Sunday, October 31, 2010

I like more doing ... less study

Dear Colleagues

I have a fairly active presence on various websites that concern themselves with various aspects of socio-economic progress and relief and development activities. One of these discussions is at

I have just added the following comment reflecting my concern that so much of the conversation is about doing studies ... and rather little is about doing the hard work. While I have been fairly polite in my posted comment, I am getting increasingly concerned that there is acceleration in the wrong direction in most of the relief and development sector with more and more people wanting to make a career ins "study" of the problem and nobody deeply interested in actually doing the hard work that is needed ... but worse, less and less people actually knowing much about the techniques that are needed to do things ... to build things, to grow things, to maintain things, and so on! It is a scary situation and not enough on the radar!
Dear Colleagues

Some time back I posted a comment indicating that "I liked the project" ... and there have been a number of subsequent comments about the project, mainly indicating a similar sentiment.

A recent comment asking whether it is this project or some other action in society that is the cause of social improvement and has prompted me to write again. It is very difficult to get academically rigorous cause and effect in any social setting ... and in order to do so there is a high cost, and the answers are usually not much use for practical decision making.

My position is very simple. If we had spent the money that has been used studying development performance over the past 60 years and used it instead to "do development" and if we had kept some quite basic simple tracking of community level performance we would (a) know a lot more than we seem to at this time. and (b) we would have progressed a whole lot more than we have.

On the face of it ... I like this project. I want to see lots of other projects that "I like" being implemented at the community level. I am also pretty sure that where there are a lot of initiatives that "I would like" .. there would be a whole lot of socio-economic progress ... that is the quality of life in the community would have improved.

If the quality of life does not improve in a community doing things that seem to be sensible, then the cause/causes are external issues that are too big to handle at the local level alone. Sadly these bad externalities are widespread ... and most would solve quite rapidly if they were clearly identified and easily seen by the interested global public.

I am convinced that meaningful metrics are key to a smart society ... and that my work towards True Value Metrics is a step in right direction.


Peter Burgess

Saturday, October 30, 2010

Place holder #6

Message to come

Place holder #5

Message to come

Place holder #4

Message to come

Place holder #3

Message to come

Place holder #2

Message to come

Does capacity building have to take a long time?

Dear Colleagues

This past week I attended a 2 day conference at Columbia University on the Extractive Industries and Sustainability.

One has to wonder how it is possible for extractive industries to be sustainable ... but lawyers and academics seem to have found something to talk about. More on this another time.

But in the course of the conference various panelists suggested that it takes a very long time for human capacity to be built in developing countries ... and it was left at that without much comment. I alerted the audience to the issue in a brief question from the floor, and some of the audience seemed to take note.

The point I tried to make was that over the past several decades there had been huge progress in human capital investment in developing countries. When I first worked in developing countries in the 1970s things were better than they had been 20 years before ... and over the past 40 years human capacity building ... education ... has continued and progress has been made.

But structures to employ well educated young people have not changed very much ... the cultures reflect respect for the elders ... who missed out in many cases on the education that has reached their children and grand-children. International organizations have not helped very much ... and experts have tended to complicate things rather than to facilitate the empowerment of local professionals.

It is not surprising that a huge number of educated professionals from developing countries are employed in rich countries ... and doing well.

The idea that capacity building takes a long time is wrong ... it takes a long time when the things that need to be done never get done. Training people and walking away from the work needed to get structures changed is not the work that will do capacity building successfully, but that is what has happened for the past several decades!

Peter Burgess

Have Cargill, Con-Agra and the like contributed to global hunger?

Dear Colleagues

Someone recently told me a story about exporting product to Africa ... and then told me something about constraints that emerged from the US Government and major actors in the global food marketing chain that stopped the business.

In turn, this reminded me of my own efforts to export powdered milk to Africa, and the hurdles that I had to overcome in order to do that. What with subsidies ... or not ... from the USA or the European Union ... the export licensing systems ... the international financial rules and regulations ... the local competition, both fair and legitimate and unfair and essentially unlawful ... and what should have been easy became a nightmare. I made one shipment ... lost money ... and gave up.

But the people ... that is corporate organizations and others ... who are on the inside and in control of the trade are doing exceptionally well. The end prices are high ... the source of products are producing large quantities and contract prices are low ... not to mention all sorts of subsidies. The problem for society is that nobody has much of a clue how much these things should cost and how much is a reasonable price.

This information ought to be very easy to see and to analyze. Commodity markets do not add clarity ... in the main, they add speculative confusion ... and another level of cost that has to come from somewhere! The business world ... and many of their partner beneficiaries ... wants this sort of simple information to be difficult or impossible to see. This is unacceptable ... but it is the way things work.

How much big organizations ... organizations like Cargill. Con-Agra and the like have contributed to global hunger is difficult to assess. My guess would be that these companies have produced good profits over the years without moving the global hunger index very much in the right direction. Compared to what they could have done, I would argue that they have performance very poorly. It would be great to see true value metrics applied to their activities!

Peter Burgess

Tuesday, October 26, 2010

Better metrics about relief and development interventions are needed

Dear Colleagues

There is a need for paradigm shift in the way data are acquired and the way data are used. CordAid is one of the largest international NGOs with an excellent reputation and a lot of experience ... but they use independently prepared "studies" about their work to help them with management as for example as follows:
"This study has been carried out on request of Cordaid. Cordaid wished to better understand the effect of their Pay for Performance Programme (P4P) and the introduction of a flat rate fee system introduced in 2007 in some of the health facilities which Cordaid supports. The effect of the intervention has been measured in terms of client satisfaction and out-of-pocket spending on maternal and malaria health services of households in the Catholic Diocese Bukoba in Muleba, Missenyi and Bukoba Districts in North West Tanzania. A population-based cluster-sampled survey was carried out July-Aug 2007 and included 1946 households with members using all types of health service providers. Two main research questions were addressed: (1) to what extend are health services from the various providers in the area being utilized and how much has been paid for these services by households out-of-pocket, and (2) to what extend are people satisfied with the health services that are being provided in terms of perceptions on quality, access and affordability? The results of the survey are presented in this report and should be regarded as mid-2007 baseline for a follow-up survey in 2-3 years time. Therefore, the report is limited in analysing effects of the P4P and introduction of flat rates, though efforts have been put into comparing faith-based and government health facilities."

