In considering today’s global uncertainties – and, indeed, in listening to many lament about the world – I am struck by the wistful search for “leadership”. Yet, the dearth of leadership in our era is easily explained: there are fewer and fewer followers.

In fact, one of the principal, if largely unnoticed, effects of the new communications technologies and the resulting expansion of popular access to information has been the dramatic decline in the number of people who are prepared to defer to those who claim authority on traditional grounds, whether through divine right, historical entitlement, coercive power or expertise.

Just as the citizen journalist has revolutionised the dissemination of information, uploading videos of raging battles and surreptitious bribes, or tweeting political summits and street protests, so, too, are political subjects being transformed into empowered citizens.

From the halls of the US Congress to the streets of Cairo, people armed with unprecedented access to information are challenging received wisdom, upending conventional hierarchies and, very often, obstructing the conduct of normal politics.

If we concede that “knowledge is power”, we must also acknowledge, however, that “a little knowledge can be a dangerous thing”. Many newly included citizens and their political representatives are neither seasoned analysts nor practised political actors, and they often make up for lack of experience with little more than enthusiasm. But whether they are protesting tyranny, corruption or austerity or what many see as the imperialism of international institutions and actors, they are reshaping both the style and the substance of global and regional politics.

Deference to leadership of “great powers” and their proxy regimes is waning fast in the Arab world and in the next decade there will be a profound rewriting of regional history, as the 20th century’s tattered narrative of “modernisation” under the guise of European and then Cold War tutelage is finally and definitively abandoned. Instead, political debates about the meaning and purpose of power, community, rights and citizenship will rage — sometimes violently as the legacies of European imperialism and Cold War strategy fade into the twilight of history.

Already we have seen once ostensibly impregnable Arab governments toppled and seemingly invincible political figures killed, exiled or jailed. Why should we not expect some of the apparently unassailable states to crumble, their borders redrawn in bloody battles among people who refuse to follow local, regional or global “leaders” whom they believe have patronised and betrayed them?

The contemporary map of the Middle East is a recent invention, imposed and sustained by the “great powers” and “indispensable nations” of their time. There is nothing sacred about that map. Indeed, for many in the region, especially those newly introduced to the alternative narratives of history proposed by Islamist movements in website after website, it is far more likely to be an insult and a provocation.

For the rulers of those states, and for the global community that depends on the trade and transit in the region — or that advocates human rights, accountability and transparency in government — the prospect of sustained leaderless protest, loosely networked regional anarchist, nihilist or terrorist groups and brutal civil wars between competing citizen militias is not appealing.

But it is plausible. There is very little that those both inside and beyond the region who aspire to a leadership role can do, short of acknowledging that the nature of leadership itself is changing dramatically. Patience, humility, awe and sustained engagement will be rewarded; remote-control intervention, whether in the bullying of sanctions, the stealth of drone wars or the hypocrisy of preferential humanitarian treatment, will not.

Read the Outlook on the Global Agenda in Arabic, released at the World Economic Forum on the Middle East and North Africa.

This opinion piece first appeared in The National.

Author: Lisa Anderson is the president of the American University in Cairo, and a member of the Global Agenda Council on the United States. 

 Image: People walking past an internet café in Cairo REUTERS/Amr Dalsh

The past two years have been difficult for the Arab countries in transition – Egypt, Jordan, Libya, Morocco, Tunisia and Yemen – and the situation will remain difficult in the near term. Unless countries adopt a comprehensive policy package that aims to maintain macroeconomic stability and lays the foundations for job-creating growth, the hopes and aspirations of people will be dashed, with implications well beyond the region.

Political uncertainty and pressing social demands, a continued weak external environment and still fragile private sector confidence have all contributed to growing budget deficits and diminished international reserves. Fiscal deficits last year stood at an average of almost 9 per cent of GDP and international reserves have declined towards – or, in Egypt, fallen below – the critical level of three months of import demand. Measures to maintain macroeconomic stability are thus urgently required, including fiscal consolidation that includes subsidy reform while protecting the poor with well-designed safety nets. Libya is in a different position from the other Arab countries in transition given its substantial oil wealth: the immediate challenges there are to raise the quality of spending to support sustainable growth and to strengthen institutional capacity.

Looking ahead, Arab countries in transition can only expect moderate growth for this year. We at the IMF forecast an average growth rate of about 3 per cent for these countries (excluding Libya), which is not enough to make a significant dent in unemployment. In fact, the number of unemployed in the region has increased by more than 1.1 million since the onset of the Arab Spring, and unemployment rates continue to stand at 9-15 per cent. Alarmingly, youth unemployment is even higher at 15-30 per cent.

