

Earth DayCauses, Impact, and

Resolution of the current

‘Financial Crisis’ on Environment and Development

in EthiopiaMinistry of Agriculture and PHE Network -Ethiopia

Faculty of Business and Economics, Addis Ababa UniversityApril 22, 2009BT Costantinos, PhD

Centre for Human Environment Lem Ethiopia, The Environment and

Development [email protected]

Page 2: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 2

Contents 1. Policies and Institutions of the environment in

Ethiopia Environmental Policy Strategic issues Ethiopian Forestry Action Programme National Conservation Strategy

2. How bad is the financial crisis? The world of derivatives Marx’s critique of Capitalism Financial Shenanigans, Greed and Capitalism Towards a New Global Financial Order Could China be the answer to Africa?

3. Federal Consultative Council on Fiscal Affairs

It is fashionable to talk about climate change when the fundamentals of the Ethiopian environment (policy, strategy and institutions) are not dealt

with

Page 3: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 3

Institutions and policies of environment Perpetually, the issue of environment in Ethiopia is

invariably linked to the forestry sector; Ethiopia has lost most of its high forests in the past

few decades. As a result, development efforts were started with the establishment of forestry institutions, which were made responsible for managing the country's forest resources;

In a nation haunted by famines organisational imperatives of the sector play an important equation, a luckless sector that has been changing names since its establishment. Indeed, the frequent reorganisation processes, the absence of appropriate institutional setup and the resulting lack of institutional stability has been one of the major hindrances to the development the forestry sector in Ethiopia. These have contributed much to the weakness of the sector

The frequent restructuring process of the sector has caused hardship to the employees and has contributed to the low morale of the professionals.

Page 4: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 4

Institutions and policies of environment Environmental Policy:

Since the emergence of a forestry service in 1940, there has been no forest policy in Ethiopia. Instead, forestry proclamations have been serving as a policy basis for conservation, development, and utilisation of forest resources

In 1991, the Transitional Government of Ethiopia created a favourable atmosphere to develop appropriate forest policy and legislation including private sector afforestation

Strategic issues: Prior to 1975, over 70% of Ethiopia's natural forest was owned by few individuals that practised tree planting. Ethiopian Forestry Action Programme (EFAP): EFAP is

a government initiative aimed at conserving, developing, and sustainably managing the country’s forest resources.

National Conservation Strategy (NCS) : To mitigate the pace of environmental degradation and establish a viable natural resource management, the country has prepared the NCS under whose umbrella is the EFAP

Page 5: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 5

Institutions of the Ethiopia environment

1. Early 1970s - the State Forest Development Agency (SFoDA)

2. 1977 - The Forestry and Wildlife Development Authority (FaWDA).

3. 1979 - Forestry and Wildlife Conservation Department under MoA.

4. 1980 - The Forestry and Wildlife Conservation and Development Authority (FaWCDA) was created

5. 1984 – main department under MoA6. 1993 - Ministry of Natural Resources

Development and Environmental Protection (MoNRDEP)

7. 1995 - the MoNRDEP was abolished, and FaWCDD was placed back under the MoA reorganised into a Team

Page 6: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 6

The Global Financial Crises

With the global markets in crisis, economies in the developed world are hitting a new low that is leading to the 1930s depression.

The rescues, bankruptcies and dizzying write-downs signal a reckoning for Wall Street wizards who engineered the credit crisis with opaque securities based on risky subprime home loans with the assumption that prices would never decline. The liquidity capacity of these markets was overwhelmed.

The market was primed for subprime. The market for credit default swaps foundered, and co-movement on other debt instruments spiked dramatically. The inter-bank markets froze

Page 7: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 7

Financial shenanigans - greedy

capitalism Africa loses an estimated USD 148 billion annually to corrupt practices (25% of the continent’s GDP). The amount of money extorted and stolen each year from developing countries is assumed to be over 10 times the approximately USD 100 billion in foreign assistance. TI estimates that despots around the world have siphoned-off billions from their country’s coffers for personal gains

Page 8: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 8

The world of derivatives

a forward contract commits the user to buying or selling an asset at a specific price on a specific future;

a future is a forward contract traded on an exchange; a swap is a contract by which two parties exchange the cash flow

linked to a liability or an asset; an option is a contract that gives the buyer the right, but not the

obligation, to sell or buy a particular asset at a particular price, on or before a specified date;

an over-the-counter is a derivative that is not traded on an exchange but is purchased from, say, an investment bank;

exotics are derivatives that are complex or are available in emerging economies and

Plain-vanilla derivatives, are typically exchange-traded, relate to developed economies and are comparatively uncomplicated.