Client Satisfaction and Out-of-Pocket Expenditures on Maternal Health and Malaria Health Services. A population-based survey in North-West Tanzania 2007. By Ronald Horstman et al., August 2009. Paper commissioned by Cordaid. Download as PDF from

The report referred to is located at:

The study works for the commissioning organization ... they have a document that reports that they have done something more or less according to what they planned on doing ... and the work looks good and sounds convincing.

It is, however, almost impossible to verify at moderate cost ... and really does not help with the big question of whether scarce relief and development resources are being deployed in an effective way. The issue of whether or not services are better free or paid is certainly interesting ... but a bigger question might be the question of the value of the service relative to the cost of service independent of the issue of pay or free. In poor communities, it is clear that affordability is a challenge ... but that is no issue when there is no service. At the same time ... the value destruction associated with inadequate service is a very big issue.

A new paradigm for assessing the performance of international relief and development assistance interventions needs to be deployed ... the sooner the better.

Peter Burgess

Land grabbing after natural disasters

Dear Colleagues

IRIN ... humanitarian news and analysis ... a project of the UN Office for the Coordination of Humanitarian Affairs publishes some interesting articles. It is a pity that there is no obvious mechanism for follow up and initiating something to address the issues being raised. Having said that, I like to read their reports and then move as best one can to take action.

This report is about land grabbing after natural disasters. It was a disgrace in the aftermath of the Indian Ocean tsunami, and is likely to be an issue in Haiti now. The article can be found at:
GLOBAL: Taking on the land-grabbers

LONDON, 26 October 2010 (IRIN) - Property developers in Indonesia and Thailand moved in quickly after the 2004 Tsunami, snapping up land from those relocated into resettlement camps to build luxury resorts, further squeezing the livelihoods of the poor.

Land grabbing happened after Hurricane Katrina in New Orleans, the Haiti earthquake, and after cyclones and floods in the Philippines, according to the World Disasters Report 2010 (WDR).

It can involve outright violence, or carefully orchestrated legislative measures - as after Katrina - says David Satterthwaite of the International Institute for Environment and Development (IIED), and one of the WDR report’s authors.

In New Orleans, public officials pushed through planning and zoning legislation which changed housing ownership patterns across the city, orchestrating what Sara Pantuliano, head of the Humanitarian Policy Group at UK think-tank the Overseas Development Institute (ODI), describes as “one of the starkest examples of a disaster accentuating inequalities between city residents”.

Deepening inequality

Displaced residents may lack land tenure, or have no identity card or documentation demonstrating their right to land, making it difficult for housing associations and NGOs to help them, says WDR.

“Unless disaster aid quickly learns to work with the untitled, the unregistered, the unlisted and the undocumented, it can support and even reinforce the inequalities that existed prior to the disaster,” said the Asian Coalition for Housing Rights in WDR.

Shifting the power balance in favour of the vulnerable is notoriously difficult, admits Pantuliano, but is a cause that NGOs should take up more forcefully. “Too often we focus on the quality of shelter we can provide, but struggle to get past the more challenging questions of how to shift power balances in emergencies, and how not to exacerbate the vulnerability of the worst-off.”

Some 2.57 billion urban dwellers in low and middle-income countries are vulnerable to unacceptable levels of risk, fuelled by rapid urbanization, poor local governance, poor services, rapid population growth and rising urban violence, said WDR.

A team of researchers at the ODI is looking at the impact of displacement and urbanization in Sudan, Kenya Afghanistan, Syria, Yemen, Gaza, Somalia and possibly Iraq.

Depression, isolation

Governments often overlook the social implications of forcing people to move, said Pantuliano. “Planned settlement can isolate communities; it can lead people to depression, to isolation and more vulnerability... driving youths to join gangs or to take up prostitution” she told IRIN.

It can also cut them off from jobs: Displaced communities in Manila, the Philippines capital, for instance, were pushed out of the city centre, meaning thousands could not easily access their jobs servicing the many businesses in the area.

In Haiti, reconstruction plans to move communities to “new, safe cities”, meant moving people to distant camps, outside the capital, Port-au-Prince, where they did not want to be, said Alfredo Stein, an urban planning expert at the Global Urban Research Centre at the University of Manchester. Ex-residents continually attempt to return to the centre to try to re-claim their land.

Response challenges

Local authorities often struggle to respond quickly to resettlement challenges because of strict land-use regulations; lack of money to fund relocation; delays in getting official permission from regional or national authorities; and the high cost of building materials, said the IIED’s Satterthwaite.

After a disaster the national government may decide to improve building standards, as was the case in Pakistan following the 2005 earthquake, which can further delay rebuilding.

Local advocacy groups and housing associations are often best-placed to help communities, said ODI’s Pantuliano, as international NGOs often get confused about what role to play in resettlement.

But international agencies can also play an important role, she said. “We do not propose NGOs get involved in land reform, but they should intervene in issues that fall squarely in the protection mandate, such as documenting land rights or advocating for access to temporary and permanent land.” This work may involve land surveys, research, advocacy, and providing legal aid to vulnerable people to avoid land grabs, she told IRIN.

“We are trying to put this more at the heart of humanitarian organizations’ work... Post-tsunami NGOs woke up too late to these issues, despite local organizations pushing them to do something,” said Pantuliano.

What works

Cassidy Johnson, a lecturer in building and urban design in development at University College London, identifies two factors that can help displaced people exercise their right to their land: the presence of strong community action groups, such as slum-dwellers’ associations, which collectively rebuild and which have strong links to local government to enable them to lobby for their rights; and the existence of residents’ joint savings schemes which means there are funds to draw on for rebuilding.