This brings me to my key point: the success of the political and economic transitions across these countries will ultimately be determined by the extent to which they can generate higher and sustainable growth to bring down unemployment. Progress on this agenda is as urgent as is short-term macroeconomic stabilisation. Reform packages will be home-grown and necessarily vary in emphasis and timeframe. Nevertheless, I see five common priorities.

1. Trade integration
Greater trade integration will be essential for boosting growth. There is significant potential: the region’s exports are proportionally smaller than in other economies, are directed mainly to Europe and intraregional trade is not well developed. This has prevented the region from benefiting from the high growth of many emerging markets, especially in Asia. Trade integration calls for better access to advanced economy markets, but also for action in the countries themselves to further liberalize their own tariffs and non-tariff barriers, and diversify trade towards each other and towards fast-growing emerging markets.

2. Transparency
Business regulation and governance reforms are needed to ensure simple, transparent and even-handed treatment for companies, and ultimately greater transparency and accountability of public institutions. Reality is sometimes different: Egypt, for example, has 36,000 often overlapping regulations that affect the private sector. As a result, it can be a lengthy, expensive and complicated proposition to start and run a business. And opportunities for arbitrary treatment and corruption are created along the way.

3. Social reform
Labour market and education reforms are needed for adequate skill building and protection of workers. We need to recognise that high unemployment is compounded by significant demographic pressure as more of the young enter the labour market, the public sector dominates the job market and labour laws are rigid. All three issues need to be addressed. Governments should reduce disincentives to hiring, while still protecting workers. The education system must also shift its focus from training young people for entry into the civil service to preparing them for a career in the private sector.

4. Access to finance
Improving access to finance will help catalyse entrepreneurship and private investment. At the moment, only 10 per cent of firms finance investment in the Middle East and North Africa through banks – by far the lowest share among the world’s regions – and 36 per cent of firms in the region identify access to finance as a major constraint, surpassed only in sub-Saharan Africa. Strategies for improving access to finance must include developing or strengthening alternatives to bank financing, improving the financial infrastructure and strengthening competition in the financial sector.

5. The buy-in
Improving communications is the final element of a convincing reform package. It is not enough for policy-makers to be willing to carry out difficult reforms. They need to be open about their intentions. What is required is broad understanding and buy-in to the country’s reform programme among their populations, so that the countries in transition are able to implement the policy changes without prohibitive popular opposition.
In all these areas, there are already good examples from within the region. The challenge ahead is to learn from them and achieve the scaling up required to lay the groundwork for inclusive growth, create more jobs and build a brighter future. No time should be lost to give hope to the populations still waiting for a dividend from the political reforms that started two years ago.

Read the Outlook on the Global Agenda in Arabic, released at the World Economic Forum on the Middle East and North Africa.

This opinion piece first appeared in The National.

Author: Masood Ahmed is the director of the Middle East and Central Asia department of the IMF, and vice chairman of the Global Agenda Council on the Arab World.

Image: Al-Hajjara village located on the Haraz mountain region REUTERS/Mohamed al-Sayaghi

There are millions of people around the world who have fallen through the cracks and whose voices are not part of the conversation. These roughly 40 million people have found themselves “internally displaced” or “refugees” due to circumstances beyond their control. Some are professors, doctors, engineers, writers, artists, etc. And some were also innovators solving their local needs and running their own businesses before they were forced to leave their homes and are now identified with an ID number and must rely on hand-outs to survive.

This group of extraordinary, resilient people – who didn’t seek to become internally displaced or refugees – find themselves in a foreign country where they may or may not face language barriers. While they have brought their talents and knowledge with them, they are rarely asked to be a part of the solution; they languish in refugee camps wasting away their talents with little or no opportunities to put those talents to productive use.

NGOs are overwhelmed with the continued crises that plague our world, and coupled with donor fatigue this group of brilliant minds is being underutilized. I have met Sudanese refugees who against all odds have become acclaimed music artists as well as super models; Congolese refugees in Tanzania who self-taught themselves English in order not to fall behind in school; Somalis who figured out a way to have an Internet café in the middle of the largest refugee camp in the world and create a business in the middle of the desert; another Somali who has finished Princeton University and is currently finishing his Masters in Finance at EBS; Palestinian refugees who without a roof over their heads have studied hard and are about to begin pre-med at Weill Cornell.

All of them have something in common: someone saw their potential and decided to invest in them. They were given a chance even though they fell through the gaps. But these are exceptional cases and not the norm.

Imagine if this group of people were part of the whole, if they were asked for their opinion and were invited to the problem-solving table. After all, they are the ones who want to go home to the country they were forced to leave behind. They are the ones that would work the hardest at solving their problems if they had access to finance, innovation, health and education.

Author: Lorna Solis is the Founder and Chief Executive Officer of Blue Rose Compass, and is also a World Economic Forum Young Global Leader.

