Interviews

Interview with Erik Wurster of E+Co

In researching my article on carbon financing in the developing world, I had the opportunity to speak with Erik Wurster, the carbon finance manager at an organization called E+Co.  E+Co has been on the forefront of this industry and has been one of the leading innovators.  Newsweek recently highlighted their efforts to distribute clean-burning cookstoves - a topic I have discussed in this journal - in Ghana.  It provides a great overview of how this complicated process works.  In an article for Next Billion, Tracy Smith of E+Co describes the company's focus:

E+Co, a mission-driven clean energy investor in developing countries, is working to implement strategies that enable Wall Street investors to put capital to work in developing countries through the carbon markets.  Unlike more traditional carbon finance developers, however, E+Co strives to ensure that dollars flowing from carbon credits make it to the bottom of the pyramid.
I asked him a series of questions about some challenges facing organizations trying to break into this space.  Be warned that it contains more technical jargon than I usually have in the Journal.  I have included the answers to all of his questions here.  (more…)

Development Economics

Zimbabwe’s Diamonds and the Natural Resource Trap

In my last post, I discussed why access to abundant natural resources is actually counterproductive to the development of poor countries.  The idea comes from Paul Collier, a development economist who penned the book The Bottom Billion, a summary of his findings from thirty years in the industry.  While much of the world lives below the poverty line, there are only a handful of countries that have made no progress in terms of economic development over the last few decades.  In fact, most of these “bottom billion” countries have actually regressed, posting negative GDP growth.  According to these countries, each of these countries has fallen into one or more “traps,” which produce a self-perpetuating cycle of stagnancy, at best, or decline.   Access to natural resources is one of these traps.  Here is an overview of why this is so:

Natural resource wealth, in addition to increasing a country’s propensity for civil war, also creates its own trap. In Collier’s view, natural resources can be a curse, because of “Dutch Disease”, which makes a country’s other export activities uncompetitive, and causes commodity price volatility. Countries of the bottom billion are often too poor to harness the wealth they gain from natural resources, such that other sectors of the economy remain stagnant, prohibiting future economic development.
So the money gained from natural resources is not properly invested in improving other industries, such as manufacturing and agriculture, causing them to atrophy.   Once the natural resources dry up, these industries - the real economy - are unable to sustain the false productivity levels during the natural resource boom, to the detriment of the economy as a whole.  (more…)

Development Economics

Oil Drilling in the Niger Delta

In a little-known story from the southeastern United States, a large oil rig recently exploded in the Gulf of Mexico, releasing a nominal amount of mildly polluting oil into ocean, killing a few birds and galvanizing retirees in Florida - a political sleeping giant - into action.  This minor environmental calamity, which can hardly be considered more than a nuisance, is indeed tragic, but it pales in comparison to what happens elsewhere in the world.  Take this article from the Guardian, a British tabloid newspaper:

With 606 oilfields, the Niger delta supplies 40% of all the crude the United States imports and is the world capital of oil pollution. Life expectancy in its rural communities, half of which have no access to clean water, has fallen to little more than 40 years over the past two generations. Locals blame the oil that pollutes their land and can scarcely believe the contrast with the steps taken by BP and the US government to try to stop the Gulf oil leak and to protect the Louisiana shoreline from pollution. "If this Gulf accident had happened in Nigeria, neither the government nor the company would have paid much attention," said the writer Ben Ikari, a member of the Ogoni people. "This kind of spill happens all the time in the delta." (more…)

Development Economics

Why Children Become Soldiers

“He should be in school,” said Awil’s commander, Abdisalam Abdillahi. “But there is no school.”

This is a topic I admittedly do not know too much about, so any discussion about it will be academic and speculative.  But I have been reading recently about the problem of child soldiers in the U.S.-backed government military in Somalia, where kids as young as 12 have picked up arms to fight.  A few months ago I took a 10-day jaunt through Myanmar, which has the most child soldiers in the world (though you would never know it, since most of the country is off-limits to foreigners).  There are an estimated 300,000 children fighting in wars throughout the world, and a wide range of circumstances make this possible. For one thing, countries using child conscripts are usually embroiled in intractable civil wars that never seem to end.  Many of these wars began as ideological ethnic or religious conflicts and, over time, morphed into gangs of criminals fighting over control of land and resources.  (more…)

Development Economics

Electric Dirt

It is called "Dirt Power."  Or, more specifically, as the scientists call it, a microbial fuel cell.  A team of undergraduate researchers at Harvard, a small liberal-arts university in New England, invented a battery that runs on dirt.  Actually, it runs on microbes that like to hang out and dine on the decaying organic matter that exists in the dirt.  The team that invented this technology - an organization called Lebone - won the MIT IDEAS competition and, recently, their creation was called one of the 10 most brilliant inventions of 2009 by Popular Mechanics.  First, the problem:

There is currently a dramatic shortage of electrical power in Africa. One billion Africans, constituting a sixth of the world’s population, generate only 4% of global electricity. In most African countries, 95% of the population is living off-grid with no access to electricity (World Bank Millennium Goals Report, 2006). This has a devastating effect on socio-economic development, education, health, and safety. Imagine a village at night in which students are walking to distant highways to study under streetlights, where small merchants are investing half of their resources to pay for kerosene lighting to run their operations, and where emergency health workers, if operating at all, are trying to stitch up wounds and perform surgeries by candlelight. Lack of energy is one of the Africa’s biggest obstacles to development, and a major deterrent for foreign investors. (more…)