This was the case in the Philippines, which is regularly affected by earthquakes, volcanic eruptions, typhoons, storm surges, landslides, floods and droughts. Here the Homeless Peoples Federation has helped communities resettle following five disasters from 2000 to 2008: Its 70,000 individual members collectively saved to rebuild post-crisis, and swiftly organized themselves into rebuilding committees, post-crisis, said WDR.

Local branches of the Red Cross and Red Crescent, with support from the British Red Cross, have also been active in securing land tenure rights for families post-disaster in the Philippines, said Pete Garatt, disaster response manager at the British Red Cross.

“The most successful [land rights] work is done by local groups - we have seen this in Democratic Republic of Congo, Burundi and Khartoum - as these issues were already on communities’ radar screens,” he told IRIN at the launch of WDR.

Wherever possible, communities should be encouraged to take the lead themselves, rather than waiting for others to respond, said Pantuliano. After the 2001 Gujarat earthquake, communities successfully reoccupied their old land because they got on with rebuilding permanent houses themselves, rather than waiting for government permission. “They left the government with little choice but to allow them to stay put,” she said.

Moving forward, the idea of “building back better” which has become standard government parlance after an emergency, must be redefined, said WDR. Rather than addressing purely better quality infrastructure, it should describe “land for the landless and homes for the homeless”.

And building back better must also stress that resettlements, if they must occur, are well-placed, added Pantuliano.

[This report does not necessarily reflect the views of the United Nations]
This report has some important messages including the powerful role of community in the process of rebuilding. From the True Value Metrics perspective, it is clear that knowledge about the community before a disaster will help enormously in guiding equitable rebuilding afterwards. The report also mentions the use of "rule of law" to facilitate land grabbing and benefits for those with social, economic and political power!


Peter Burgess

Global Health ... NGOs and community level initiatives

Dear Colleagues

The problems of global health are substantial ... and the decision making process about the allocation of financial resources to fund health sector activities is pretty much dysfunctional. I think most observers would conclude that the available resources could be used considerably more effectively.

This issue came to the to the front of my TO DO list with the following e-mail:
[afro-nets] NGOs and health systems strengthening (or weakening)

What sounds to be obvious – nongovernmental organizations working in the field of international health cooperation support and strengthen health systems – is not taken for granted. NGOs, “if not careful and vigilant, can undermine the public sector and even the health system as a whole, by diverting health workers, managers and leaders into privatized operations that create parallel structures to government and that tend to worsen the isolation of communities from formal health systems (…)”

This assessment is, at least, the starting point of the “NGO Code of Conduct for Health Systems Strengthening” first published in May 2008. The code intends to offer guidance on how international non-governmental organizations can work in host countries in a way that respects and supports the primacy of the government’s responsibility for organizing health system delivery.

A matter of course? Well, you can test it yourself, right now, if you like: How many of the following statements taken from the NGO code correspond with your organization’s standard?

1. “In areas where trained personnel are scarce, we will make every effort to refrain from hiring health or managerial professional staff away from the public sector, thus depleting ministries and their clinical operations of talent and expertise.” (yes? no? not sure? not relevant for you?)

2. “We commit to limiting pay and benefits inequity between expatriate and national, rural and urban, and ministry and NGO workers. We encourage compensation structures that provide incentives for rural service and disallow gender-related disparities.” (yes? no? not sure? not relevant for you?)

3. “We recognize that management capacity in Ministries of Health is often limited. Rather than building parallel or circuitous structures around inadequate capacity, we commit to strengthening governments’ ability to operate effectively and efficiently.” (yes? no? not sure? not relevant for you?)

4. “We strengthen the capacity of communities to take responsibility for and ownership of their health development, and to become partners with government in the health system, while holding governments accountable for their human rights obligations.” (yes? no? not sure? not relevant for you?)

5. “We actively advocate with civil society, local institutions and donors for policies and programs that strengthen health systems overall.” (yes? no? not sure? not relevant for you?)

6. “We commit to designing their activities and programs so that they reinforce primary health care, foster equity and community involvement, and are generally replicable and financially sustainable over time.” (yes? no? not sure? not relevant for you?)

So, are you happy with your score? 6 out of 6? Congratulations! But nevertheless, you might be interested to further discuss the task of contributing to building public health systems and doing no harm. The members of the MMI Network members will meet on 5th November in Amsterdam in a workshop on "Health systems strengthening", reflecting about the role of NGOs and of their particular organization in health systems strengthening.

Join us, if you like!

Thomas Schwarz,
Medicus Mundi International Network
My interest was further stimulated with this additional e-mail.
There is room for reflection in this message.

I appreciate the concern of Medicus Mundi International that raised this sensitive point.

I would suggest to them to broaden their discussion when they'll meet in Amsterdam. A 'new' aspect of health care delivery in many poor countries is the role played by the *Private* *sector*. It is widespread, day by day,rapidly. A vivid example is here in Nyala where one can see plenty of private doctors,local healers, private clinics,private hospitals,private pharmacies,plenty of drugs and plumpynut....but still children do die from malnutrition and common diseases . A drug for any illness is not the correct approach,I think you agree.

We should be together to declare with one voice that : children under fives and pregnant women should receive FREE SERVICE. Under any circumstances, by the government clinics or by the non for profit clinics:always,always FREE! including medical consultation and drugs prescribed. As it is for vaccination.

Dr. Massimo Serventi
Nyala Pediatric Centre
Italian Hospital
I have added to the conversation with the following message:
Dear Colleagues

I am glad this subject has come up.

Work that I have been doing over the last five years to understand the progress and performance of the global health malaria control sub-sector suggests that way too much of the global health money is being consumed at the "top" of the sector and far too little funding is getting to strengthen community level healthcare. This is the same issue in many different parts of the health sector ... many different diseases ... and in both rich developed countries and poor developing countries. Most decision making about resource allocation is driven by the goals of management, whether it is a big NGO, pharmaceutical company, a health ministry, a hospital or a network of doctors.