Image: Refugees are seen next to their tents in a refugee camp REUTERS/Asmaa Waguih

There is no magic Keynesian bullet for the eurozone’s woes. But the spectacularly muddle-headed argument nowadays that too much austerity is killing Europe is not surprising. Commentators are consumed by politics, flailing away at any available target, while the “anti-austerity” masses apparently believe that there are easy cyclical solutions to tough structural problems.

The eurozone’s difficulties, I have long argued, stem from European financial and monetary integration having gotten too far ahead of actual political, fiscal, and banking union. This is not a problem with which Keynes was familiar, much less one that he sought to address.

Above all, any realistic strategy for dealing with the eurozone crisis must involve massive write-downs (forgiveness) of peripheral countries’ debt. These countries’ massive combined bank and government debt – the distinction everywhere in Europe has become blurred – makes rapid sustained growth a dream.

This is hardly the first time I have stressed the need for wholesale debt write-downs. Two years ago, in a commentary called “The Euro’s Pig-Headed Masters,” I wrote that “Europe is in constitutional crisis. No one seems to have the power to impose a sensible resolution of its peripheral countries’ debt crisis. Instead of restructuring the manifestly unsustainable debt burdens of Portugal, Ireland, and Greece (the PIGs), politicians and policymakers are pushing for ever-larger bailout packages with ever-less realistic austerity conditions.”

My sometime co-author Carmen Reinhart makes the same point, perhaps even more clearly. In a May 2010 Washington Post editorial (co-authored with Vincent Reinhart), she described “Five Myths About the European Debt Crisis” – among them, “Myth #3: Fiscal austerity will solve Europe’s debt woes.” We have repeated the mantra dozens of times in various settings, as any fair observer would confirm.

In a debt restructuring, the northern eurozone countries (including France) will see hundreds of billions of euros go up in smoke. Northern taxpayers will be forced to inject massive amounts of capital into banks, even if the authorities impose significant losses on banks’ large and wholesale creditors, as well they should. These hundreds of billions of euros are already lost, and the game of pretending otherwise cannot continue indefinitely.

A gentler way to achieve some modest reduction in public and private debt burdens would be to commit to a period of sustained but moderate inflation, as I recommended in December 2008 in a commentary entitled “Inflation is Now the Lesser Evil.” Sustained moderate inflation would help to bring down the real value of real estate more quickly, and potentially make it easier for German wages to rise faster than those in peripheral countries. It would have been a great idea four and a half years ago. It remains a good idea today.

What else needs to happen? The other steps involve economic restructuring at the national level and political integration of the eurozone. In another commentary, “A Centerless Euro Cannot Hold,” I concluded that “without further profound political and economic integration – which may not end up including all current eurozone members – the euro may not make it even to the end of this decade.”

Here, all eyes may be on Germany, but today it is really France that will play the central role in deciding the euro’s fate. Germany cannot carry the euro on its shoulders alone indefinitely. France needs to become a second anchor of growth and stability.

Temporary Keynesian demand measures may help to sustain short-run internal growth, but they will not solve France’s long-run competitiveness problems. At the same time, France and Germany must both come to terms with an approach that leads to far greater political union within a couple of decades. Otherwise, the coming banking union and fiscal transfers will lack the necessary political legitimacy.

As my colleague Jeffrey Frankel has remarked, for more than 20 years, Germany’s elites have insisted that the eurozone will not be a transfer union. But, in the end, ordinary Germans have been proved right, and the elites have been proved wrong. Indeed, if the eurozone is to survive, the northern countries will have to continue to help the periphery with new loans until access to private markets is restored.

So, given that Germany will be picking up many more bills (regardless of whether the eurozone survives), how can it best use the strength of its balance sheet to alleviate Europe’s growth problems? Certainly, Germany must continue to acquiesce in an ever-larger role for the European Central Bank, despite the obvious implicit fiscal risks. There is no safe path forward.

There are a number or schemes floating around for leveraging Germany’s lower borrowing costs to help its partner countries, beyond simply expanding the ECB’s balance sheet. For meaningful burden-sharing to work, however, eurozone leaders must stop dreaming that the single currency can survive another 20 or 30 years without much greater political union.

Debt write-downs and guarantees will inevitably bloat Germany’s government debt, as the authorities are forced to bail out German banks (and probably some neighboring countries’ banks). But the sooner the underlying reality is made transparent and becomes widely recognized, the lower the long-run cost will be.

To my mind, using Germany’s balance sheet to help its neighbors directly is far more likely to work than is the presumed “trickle-down” effect of a German-led fiscal expansion. This, unfortunately, is what has been lost in the debate about Europe of late: However loud and aggressive the anti-austerity movement becomes, there still will be no simple Keynesian cure for the single currency’s debt and growth woes.