Economists believe derivatives will allow more precise pricing of financial risk and better risk management, while they concede that when derivatives are misused, the leverage that is often an integral part of them can have devastating consequences. The world of derivatives is peppered with brainteaser lingo:

Page 9: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 9

Marx’s critique of capitalism Marx argued that this alienation of human work is

precisely the defining feature of capitalism. Capitalist mode of production developed in Europe when labour itself became a commodity

Marx believed that this cycle of growth, collapse, and growth would be punctuated by increasingly severe crises. Many proponents of capitalism have argued that capitalism is a more effective means of generating and redistributing wealth than socialism or communism, or that the gulf between rich and poor was a temporary phenomenon. Some suggest that self-interest and the need to acquire capital is an inherent component of human behaviour, and is not caused by the adoption of capitalism

Contemporary Marxists argue that Marx was correct that human behaviour reflects historical and social conditions. His analysis of social class and commodities is still very useful, that his critique of capitalism can easily be applied to the current global situation, and that alienation is still a problem.

Page 10: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 10

Does the Crunch affect Africa? Businessmen and budding entrepreneurs have always

moaned about the excessive regulations and conservatism of African banks. Controls on foreign exchange often prevent them raising more money by investing in exciting financial instruments. Foreign ownership of banks is unusually limited. Now, however, this very de-linkage from the Western financial system has turned out to Africa’s advantage. Its banks have almost no exposure to the subprime market causing such havoc elsewhere in the world.

There is a reasonable chance that Africa may survive the current world financial crisis less bruised and battered than some other parts of the world. The very factors that damaged the continent in the past may now be working in its favour

No one doubts that Africa will feel the effects of the crisis eventually. As world trade contracts, so will the demand for Africa’s oil and minerals, the main commodities behind its current boom and aid pitfalls.

Page 11: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 11

China’s Africa answer

0

500

1000

1500

2000

2500

3000

3500

Soy abeans Crudel oil Minerals

1999=100

China's hunger for African exports

1999 2001 2003 2005 2007

Page 12: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 12

Greed is gone - Wall Street, the sequel 20th Century Fox is already working on a

sequel to the 1987 classic, “Wall Street”, with Michael Douglas mulling a reprise of his Oscar-winning role as Gordon Gekko, the predator-in-chief of the junk-bond boom

But what will Gordon Gekko be like when he is back? era-defining catchphrase in the original, “Greed is gone” (a mis-quote: it was actually “Greed—for lack of a better word—is good”), jars in these harsh times. “Greed—provided it is sufficiently regulated—is tolerable” might be more appropriate now.

The studio might also want to rethink the working title, “Money Never Sleeps”; just now many people’s money is under the mattress -- given rising anxiety that America has replaced red-blooded capitalism

Page 13: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 13

Crises could forge a New Financial

Order 1. A system needs to be designed where participants

cannot threaten the safety of the economy - this crisis is bad enough that there's a better chance of doing something right ... than there has been for decades.

2. The most obvious change in the financial markets is the government's new role as a major owner of banks

3. The commercial paper market is likely to revive, but the recent experience probably will make businesses more conservative about using it. Many companies have relied on it for long-term needs, repeatedly paying off each month's loans with new borrowing.

4. To assess risks building up in the system, regulators are sure to demand more transparency as oversight of different types of securities needs to be more consistent -- bets on individual stocks can now be made in various ways -- by purchasing the stocks themselves, or through futures, options or swaps contracts based on those stocks. The swaps market, often involving individually tailored contracts, has virtually no regulation.

Page 14: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 14

Is foreign aid indispensable

for Ethiopia???

Aid for trade? Global Fund, G8, G20, Pepfar, EU/ACP Lome, Direct Budget Support, Aid

Harmonisation, Paris declaration,

Civil Society! What? Are you out of your mind or crazy!!!

Page 15: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 15

0.00

500.00

1000.00

1500.00

2000.00

2500.00

I FI s Loan I FI s GrantsEu Grants UN GrantsAmerica & Canada Grants Asia & Middle East GrantsEurope Grants TOTAL AI D

Ethiopia: Total aid 2004-2005 (loans and grants)

US Millions

Page 16: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 16

Aid Commitment (in USD Billions)

Chart I: Ethiopia Aid Commitment

0

500

1000

1500

2000

2500

3000

2003/04 2004/05 2005/06 Average

Multilateral Loan Grant DBSPBS Bilateral Loan GrantDBS PBS Total

Page 17: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 17

Chart II- Aid Disbursement 2004-2006 in US Millions

0200400600800

1000120014001600

2003/04 2004/05 2005/06

Multilateral Loan Grant DBSPBS Bilateral Loan GrantDBS PBS Total

Ethiopia: Aid disbursement

Page 18: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 18

Ethiopia: Domestic Resources for Development (In US Millions)

0

100

200

300

400

500

600

ADMINISTRATIVE AND GENERAL SERVICE ECONOMIC SERVICE

SOCIAL SERVICE ECONOMIC DEVELOPMENT

SOCIAL DEVELOPMENT GENERAL DEVELOPMENT

C. SUBSIDY TO REGIONS

Page 19: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 19

0

0.5

1

1.5

2

2.5

Ethiopia: Resources for Development (2004, in USD billions)

Total Aid Domestic Resources FDI

Page 20: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 20

Financing Protection of Basic Services in Ethiopia(in

US

D M

illion

s)

DFID, 149.88

IDA, 169.12

EC, 89.84KFW, 12.01

Gov't, 331.08

AfDB , 57.33

Page 21: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 21

How does Ethiopia escape from the

current financial crises and aid dependency?