The needs of beneficiaries are poorly represented in part because the prevailing systems of metrics do not include any metrics about the "value loss" associated with poor health status of a single individual and in aggregate for the community. This gets addressed in The Burgess Method of True Value Metrics.

The good news is that there are thousands of NGOs interested in health care activities ... but they are not delivering their services very effectively where they are most wanted. Bottom line, nobody knows where they are working and what they are doing. Nobody seems to know where they would be most needed and could be doing the most good. If there were metrics that showed at the community level what the needs are, and what health care services including government and NGOs are present ... and what they are doing ... and what still is left needing to be done, we might make some meaningful progress.

This should not be an idealogical argument about public or private sector ... free or paid ... but about needs, resources and how to get the best possible outcomes.

As it is ... there will be a meeting in Amsterdam of this network of NGOs. I hope that they enjoy themselves ... and look forward to learning of any steps forward to better performance that they are able to make!


Peter Burgess
There is a pervasive problem throughout the field of socio-economic development ... a widening gap between those that are at the "bottom" with very limited education and skills and those that are experts giving advice and planning solutions. Unless the people at the "bottom" are part of the solution ... and help to satisfy their own critical needs ... a welfare system of development assistance rapidly runs out of resources. This should be obvious ... but it is not the way assistance is being programmed!

Peter Burgess

Monday, October 25, 2010

Haiti ... the cholera outbreak

Dear Colleagues

The news of cholera in Haiti is very bad news ... and we have to hope that the outbreak will be contained. I am not optimistic, however. It seems that the pace of everything in Haiti has slowed down in the past six months ... certainly relative to the urgency in the first weeks after the earthquake.

Up to now my efforts to see more transparency and accountability in Haiti have come to nothing ... almost nothing, shall we say! Some of the slow-down may be attributed to the need to have elections, but by no means all of the apparent lethargy is because of this. Some of the slowness is because it takes time to remove the constraints on progress that are part of the general governance situation in the country. Whether or not this will get any better after an election is not at all clear.

I am really disturbed by the statistic quoted in news stories that there are more than a million people living under canvas in Port-au-Prince and the surrounding area ... and not too many stories coming out of Haiti about much practical rebuilding yet!

There is still a case to be made for accountability in this society.

Peter Burgess

Sunday, October 24, 2010

Microfinance ... Is it moving in a dangerous direction?

Dear Colleagues

I have been very concerned about the evolving nature of the global microfinance industry for quite a long time ... perhaps about five years. This is about the time the mainstream banking and finance sector became interested in microfinance, as they identified the possibility of profit in a new asset class.

The bankers and financial experts argued that the microfinance sector's need for capital could only be satisfied by significant access to the capital markets ... and for this, microfinance institutions needed to be profitable.

It is clear to me ... and it is the very foundation of the business model for microfinance championed by people like Muhammad Yunus, founder of the Grameen organization ... that microfinance uses money as a part of a program that aims to improve the quality of life of poor people. When the Grameen initiatives started in the 1970s ... together with BRAC and others ... the work was clearly "social" in nature and it was "sustainable" because the money being used did not simply disappear as it did in every other of the development initiatives being funded.

My own perspective was that microfinance was a palliative ... making poverty more livable, but not enough to make a difference to the community as a whole. I saw microfinance as a positive intervention, but not a sufficient intervention. I argued then, and argue today that microfinance in the Grameen mode is desirable as part of a portfolio of development interventions in a community.

I have never argued for growth of microfinance in a "for profit" mode as a desirable development intervention. For me this is an institutionalized version of the "money lender" that the Grameen model interventions sought to eliminate. I have argued for more development investment, because most communities are sadly lacking in a lot of the underlying infrastructure that would help people to progress out of poverty.

I have also argued that there needs to be better socio-economic performance metrics so that the performance of society can be tracked and the impact of various interventions seen in an objective way. Without metrics about value, the big banks and their money are going to swamp initiatives that are merely trying to get more economic benefit into the hands of poor people who are doing all they can to work themselves on to the bottom rungs of the socio-economic ladder!

The following was written by a colleague a couple of days ago ... following up on an essay he wrote for Microfinance Focus Magazine a year before!
Editorial: AP Microfinance Crisis – a signpost ignored
Saturday, October 23, 2010,

Microfinance Focus, Oct. 23, 2010 : A year ago, Microfinance Focus Senior Analyst, Daniel Rozas, published an article raising a warning flag about a developing bubble in Andhra Pradesh. Rozas wrote:

“The spark that sets off a large-scale delinquency crisis can be anything and could come at any time – a rapid drop in economic growth, a populist political movement, a religious decree, or a collections effort gone bad. One can’t control the spark, but one can control how much fuel that spark can ignite.”

That spark has now been ignited. Whether the flames can be put out quickly enough to prevent disaster is by no means assured. We hope they will be. But it is also deeply disappointing to see the sector having come to this point. After all, there was no lack of recent examples to learn from: the US financial market, Bosnia, Nicaragua, Morocco, Pakistan, Kolar, and even Andhra Pradesh back in 2007. So why are we here?

At the surface, it seems that Indian MFIs were taking steps, having formed MFIN earlier this year with the explicit objective of developing lending standards, including caps on total debt levels for clients. It sounded reasonable. But whether these actions were driven by real recognition of the risks, or simply visible motions to quell concerns raised by RBI and others, it’s apparent that they were not driven by any sense of urgency. MFIs were simply too busy to implement real changes.

SKS was too busy with its IPO. Other large NBFCs were too busy trying to catch up to SKS. Regulators were too busy worrying about profits and interest rates. Meanwhile, growth has continued unabated, including in Andhra Pradesh. Seems everyone was so preoccupied trying to win the race that they failed to see the cliff up ahead.