Author: Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

 Image: A bank teller counts banknotes in Greece REUTERS/John Kolesidis

Ahead of the World Economic Forum on the Middle East and North Africa, which takes place this week in Jordan, below is a breakdown of how the region is faring in terms of gender equality.

Out of 135 countries assessed in the Forum’s Global Gender Gap Report 2012, Israel (56) holds the top spot in the region, supported by a higher-than-average performance on the economic participation and opportunity sub-index and good results on the political empowerment sub-index. Israel ranks 29th on the labour force participation indicator and 17th on the years with a female head of state indicator.

The United Arab Emirates (107) continues to hold the top position among Arab countries and is the only country from the region that has closed the educational attainment gap. The UAE falls four places in the overall ranking this year due to a decrease in the estimated earned income and the percentage of women in parliament indicators.

Kuwait (109) is part of the top 20 performing countries on the secondary education enrolment indicator and is part of the top 10 performing countries on the tertiary education enrolment indicator.

Bahrain (111) is among the top 20 highest climbers of the 111 countries that have been included in the report 2006, with an overall score percentage change of 6.9% relative to 2006.

Qatar (115) is one the two countries with a zero score in the political empowerment sub-index, however, the country is among the top three performing countries in enrolment in secondary education and the top country in tertiary education.

The region as a whole is the least gender equal in the world. Overall, the region’s gender gap stands at 59%, where 100% represents perfect equality between men and women. This compares with 66% in Asia and the Pacific, the next lowest ranking region, and 74% in North America, which has the highest score. The Global Gender Gap Index compares 135 countries around the world using indicators to gauge to what extent women are held back by various factors relating to economics, politics, education and health.

MENA countries that rank the highest in the report have made significant investments in boosting women’s education in recent decades. However, they have had varying degrees of success at integrating women into the economy in order to reap the benefits of this investment.

Author: Yasmina Bekhouche is a Project Manager on the World Economic Forum’s Gender Parity Team.

Image: School girls are seen in a street in Cairo REUTERS/Amr Abdallah Dalsh

There seems to be a lot of discussions these days about the lack of transparency in business dealings in the Middle East and North Africa. In contrast to the negative news about the state of anti-corruption efforts in the region, I want to point out the positive. In fact, I am seeing businesses in the region serve as role models for other organizations – both public and private – to conduct themselves in an open, transparent and honest manner.

Businesses learn a lot through experience.  We all know that in some countries anti-corruption laws are stricter and more far reaching. We also know that in other countries, doing business without paying bribes or making improper payments is harder. Businesses respond to these challenges by developing internal compliance programmes that allow us to continue to thrive in a variety of environments, while at the same time engaging in clean, ethical practices.

Our compliance programmes can serve as lessons for others. By sharing our procedures for resisting extortion and solicitation in international transactions, setting up fair gifts and hospitality guidelines, providing training programs for our employees and conducting effective third-party due diligence, we can lead by example. We can offer suggestions and guidance to others who are new to this area in order to make their journey easier.

Technology can make this process more efficient. By simply posting a corporate code of ethics online, companies are not just informing their stakeholders of their values. They are also sending a clear message on the importance of ethical business practices which can be adopted and implemented by other companies – and the numbers can quickly increase exponentially.

Companies like SABIC and others are engaging on this issue through the World Economic Forum’s Partnering Against Corruption Initiative. At the World Economic Forum on the Middle East and North Africa we will share our experiences – good and bad – with our peers, and provide concrete, practical ways to assist other players in the region so that together we can raise the bar for everyone.

Author: Mohammed H. Al Mady is the Vice-Chairman and Chief Executive Officer of Saudi Basic Industries Corporation (SABIC).

 Image: A man is seen crossing a bridge REUTERS/Jumana El Heloueh

Ambassador Roberto Azevedo has been elected as the new Director-General of the World Trade Organization, succeeding Mr Pascal Lamy. He will be formally appointed on 1 September 2013.

The challenges faced by the new Director-General of the World Trade Organization (WTO), Ambassador Roberto Azevedo, are absolutely monumental. The WTO is at risk of becoming the League of Nations of the 21st century economy, and its biggest hurdle is to convince policy and opinion makers that the organization remains relevant. After the failure of the Doha Round, the WTO needs to find a way to meaningfully move forward. One of the constraints is that the United States chooses not to focus energy and effort on the WTO, instead concentrating on agreements like the Trans Pacific Partnership (TPP), which are more suited to its purposes. Even the general public and “protest community” have lost interest – we don’t see rallies and demonstrations surrounding the WTO meetings as we used to.