“To every challenge in Africa, there is a tendency to always to try find a solution that is smart,

simple, and immoral”

Page 22: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 22

How do we deal with the crisis in Ethiopia?

Proposing a Federal Consultative Council on Fiscal

AffairsA Federal Consultative Council on Fiscal Affairs be constituted from Ethiopians of all walks of life with a

potential for international advisory services as a forum for consideration of the economic crises analysis and

those activities reflective of long-term national policies and objectives and the challenges facing the Ethiopian

economy from a global perspective. This may inter alia, entail economic policy analysis, formulation, and

management in relation to national policies and objectives and civil service reform (recruitment

modalities, merit of the civil service, and remuneration) and recommend for approval, scenarios

and options for the legislature and the executive .

Page 23: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 23

Vectors of the financial crisis in Ethiopia Lack of desirable levels of competent economic

management, efficient public services, and sound infrastructure and the problems of government adoption of strategies to overcome constraints to investments in large, complex undertakings

Dearth of institutional capacity for policy development and co-ordination and under-defined core business of public sector and poorly managed restructuring of public sector Lack of the review of the role of lending institutions, dearth of sound information systems on micro-

economic behaviour and markets lack of measures to promote informal sector and

small-and intermediate-scale entrepreneurship: the supply of indigenous managerial skills experience and expertise is understandably limited and the skewed role of market networks and lack of enterprise-level support systems

and adaptation and the ‘negative role’ of government and NGOs in business

Page 24: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 24

Objectives of the crises management plans Since no one can claim to be developing all

forms of complex and uncertain systems, developing socially responsible think tank capacity that has broad based participation for all sectors of stakeholders in Ethiopia is imperative.

Policy dialogue on this timely issue of competent economic and development management will legitimately enhance the leadership’s capacity to effect change and develop the capacity, through statements and actions: to shape debate, dialogue, and morality, and eventually determine what is socially acceptable, culturally sound and politically uplifting.

Based on current experience and aimed at guiding mainstreaming management at different levels, five simple principles have emerged that attempt to provide a comprehensive framework to analyse where and when to introduce and implement institutionalisation

Page 25: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 25

The FCCFA The FCCFA is a voluntary body that provides the executive

to provide overall guidance at the stage of the review of progress in formulation of economic crises management plans and take such other decisions and actions considered necessary to subvert the crises

The FCCFA considers and recommends for approval concept papers, scenarios and options on the challenges facing the Ethiopian economy for the legislature and the executive, which may entail economic policy analysis, formulation, and management in relation to development activities including meritocratic reform to provide high-quality analysis and advice on economic and social development strategies

Government must attach a high priority to the FCCFA into a first-rate provider of objective economic and social policy advice, where increased maturity and sustainability of FCCFA must be self-evident.

Page 26: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 26

Issues to be addressed by the FCCFA: The first and second stage of the FCCFA are aimed at

accelerating and improving the quality and sustainability of the economic reform process by helping to improve the Government’s capacity to formulate and monitor the implementation of national economic policies, including with respect to regional integration.

The FCCFA would retain the use of social and economic policy advisors to help ensure quality control, including over national consultant outputs, with emphasis on training an expanded group of core researchers able to balance analytical rigour with the need to provide recommendations that will be implemented

The third stage of support seeks to build on this more general capacity building by providing targeted assistance that helps the nation demonstrate its operational effectiveness. Specifically, this would support the preparation of high quality and priority analyses and studies as necessary inputs into revised or new economic and social development policies that are being prepared for consideration by the Government

Page 27: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 27

Principles of mainstreaming Principle 1: developing a clearly defined and focused

entry point or themes for institutionalising competence in economic management to maintain the critical focus necessary for impact.

Principle 2:national policies or strategic frameworks for economic management should be used as the frame of reference, located within existing institutional structures.

Principle 3: necessitates advocacy and sensitisation, in order to place institutionalisation in a better position

Principle 4: maintain a distinction between two domains in institutionalisation: the internal domain or workplace, where risks and vulnerabilities are addressed; and the external domain, where interventions are based on mandate and capacities in support of strategic efforts.

Principle 5: developing strategic partnerships based on comparative advantage, cost effectiveness, and collaboration.

Page 28: Causes, impact and resolution of the financial crises on environmntal development

Saturday, April 8, 2023 Earth Day Lecture - BT Costantinos, PhD Slide 28

ConclusionBeyond GDP growth, state effectiveness and market

performance anatomy is perhaps the most subtle trait of all economies - the interactions between leadership

and strategy, innovation and technology, and human quality

development and meritocracy that are critical to defining a high-performance market–driven

development.End