We are hopeful. Disaster may yet be avoided. And as soon as it is, we hope that – finally – MFIs will grow up and realize that the status quo is no longer tenable. And we hope they will seriously sit down with real regulators (as opposed to wolves disguised as state politicians) and find solutions that will finally put an end to fly-by-night operations, unconscionable collections practices, and dangerously weak lending standards. For if they fail to heed even this signpost, MFIs will deserve the fate that will undoubtedly await them next time around.
This is the year old article. Since this article was written there has been the SKS IPO and it is going to be interesting to see whether this proves to be a "last hurrah" for the hard profit wave of microfinance or is the beginning of something that ends up rather like the global sub-prime mortgage fiasco that still has a long way to go before it gets cleaned up.
Is There a Microfinance Bubble in South India?
Tuesday, November 17, 2009,
By, Daniel Rozas , Microfinance Consultant

By most standards, microfinance is a young sector, and in many countries it can be said to still be in its infancy. Yet its continuing spectacular growth, especially in India, should give one pause – every time promoters celebrate another multi-million-client threshold, I wonder – how many more such thresholds are left? How do we know when we’ve arrived?

This is not a philosophical question – normally, markets send signals. New customer demand drops. Prices fall. Margins decrease. However, credit markets are funny animals – the hopeful, exuberant part of our human nature dictates that, when presented with the opportunity, we tend to overestimate our repayment capacities and borrow beyond our means. And when we can borrow from one lender to repay another, we can stretch the cycle out even further. The market signal gets delayed, while a bubble builds – when the signal does come, it is in the form of the bubble bursting. Students of the US housing crisis can tell you – it is a most unpleasant signal to receive. I vividly remember the day in January 2007, when I first learned of the unusual delinquency patterns emerging in the US subprime market – at the time this affected only a small proportion of loans within a relatively small subsector of the mortgage market, and few thought then that this presaged a crisis that would engulf the entire mortgage market, let alone the global economy. Yet even though subprime lending had subsequently all but vanished by spring of 2007, it could not prevent the worldwide tsunami from crashing down nearly two years later. Such is the nature of bubbles.

The trouble is, determining whether we are actually in a bubble is no easy task. A look at the US stock bubble of the late 90s and the housing bubble of ’04-07 shows a familiar pattern – the eager participants are hypnotized by the glitter of their apparent success, the “wise seers” seek ways to explain visible deviations from the norm, while the few lone voices calling for a time-out are made outcasts of society. Yet when the bubble finally bursts, everyone adopts the common refrain: why didn’t “they” (the government, the corporations, the media) do something – the bubble was so obvious!

Estimating Microfinance Market Capacity

One way to determine whether there is a bubble in microfinance is to ascertain market capacity (number of potential microfinance clients), then compare that to actual penetration. However, determining capacity is hardly an obvious task. In 2006, in outlining their vision for the next ten years, Rhyne and Otero included a table with a simple ratio of borrowers/population. Back then, Bangladesh had a 9.2% penetration, and the authors suggested that that may be “an upper bound for very large national penetration of microfinance.” Here’s the same table three years later. Note that since then Bangladesh has grown over 60% in penetration, while three additional countries have either reached or breached the boundary suggested by Rhyne and Otero. But what do these numbers tell us? If 9% penetration is not the upper bound, maybe 16% is? Or perhaps 30%? To get a better idea, I created a simple model for estimating the upper bound of market capacity. This is only a crude model – a more robust version would require more detailed market data, however it still provides useful insight.

The model is presented below – it uses the same borrower/population metric as above, with additional adjustments for three factors (the full sourcing and description of the assumptions is provided in the excel file, at the end of the article# :

1) Gender – since microfinance lending is mostly to women,
2) Age – to exclude the very young and very old, and
3) Wealth/financial access level – to exclude those outside the MFI target market. The $1.50/day measure is a close equivalent of the widely used figure of 600 million poor in India.

In addition to the assumptions buried in these three components, there are two additional issues that the model doesn’t capture: first, not all potential borrowers can be actual borrowers, i.e. not everyone needs to borrow all the time; and second, multiple borrowing skews the numbers as well, since the same customer gets counted multiple times. Despite these issues, the model can serve as an indicator about what’s happening in the markets and as a tool for identifying potential bubbles.

My calculations show that Bangladesh is fairly saturated, with market penetration approaching capacity. India, on the other hand, is a much more complex picture. It’s well-known that microfinance penetration in India has an extremely uneven geographic distribution – while its largest state, Uttar Pradesh (and a number of others, mostly in the north), is relatively unserved, the southern state of Andhra Pradesh (AP) and its neighbors show a very different story. Frankly, the numbers there concern me – AP has more microfinance clients than any other country in the world except for Bangladesh; it shares the distinction as the most penetrated market in the world, on par with Bangladesh; and most disquieting, the state was already at 6% over-capacity a year ago (the table uses 2008 data). Explaining these numbers without allowing for extensive multiple borrowing is indeed a challenge.

Frankly, I think this is about the strongest evidence of a bubble one could hope to find using publicly available data. When coupled with the current repayment crisis in several districts in the neighboring state of Karnataka (which has similar penetration numbers as AP), it also becomes difficult to ignore. The most commonly used arguments against the bubble theory in south India – that the isolated districts in Karnataka represent only a slither of the microfinance market and repayment rates remain otherwise high – shows only that the bubble hasn’t yet burst, not that it doesn’t exist in the first place. Another argument that has been advanced by Vikram Akula in his letter to the editor of the Wall Street Journal is that multiple borrowing is not a cause for concern, citing as evidence the Karuna Krishnaswamy 2007 study that found multiple borrowers have equal or better repayment rates compared to their single-borrower counterparts. Since multiple borrowing is a core element of what I argue is an existing bubble, a bit of discussion on the subject is warranted.