Besides the external challenges mentioned above, the new Director General will also have to tackle important internal fissures that impact the effectiveness of the organization. There has historically been a clear split between North and South – something which was brought to the forefront with the selection of the new Director General. The North was supporting the Mexican candidate, Herminio Blanco, who has strong ties with the US, while the South pushed for Mr Azevedo. And of course, the protectionism and trade barriers that the North has been accused of constructing against the South are famously widening this divide.

However, more importantly, there is also a South-South division, which is less obvious but equally hindering. The agriculture policies of India are very different from those of Brazil for example, and even though five key leading emerging nations (Brazil, Russia, India, China and South Africa) are classified as the BRICS, I see very little in common within these countries. We have the emerging power and economic strength of Brazil, China and India, but they need to lay aside their differences in order to progress and benefit from their combined assets.

The most important thing for the new Director General to do would be to rethink the organization’s raison d’être – what it stands for and what it is trying to achieve. The organization emerged after the trade and military wars of the 20th century, and at that time, it had a very clear objective: to establish global governance. Perhaps there is a similar need now, but in a very different way.

Mr. Azevedo should use his soft power and persuasion skills to strengthen the public relations of the organization. He should meet with and spend quality time with the various critical stakeholders – representatives from the private sector in Europe and the US, from the BRICS countries, and other key players. It is important for him to get businesses to understand the importance of the WTO, and for it to remain central in future trade negotiations. I still have a strong interest in the WTO, but that interest is not shared by many.

Led by Mr Azevedo, the organization has to rebuild bridges, bring countries together in a shared mission and create value for those who have lost confidence. To achieve this, Mr. Azevedo needs support from his constituents, and time to build his reputation and put his diplomacy into action.

Author: Jean-Pierre Lehmann is Professor Emeritus of International Political Economy at IMD, Switzerland, and Founder of The Evian Group. He is a member of the Global Agenda Council on Global Trade and FDI.

Image: Names of countries taking part to the 8th World Trade Organization Ministerial Conference are pictured on the chairs for delegates. REUTERS/Denis Balibouse 

We’ve all been there. Your flight is cancelled and you need to be rebooked. While you wait in line for the next available gate agent or you’re stuck on hold as your travel agent gets flooded with calls from other delayed passengers, you start to wonder. Would a train be faster? What about a car? What if the flight is tomorrow? Do I need to change my hotel?

In today’s technologically connected world, isn’t there an “app” that automatically reschedules all travel and accommodation requirements based on user needs? Unfortunately, there is no product (yet) in today’s market that manages one single ticket for a complete travel itinerary and, should there be an unwanted disruption or need for changes, proactively alerts the traveller and shows all possible travel and accommodation rebooking options in real time.

The good news is that the technology needed to create an integrated travel assistant programme exists. Technology is not what is slowing the roll-out of new solutions. The barriers are a lack of industry cooperation to share timetables and to integrate booking and payment systems, conflicting government policies and a lack of standards.

For the integrated travel assistant programme to be developed successfully, there needs to be collaboration between all transportation providers. They all need to be linked on one common platform where user data and payments can be shared. Issues such as cyber security, ownership of end user data, and competition among providers will also need to be addressed.

In addition to the current hurdles to implementation, the world is moving towards becoming more interconnected. As such, changing government policy frameworks, increasing collaboration and new business models are fundamental to deliver the next generation solutions to an ever-evolving, always-connected consumer.

The World Economic Forum, in collaboration with The Boston Consulting Group, examined major trends that will reshape the transport sector and present a number of thought-provoking scenarios of how the world could evolve. The Forum has also identified key solutions that will completely reshape the way people consume travel and transportation and how the sector can deliver against new customer requirements:

• Integrated, proactive inter-model travel assistant
• Condition-based megacity traffic management
• Fully automated check-in, security and border control and SMART visa
• Tracking- and transparency-based logistics optimizer

All four solutions have one thing in common: the ability to provide innovative business opportunities while providing the greatest benefit to society.

These solutions can unlock value and create convenience and efficiencies for consumers, governments and companies. The key will be whether the right actors are willing to collaborate on the issues that inhibit these solutions to be created.

Read the Connected World: Transforming Travel, Transportation and Supply Chains report

Author: Philipp Sayler is a Senior Manager for the Automotive Industry at the World Economic Forum and Project Manager for Connected World.
Written in collaboration with Oliver Truong, Business Development Associate for Mobility Industries at the World Economic Forum.

Image: An airplane flies in front of the moon after take off REUTERS/Darrin Zammit Lupi

NEW YORK – China’s successful transformation from a middle-income country to a modern, high-income country will depend largely on the reforms that the government undertakes over the next decade. Financial reforms should top the agenda, beginning with interest-rate liberalization. But liberalizing interest rates carries both risks and rewards, and will create both winners and losers, so policymakers must be prudent in their approach.