Development Economics

The Upside of Imperialism: Neo-Colonialism as a Strategy

[caption id="attachment_1248" align="alignright" width="300" caption="Homework by streetlight: the photo behind the theory"][/caption] A while back, I discussed why China had been so successful at poverty alleviation during the 1980’s and 1990’s.  I surmised that it had something to do with China's embrace of "state capitalism."  In a recent article in the Atlantic Monthly, one economist suggests that, actually, it is Britain is ultimately responsible for bringing more than 100 million Chinese out of poverty over a ten-year period.  By exporting the laissez-faire, business-friendly city model of Hong Kong to urban centers throughout China, the British created the seed that has grown into the China that exists as an economic and political powerhouse today.  (more…)

Development Economics

Carbon Credit Financing in the Developing World

[caption id="attachment_1230" align="aligncenter" width="482" caption="An Envirofit cookstove - designed in Colorado."][/caption] I am in the process of researching an article about the impossibly complex topic of using carbon credits to finance small-scale energy ventures in the developing world.  The experience reminds me of a religion course I took in college on the Old Testament.  I was confident that my five years of Hebrew school (I graduated when I was 12) would be sufficient to land me a high grade without much effort.  Unfortunately, I found out (too late) that there are, in fact, six five books of the Old Testament and I was familiar with a very small part of one those books (Genesis).  Likewise, trying to learn more about this topic has led me to everything from arcane parts of the Kyoto Protocol to how the global market for carbon has fluctuated in the downturn.  I wish I had chosen an easier topic, but the damage is done and now, hundreds of articles later, I know something about it. (more…)

Development Economics

The Volatility of $2 a Day

Portfolios of the Poor: How the World Lives on $2 a Day has become one of the most talked-about book in the world of development.  It is an analysis of how poor - specifically, the poorest - people live.  The authors chronicle how people make and spend their money - tracking the inflows and outflows to better understand the daily routine.  The subjects keep detailed financial diaries of everything having to do with money in their lives.  The results are as illuminating as they are beneficial in the practice of development.  Here is the description from the website:

Portfolios of the Poor: How the World's Poor Live on $2 a Day (Princeton University Press, 2009) tackles the fundamental question of how the poor make ends meet. Over 250 families in Bangladesh, India, and South Africa participated in this unprecedented study of the financial practices of the world's poor. These households were interviewed every two weeks over the course of a year, reporting on their most minute financial transactions. This book shows that many poor people have surprisingly sophisticated financial lives, saving and borrowing with an eye to the future and creating complex "financial portfolios" of formal and informal tools. Indispensable for those in development studies, economics, and microfinance, Portfolios of the Poor will appeal to anyone interested in knowing more about poverty and what can be done about it.
The reason research like this is so useful and even groundbreaking is that it blows the doors off the misconception that the poor live on $1-2 a day, everything. (more…)

Development Economics

The Complexities of Poverty and Development Strategies

A recurring theme in this journal is the amount of self-criticism within the development community.  There is no shortage of critics of an academic mind to point out the flaws in an approach to development without offering a reasonable alternative.  One common criticism is that microfinance doesn’t really offer a sustainable long-term economic solution to the problem of poverty.  It is too focused on the individual and not enough on the big picture – what is good for the population as a whole.  Most micro-businesses will never grow to a meaningful size because the capital provided by microfinance is not enough to bring them to scale.  So, the reasoning goes, poor people are destined to amble along without actually making their financial situation any better, while the small and medium enterprises (SMEs) that actually create the jobs needed to move the needle on macroeconomic development and poverty alleviation are neglected. This critique is too simplistic.  For one thing, the argument that microfinance institutions operate at the expense of SME financing is a straw man.  It is true that there are a limited number of aid dollars in the world and allocation is a zero-sum game, but that is irrelevant here since the largest microfinance institutions are financially sustainable, raising money through unsubsidized loans at commercial rates, public equity, and their own operations. The World Bank, the IMF, and NGOs around the world do provide a lot of money for research, seed capital for smaller MFIs, and pilot programs for non-financial services.  But, for the most part, there is not much diversion of aid funding as a result of microfinance.  This is more of a gripe with how some critics frame their arguments.  The more important point is that there is a tendency among critics on both sides of the debate to ignore the complexities of the issues and create false tradeoffs in order to simplify the debate.  It is easier to argue in black and white than deal with shades of gray. (more…)

Development Economics

Where's My Money, Fool: Conditional Cash Transfers

In this journal, I have discussed the different structural problems that a country faces in improving things like education, healthcare, and the economy overall.  A strong education system requires an adequate number of schools and teachers.  Likewise, good public health programs need to provide reasonable access to doctors and medical facilities.  Also, for healthcare in particular, people need to be educated about nutrition and preventive measures to avoid costly hospitalizations down the road.  But even with all of the components in place, not everyone will avail of these services.  Some people will choose to be the proverbial non-drinking horse, though usually out of necessity rather than willful ignorance.  That is because there is an opportunity cost to sending kids to school – if the child is working or watching his siblings while the parents work, going to school means lost income for the family. [caption id="attachment_1185" align="alignright" width="300" caption="Playin' with my my money is like playin' with my emotions."][/caption] So even if you have all the tools in place, it still might not be enough to effect the desired change.  One solution to this problem is conditional cash transfers (CCT).  In exchange for doing something, a person receives money.  In other words, you pay them to do the things you want, which happen to be the things that are ultimately in the best interest of them, their family, and country as a whole.  In this case, something means sending your child to school, immunizing your family, or any other behavior that will result in an improvement in “human capital.” (more…)