Conducted during a period of high economic growth in India, the Krishnaswamy study found that multiple borrowers, representing 7-10% of clients in his sample, consisted primarily of highly motivated entrepreneurs seeking to raise more capital than what was offered by any one MFI. This is unsurprising – due to the nature of their cycle-based lending model, MFIs knowingly underfund their borrowers, thus assembling funds from multiple MFIs is a logical strategy that Krishnaswamy suggests is simply a replacement for the informal funding sources the individuals would have tapped otherwise. This is also consistent with the money management practices documented by Collins et. al. in Portfolios of the Poor. However, as the market heats up and multiple borrowing becomes increasingly widespread, the number of multiple borrowers grows beyond these stand-out individuals – just a few months ago on the CGAP blog, N. Srinivasan stated that 25% of borrowers in urban and peri-urban areas have 5+ loans, while 3 loans is the average for all borrowers. The immediate risk is that some of these borrowers may be falling into a debt spiral, borrowing from one MFI to repay another. However, the less immediate but greater risk is that increasingly many clients are carrying debts that leave little room for absorbing even relatively moderate economic shocks. Multiple lending on such a large scale has a minimal track-record, and the examples that exist (e.g. Bolivia in 1999) should not inspire imitation. By ignoring clients’ outstanding debts, MFIs in India and elsewhere are abandoning their responsibility for prudential lending.

What Does the Future Hold?

Let me state upfront that even if one accepts the existence of a significant microfinance bubble in South India, that doesn’t guarantee that Andhra Pradesh or any other geographic area is bound to have a crisis. However, I would argue that these areas show vastly increased sector-wide risk, and thus, significant probability of a large-scale crisis. In fact, the Krishna district in AP already had a repayment crisis in 2006, and though many attribute it to political interference, a number of voices have pointed out that politicians were tapping into existing borrower resentment towards the MFIs – after all, it’s hard to inflame a happy crowd. Moreover, among the other countries with high microfinance penetration, Bosnia and Nicaragua are already undergoing repayment crises. Given these examples, risk managers should heed carefully the community aspect of microfinance, which makes the sector so effective during normal times yet can also turn what otherwise would manifest as default spikes into en masse defaults that can engulf entire countries. The normal rules of risk management don’t apply then – of all their problems, the one US banks don’t have to deal with is heavily distressed American borrowers taking to the streets demanding cancellation of their debts.

As I had stated earlier on, it is impossible to prove that a bubble exists while one is still in it – the best one can do is point to data that suggests it may be happening. I can’t predict whether the microfinance bubble I believe exists and continues to grow in Andhra Pradesh and other south Indian states will deflate quietly or burst spectacularly. The outcome depends partly on luck and exigent circumstances, and partly on the actions of the MFIs themselves. In their pursuit of growth, many MFIs have continued to add large numbers of new customers in Andhra Pradesh and other highly saturated regions – I believe that is irresponsible. While rapid growth in the north is a commendable strategy for continuing expansion of financial access, pursuing the same in the south (with the exception of remote, still unserved areas) puts short-term gain not only above the long-term financial soundness of the sector, but, more importantly, above the long-term interests of the very poor the MFIs are seeking to serve. The spark that sets off a large-scale delinquency crisis can be anything and could come at any time – a rapid drop in economic growth, a populist political movement, a religious decree, or a collections effort gone bad. One can’t control the spark, but one can control how much fuel that spark can ignite.

With microfinance, we can’t afford to hope that there will be no spark. For when it does come, I’ll shed no tears for investor losses, nor for MFI managers’ pain – it’ll be the global unbanked poor who I fear will find themselves without financial access once again. India is no Bolivia – if the bubble bursts there, the entire global microfinance sector will find itself reeling. When the media swoop in for their favorite headline buzzwords, and the killer banes of illiquidity and capital flight seize the sector, there will be no rescue from development agencies then. Instead, one will hear the righteous indignations of politicians decrying “deceptions” and “manipulations”. And they will be right – microfinance rests on its reputation as a socially motivated industry, and when the biggest market in the sector comes crashing down from a crisis of its own making, it’ll bury that reputation and the rest of the industry with it.


About the Author : Daniel Rozas is a microfinance consultant based in Brussels. He worked in the US mortgage finance market for most of the past decade, including during the peak of the crisis last year. More recently he has been providing consulting for microfinance and development finance companies around the world, and has just published an in-depth study of MFI liquidations. Daniel’s background in finance spans a number of areas, including risk management, business strategy, and IT. Currently he is also associated with Microfinance Focus .

Saturday, October 23, 2010

Risk ... maybe increasing faster than corporate profits

Dear Colleagues

Risk is not an inconsequential matter ... the failure to understand risk brought the global economy to the brink of complete disaster with the financial sector meltdown, and only some exceptional moves by government and central banks in the US and around the world kept the system working ... albeit on life support. What lessons have been learned ... if any?

I learned accountancy in an era when audit certification required an opinion about the reported financial results being "true and fair" and reflecting the records of the company which had been kept according to prevailing standards ... I forget the exact words ... but the concept was simple ... the reported results were right and could be relied upon. Behind the accounting there was a simple set of principles ... accountancy principles ... which meant that ALL assets and liabilities were included in the accounts and the reporting. This required a judgement call by professional accountants as to what had to be included ... not simply rules that were subject to lobbying and manipulation ... and one liability was "contingency" ... in other words "risk"!

Perhaps the biggest liability that now exists in the modern economy and in the typical balance sheet of a big corporate organization is risk ... and modern accounting tends to ignore risk as a liability to be recorded ... until it is way too late. Modern accounting law, rules and regulations argues against including something like risk in the liabilities of the organization ... yet it is fairly clear that very big corporations are now exposed to huge risks AND in broad terms the top management does not have a very clear idea of what these risks are.

The use of complex models to make decisions in the financial sector is clearly widespread ... and maybe there is a high and unacceptable risk associated with this practice. The CEO of CitiGroup testified, I believe that the models being used were never run with a house price decline of more than 15%, so it came as a surprise when house prices declined by more than this and the sub-prime mortgage disaster burst on the scene. What risks are implicit in this approach to managing a business, and the business being so huge that mistakes can break the world economy?