In 2012, the People’s Bank of China allowed commercial banks to float interest rates on deposits upward by 10% from the benchmark, and on bank loans downward by 20%. So, if the PBOC sets the interest rate on one-year deposits at 3%, commercial banks can offer depositors a rate as high as 3.3%. Many analysts viewed this policy, which introduced a small degree of previously non-existent competition among commercial banks, as a sign that China would soon liberalize interest rates further.

But any further move toward interest-rate liberalization must account for all potential costs and benefits. Chinese policymakers should begin with a careful examination of the effects of current financial repression (the practice of keeping interest rates below the market equilibrium level).

The degree of financial repression in a country can be estimated by calculating the gap between the average nominal GDP growth rate and the average long-term interest rate, with a larger gap indicating more severe repression. In the last 20 years, this gap has been eight percentage points for China, compared to roughly four percentage points on average for emerging economies and nearly zero for most developed economies, where interest rates are fully liberalized.

Developing-country central banks keep interest rates artificially low to ensure sufficient low-cost financing for the public sector, while avoiding large fiscal deficits and high inflation. But, in the long run, such low interest rates may also discourage households from saving, lead to insufficient private-sector investment, and eventually result in economy-wide underinvestment, as occurred in many Latin American countries in the past.

In many ways, China is breaking the mold. Despite severe financial repression, it has experienced extremely high savings and investment, owing mainly to Chinese households’ strong propensity to save and massive government-driven investment, particularly by local governments.

The adverse effects of financial repression in China are reflected primarily in its economic imbalances. Low interest rates on deposits encourage savers, especially households, to invest in fixed assets, rather than keep their money in banks. This leads to overcapacity in some sectors – reflected in China’s growing real-estate bubble, for example – and underinvestment in others.

More important, financial repression is contributing to a widening disparity between state-owned enterprises (SOEs) and small and medium-size enterprises (SMEs), with the former enjoying artificially low interest rates from commercial banks and the latter forced to pay extremely high interest rates in the shadow-banking system (or unable to access external financing at all).

Interest-rate liberalization – together with other financial reforms – would help to improve the efficiency of capital allocation and to optimize the economic structure. It might also be a prerequisite for China to deepen its financial markets, particularly the bond market, laying a solid foundation for floating the renminbi’s exchange rate and opening China’s capital and financial accounts further – a precondition for the renminbi’s eventual adoption as an international reserve currency.

SMEs and households with net savings stand to gain the most from interest-rate liberalization. But financial repression’s “winners” – commercial banks and SOEs – will face new challenges.

Under the current system, the fixed differentials between interest rates on deposits and those on loans translate into monopolistic profits for commercial banks. (The three percentage-point differentials that Chinese banks have enjoyed are roughly on par with those of their developed-country counterparts.) By creating more competition for interest income and reducing net interest-rate differentials, liberalized interest rates could reduce banks’ profitability, while SOEs will likely suffer the most, owing to much higher financing costs.

Another major risk of interest-rate liberalization in China stems from rising public debt, particularly local-government debt, which has grown significantly in the wake of the global financial crisis. A key parameter for determining the long-run sustainability of public debt is the gap between interest rates and the nominal GDP growth rate. In China, total public debt currently amounts to roughly 60-70% of GDP – a manageable burden. But, after interest rates are liberalized, the public sector’s debt/GDP ratio is expected to increase substantially.

Given these challenges, China’s leaders must take a cautious approach to interest-rate liberalization. Gradual implementation would enable the losers to adjust their behavior before it is too late, while sustaining momentum on pivotal reforms, which should be policymakers’ top priority. After all, as Premier Li Keqiang has put it, “reforms will pay the biggest dividend for China.”

The opinions expressed here are those of the author, not necessarily those of the World Economic Forum. Published in collaboration with Project Syndicate.

Author: Pingfan Hong is Chief of the Global Economic Monitoring Unit of the United Nations Department of Economic and Social Affairs.

Image: A construction site in Pinghu, Zhejiang province September 28, 2012. REUTERS/Aly Song

Historically, people associate the sound of Africa with the roar of the lion; but in reality, it’s the roar of the diesel generator. Herds of these archaic beasts are on the prowl. Their habitat includes cities, towns, factories, mines, businesses and big farms – anywhere where power is required and isn’t available or reliable.

When I started in the development arena, and specifically in the renewable energy space, nearly 15 years ago, energy issues simply didn’t feature. Conservationists and environmentalists alerted us to the dangers of deforestation and climate change, and to the importance of preservation of African habitats. Electricity grids only served largely urban areas and commercial enterprises, while modern energy options (outside of South African townships) were unavailable to the poor. There were few alternatives to firewood, charcoal, kerosene or candles – what I call the four fuels of poverty.

Energy poverty, or energy injustice, at that time was simply known as “life”. Everyday challenges largely went unnoticed by women walking long distances to collect firewood and inhaling wood smoke from cooking or kerosene fumes from rough-hewn tin lamps. Respiratory illnesses, children ingesting kerosene believing it to be clean water, and burns and deaths from fires hardly featured on the health agenda. Productivity went down when the sun did. Tackling energy poverty didn’t seem to be a priority for most development organizations.

This situation is changing fast.

Thanks in large part to the UN and its Year of Sustainable Energy for All, a long-overdue global consensus is emerging. We are beginning to appreciate that universal access to sustainable energy is vital for both the health of the global economy and the preservation of our planet. This UN initiative is helping to kick-start innovation at all levels of energy service and delivery right across Africa.

For example, recognizing that grid electricity is often prohibitively expensive, savvy social entrepreneurs are testing new off-grid models and fit-for-purpose products and services. These can help create livelihoods, prolong productive hours, improve educational outcomes, irrigate agriculture, extend communications access and unlock market opportunities. Consumers have a greater chance of entering and staying part of the new knowledge economy.

This new global consensus was on display at the World Economic Forum on Africa 2013, held in Cape Town. Traditionally, the Forum discussed energy issues in the context of global risks, oil shocks, regional collaboration, grid infrastructure and supply efficiency, policy and regulatory frameworks, financial instruments and deregulation, but not as an enabler of development. At this year’s meeting in Cape Town, energy discussions extended further to include the “last mile” consumer and the understanding that renewable energy is the oxygen of both economic growth and sustainable development. Nothing else can so swiftly raise living standards and improve health.

It was recently reported that South Africa is now the world’s fastest growing renewable energy market. With its energy needs far outstripping supply from its largely coal-based power grid, additional sources of generation are urgently needed. As this trend moves across the continent, the chugging of the diesel generator will morph into the silence of the solar panel, bringing unprecedented growth and development, and enabling African lions to challenge the Asian tigers.

Author: Kristine Pearson is Founding CEO of Lifeline Energy and attended the World Economic Forum on Africa 2013.

 Image: Women in Burkina Faso carry wood on bicycles REUTERS

Christina and Ruby are my two personal heroines of this week. I met them recently on my way from the airport after a long flight from Hong Kong. They both live in Langa, barely a 15 minute drive from the congress centre where this year’s World Economic Forum on Africa is taking place.

What they both have in common is that they are single mothers, raising children and their grandchildren in tiny huts. They have also both been mentored by the Family Strengthening Programme, run by the local team of the SOS Children’s Villages, a global charity with operations in 125 countries, looking after vulnerable children and families.

Christina and Ruby have been given the tools and support they needed to not only remain in the community and provide a safe home, but to build a future for themselves. Christina runs a shoe shop from a mat on the pavement and sews for the community with a sewing machine provided by the charity. Ruby runs a successful fish-and-chip shop with equipment that has also been provided by the charity. Meeting them was a deeply humbling and incredibly inspiring experience.

We kicked off our global partnership, Connecting Africa, with SOS Children’s Villages here in Cape Town. Using our know-how and global satellite network we are connecting 20 of their villages across 12 African countries, directly and indirectly benefiting approximately 700,000 people.

Thanks to a technical workshop organized three weeks ago, SOS Children’s Villages in Bakoteh and Basse in The Gambia are already online. The charity’s IT specialists across Africa have received training from our engineers, allowing them to connect the rest of the SOS Children’s Villages; they will also receive direct support from our operations centre in the UK. In other words, we have replicated the model the charity uses in its community programme. By doing so, we hope to provide better learning opportunities for children and the wider communities the SOS Children’s Villages support.

While this project might seem insignificant among all the talk of infrastructure investment and economic growth for Africa, we all know that what really matters is for people to prosper and children to grow up in secure and inspiring communities.

Author: Kevin Taylor is President, Asia-Pacific, Middle East, Africa and Turkey, BT

Image: A Cape Town resident speaks on a mobile phone REUTERS/Mike Hutchings

In a recent set of studies, Carmen Reinhart and Kenneth Rogoff used a vast array of historical data to show that the accumulation of high levels of public (and private) debt relative to GDP has an extended negative effect on growth. The size of the effect incited debate about errors in their calculations. Few, however, doubt the validity of the pattern.

This should not be surprising. Accumulating excessive debt usually entails moving some part of domestic aggregate demand forward in time, so the exit from that debt must include more savings and diminished demand. The negative shock adversely impacts the non-tradable sector, which is large (roughly two-thirds of an advanced economy) and wholly dependent on domestic demand. As a result, growth and employment rates fall during the deleveraging period.