It seems as if BP's top management was caught flat-footed when their oil well in the Gulf exploded and a huge oil spill followed ... they could have been prepared but top management never allocated resources to engineers to be prepared ... they took a risk that they would not need to be prepared, and did not prepare ... and were unprepared. The profit hit was huge and the damage to the environment and society maybe bigger! Big initiatives have the prospect of huge profit ... but the risk associated with these huge initiatives should be put into the accounts as tangible contingencies.

It seems that the telecom sector is going in the same direction. I think I am right ... Verizon just reported record profits on top of higher revenues and lower costs. But while this was being reported my own personal Verizon service was malfunctioning ... FIOS TV, telephone and Internet ... all not working! The problem was reported Tuesday ... and today is Saturday, and the problem is still not fixed. The maintenance crew seems to be tiny and the problems to be handled are considerable ... the system seems to have been cost-reduced almost to extinction. What risk does this represent for the company Verizon ... but more important, what risk does this represent for our society as a whole? Imagine what would happen if there were to be a substantial "event" that knocked out a big part of their network! How long would it take to get the system back into a functioning state again ... and yes ... could they do it? Maybe not!

Risk is going to be ignored as long as there are no metrics about risk ... and it is allowed that risk may be ignored in making financial reports about corporate business. Risk is quite small in a small organization ... but in very big organizations, those that are too big to fail ... the risk may be catastrophic. The trouble with modern money accountancy is that risks like this are "off balance sheet" and off the radar. How big these risks are is anybody's guess ... but I would expect that some of these risks are big enough to pull down the US economy or more. The idea that huge systemic risks are outside the prevailing system of metrics is disturbing ... in fact downright scary!

Peter Burgess

Tuesday, October 19, 2010

Can the Profit Motive Improve Microfinance?

Dear Colleagues

In my view, the idea that the profit motive will improve microfinance is patently absurd ... but the idea is gaining traction because bankers and the financial community have discovered a new asset class to exploit.

I do not question the fact that more money can improve the microfinance sector simply by enabling it to expand ... but making microfinance bankable and suited to profit seeking investment most likely means that the real value of microfinance ... the education and training and mentoring that has nothing to do with profit but everything to do with quality of life and perhaps progress out of poverty ... is at extreme risk.

The economic elite that inhabit the higher reaches of the financial and banking sector have little or no idea of risk ... whether it is to do with their own institutions, or more seriously at the individual and family level. Building another financial pyramid on top of the very poor is a bad idea ... maybe even a crime against humanity in the making! I realize these are strong words, but this is really what is at stake.

I hope to attend an upcoming dialog in New York between Alex Counts and Vikram Akula who are potentially on very different sides of the argument. My expectation is that Vikram Akula, who is the CEO of SKS that has recently done a very successful IPO in India, will make the case that profit does not mean losing the value or microfinance ... and access to funding is way more important for the microfinance industry as a whole. Alex Counts, head of the Grameen Foundation in the USA and closely associated with Muhammad Yunus and the Grameen Bank movement is likely to argue that the value of microfinance comes from a range of activities that have high costs but deliver high social benefit but make a microfinance organization seem to be inefficient.

My position is that without strong metrics about value performance as well as money performance, nobody will ever know what is going on until it is too late. The amount of money profit earned in the run-up to the sub-prime mortgage fisco and the subsequent financial implosion of the banks ought to have taught us something ... but people have short memories especially when memory is inconvenient!

This is the abridged notice of the meeting that I just received.
Can the Profit Motive Improve Microfinance?

Asia Society, Schwab Foundation, and WAM-NY, are pleased to invite you to a debate on whether the profit motive can improve microfinance.

SKS, the largest microfinance company in India, successfully went public this summer, becoming the second such business to do so. Is the creation of a large, publicly owned and profit-making enterprise the best-or the only-way to take the benefits of microfinance to the millions of poor people who really need it? Are such businesses more or less likely to maximize public good by giving vital and affordable financial services to those currently living outside the retail banking system?

In his new book, A Fistful of Rice: My Unexpected Quest to End Poverty Through Profitability, SKS chairperson and founder, Vikram Akula, has written a powerful brief answering this question in the affirmative. Microfinance pioneer, Nobel Prize laureate and founder of Grameen Bank Muhammad Yunus, disagrees, as does Alex Counts, President and CEO of Grameen Foundation, and author of Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

Join Alex Counts and Vikram Akula as they debate whether public companies and a forprofit approach are the best ways to take microlending affordably to scale. The debate will be moderated by Niki Armacost, Co-Founder, Arc Finance.
This has the potential to be an interesting debate!

Peter Burgess

Monday, October 18, 2010

Money ... does anyone know what it is?

Dear Colleagues

Bill Sharon has a blog which is worth perusing ... but the recent post about money got my attention ... and a comment from me. The URL is:

The text of Bill's post is as follows:
The Means of Exchange

The past several weeks have seen new revelations about the complexity of the mortgage industry and the astonishing level of sloppy work done to document that complexity. We are on the verge of massive lawsuits and a good deal of wailing and gnashing of teeth on the part of the banks that issued the loans and the entities that processed, repackaged and sold them as securities. According to William D. Cohan’s piece in the New York Times the banks not only knew about the problem, they hired a company to tell them all about it and then apparently ignored their report.

This is but the latest revelation in the unwinding of our monetary system. It is a symptom of a fundamental underlying problem. Much of the debate has been and is seems will continue to be whether or not we should ignore moral hazard or root out and punish the greedy. Viewed in terms of the current argument, there doesn’t seem to be a solution. People are living in houses that they couldn’t afford and now are worth less than the debt that encumbers them. Banks extended loans with the knowledge they were unlikely to be paid and then failed to comply with the legal requirements which simply mirror the complexity of the securities that were created. A fine mess.