In an open economy, deleveraging does not necessarily impair the tradable sector so thoroughly. But, even in such an economy, years of debt-fueled domestic demand may produce a loss of competitiveness and structural distortions. And the crises that often divide the leveraging and deleveraging phases cause additional balance-sheet damage and prolong the healing process.

Thanks in part to research by Reinhart and Rogoff, we know that excessive leverage is unsustainable, and that restoring balance takes time. As a result, questions and doubts remain about an eventual return to the pre-crisis trend line for GDP, and especially for employment.

What this line of research explicitly does not tell us is that deleveraging will restore growth by itself. No one believes that fiscal balance is the whole growth model anywhere.

Consider southern Europe. From the standpoint of growth and employment, public and private debt masked an absence of productivity growth, declining competitiveness in the tradable sector, and a range of underlying structural shortcomings – including labor-market rigidities, deficiencies in education and skills training, and underinvestment in infrastructure. Debt drove growth, creating aggregate demand that would not have existed otherwise. (The same is true of the United States and Japan, though the details differ.)

Government is not the sole actor in this. When the deleveraging cycle begins, the private sector starts to adjust structurally – a pattern clearly seen in the data on growth in the tradable side of the US economy. Muted wage growth increases competitiveness, and underutilized labor and capital are redeployed.

How fast this happens partly depends on the private sector’s flexibility and dynamism. But it also depends on the ability and willingness of government to provide a bridging function for the deficiency in aggregate demand, and to pursue reforms and investments that boost long-term growth prospects.

If public-sector deleveraging is not a complete growth policy – and it isn’t – why is there so much attention on fiscal austerity and so little action (as opposed to lip service) on growth and employment?

Several possibilities – not mutually exclusive – come to mind. One is that some policymakers think that fiscal balance really is the main pillar in a growth strategy: Deleverage quickly and get on with it.

The belief that the fiscal multiplier is usually low may have contributed to underestimation of the short-run economic costs of austerity policies – and thus to persistently optimistic forecasts of growth and employment. Recent research by the International Monetary Fund on the context-specific variability of fiscal multipliers has raised serious questions about the costs and effectiveness of rapid fiscal consolidation.

Estimates of the fiscal multiplier must be based on an assumption or a model that says what would have happened in the absence of government spending of some type. If the assumption or the model is wrong, so is the estimate. The counterfactual needs to be made explicit and assessed carefully and in context.

In some countries with high levels of debt and impaired growth, fiscal stimulus could raise the risk premium on sovereign debt and be counterproductive; others have more flexibility. Countries vary widely in terms of household balance-sheet damage, which clearly affects the propensity to save – and hence the multiplier effect. Uncertainty is a reality, and judgment is required.

Then there is the time dimension. If infrastructure investment, for example, generates some growth and employment in the short to medium term and higher sustainable growth in the longer term, should we rule it out because some estimates of the multiplier are less than one? Similarly, if fiscal stimulus has a muted effect because the recipients of the income are saving to restore damaged household balance sheets, it is not clear we want to discount the accelerated deleveraging benefit, even if it shows up in domestic demand only later.

Policymakers (and perhaps financial markets) may have believed that central banks would provide an adequate bridging function through aggressive unconventional monetary policy designed to hold down short- and long-term interest rates. Certainly central banks have played a critical role. But central banks have stated that they do not have the policy instruments to accelerate the pace of economic recovery.

Among the costs and risks of their low-interest-rate policies are a return to the leveraged growth pattern and growing uncertainty about the limits of a central bank’s balance-sheet expansion. In other words, will the elevated asset values caused by low discount rates suddenly reset downward at some point? No one knows.

Countries are subject to varying degrees of fiscal constraint, assuming (especially in the case of Europe) a limited appetite for unlimited, unconditional cross-border transfers. Those that have some flexibility can and should use it to protect the unemployed and the young, accelerate deleveraging, and implement reforms designed to support growth and employment; others’ options – and thus their medium-term growth prospects – are more constrained.

All countries – and policymakers – face difficult choices concerning the timing of austerity, perceived sovereign-credit risk, growth-oriented reforms, and equitable sharing of the costs of restoring growth. So far, the burden-sharing challenge, along with naive and incomplete growth models, may have contributed to gridlock and inaction.

Experience can be a harsh, though necessary, teacher. Growth will not be restored easily or quickly. Perhaps we needed the preoccupation with austerity to teach us the value of a balanced growth agenda.

The opinions expressed here are those of the author, not necessarily those of the World Economic Forum. Published in collaboration with Project Syndicate.

Author: Michael Spence, a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution and is a member of the World Economic Forum’sGlobal Agenda Council on New Growth Models

Image: Job seekers wait in line at an unemployment office in Madrid, Spain REUTERS/Susana Vera