Last night a nameless spokesperson for the Bank of America insisted that even if the bank hadn’t obeyed the law, the underlying facts were accurate. In other words, people had taken out mortgages, weren’t paying and should lose their homes. As the AG’s of forty states join together to halt foreclosures and the debate rages about what should be done we will not doubt hear more of the same. But the laws were written so that the banks could resell, package and securitize the mortgages. Which set of rules should apply? Eventually we will reach a compromise on this issue. People can’t own homes for free and banks can’t decide which part of the law they want to obey. But even as we develop a solution that no one will like we will not have addressed the core issue.

For the last thousand years we have had a debt based monetary system in one form or another. Where money comes from remains a mystery to most people. We teach very little about how our economy works and how we get money into that economic system in our public and private schools – even at the high school level. When people do educate themselves it seems that many of them feel compelled to write about what they have learned in capital letters on the Internet. It’s difficult to have a dispassionate discussion about money when more and more people don’t have any, but we really don’t have much choice in the matter.

It is not new that we have very large issues that we choose not to address. As anyone who has lived through a failed marriage knows, ignoring problems doesn’t make them go away – they simply get bigger. That’s what is happening now. The drive to address the demands of interest on the debt exploits a human trait that we call greed – not the other way around. Those who insist that our solutions lie in the thoughts of the 18th century minds who created the US Constitution, brilliant though they may have been, are missing the point.

Money is a means of exchange. It is developed as cultures become more complex. Accumulating money gives individuals and organizations power, but only up to a point. In the past, disproportionate accumulation has met with societal resistance sometimes manifesting in revolution. An increasingly vocal minority seem to be insisting that we are at this point again. But returning to simpler times is not really a viable solution. We are hopelessly interconnected (or perhaps hopefully) with each other across national borders. We have to begin to discuss and address the issue of money, interest and debt. It could be argued that the current debt-based system has served us well and perhaps, on balance, it has. But nothing is forever and it would be useful if we began to think about whether the level of complexity in our means of exchange can reasonably be expected to serve us in the future.
posted by Bill Sharon at 9:06 AM on Oct 15, 2010
The following is the comment I posted on the SORMS blog:
Dear Bill

This is a very good post ... and much appreciated. My own views have much in common with what you have written.

The implosion of the financial sector over the past few years should not have come as a surprise. The incentives are all wrong, and the financial reporting systems are inadequate to ensure that risk is handled correctly.

Very little of the "education" system deals with important matters like the basic workings of an economic system ... yet the players in the financial and economic game walk away with million dollar annual remuneration ... while contributing absolutely nothing of value to society.

It is a disgraceful situation.

Peter Burgess
The media is being decidedly unhelpful in the way they present issues related to foreclosure and the performance of the banks. The financial and corporate community seems to be very comfortable with the doctrine of "caveat emptor" or "let the buyer beware" ... but the playing field and the legal framework is stacked against ordinary little buyers who are systematically misinformed by vendors. For a very long time "mortgages" were a product that was being sold to people who had little or no idea what they were being sold ... but who cared ... everyone on the feed chain was doing well, the land developers, the builders, the mortgage originators, the community banks, the lawyers, the real estate industry, the title industry, the appraisers, the big banks, the investment banks and ultimately Fannie and Freddie! All of these profits on top of the earning power of people who were economically strapped is a stupid pyramid ... and everyone in the pyramid shares blame for the fiasco. The fact that the media did not see a problem is also hard to swallow ... not to mention the accounting profession and the regulators.

I do not like a lot of regulation ... but freedom without responsibility has proven to be worse in the context of an "anything goes" US entrepreneurial economy ... going all the way back to the frauds of the Reagan deregulation, which should have been a wake-up call but was pushed back and then made worse and worse!

Peter Burgess

Foreclosure fiasco ... can the US banks do anything right?

Dear Colleagues

According to Bloomberg News there is a lot of news from the banking sector today ... but some of it relates to the foreclosure fiasco.

There are many things wrong with the US banking system ... and the global banking system as well. The idea that making profit was the driver of rotten banking practices for a good number of years before the system imploded was bad enough.

Now getting the system back so that it works in a manner that has utility for society is also going wrong. The revelations that banks have computerized the "review" of their foreclosure files and is doing "robo-signing" of file reviews is disgusting.

Statistically, the system may be quite accurate ... but for the people who are having to resolve errors, quite accurate is not good enough. Banking ought to be a business where there is a high degree of "human contact" and not something that is devalued to a computer procedure.

As long as profit is the only metric of interest to decision makers and the economic elite, then society is in deep trouble. This must not be allowed to continue into the future ... the planet will not be able to stand it.

I continue to work to have The Burgess Method available as a system of value accounting so that there will be a rigorous system to complement money GAAP accounting.

Peter Burgess

Sunday, October 17, 2010

Leadership Lessons from Dancing Guy

Dear Colleagues

This a about a lone nut who is an effective leader and builds a movement. A great lesson!

Every community needs a lone leader to stand up and dance around with True Value Metrics ... and for the community of economic actors to join in just like in this YouTube!

Peter Burgess

Sunday, October 10, 2010

About the energy crisis, forest cover and fuelwood!

Dear Colleagues

This is part of some discussion from the LinkedIn group Biochar Haiti

Otto Formo makes the case for better metrics along the lines of The Burgess Method (TBM) with great clarity. My response is what you might expect!
Group: Biochar Haiti
Discussion: Vetiver as a biofuel for Biochar

Dear Peter,

I very much agree that the costs of this activities has to be "sustainable" and to compete with the most common fuel of to day on Haiti, charcoal.

But when you know that the remaining forest of Haiti is lower than 3% of the original forestcover, there is no choice and the production of charcoal for household enrgy has to stop NOW.

Therefore,0 in short terms, we have to subsidize the change of fuel from charcoal to any type of pellets made out of dry biomass, even if it will "cost" more of to day it will benefit the people of Haiti in the long run.

This "turnover" process has to start to DAY, before its to late for the forest to recover and it will take decades to complete.

"The battle of Haiti" has just begun and one of the main focus should be to restore the forest cover "as soon as possible" and bring the people of Haiti back to the rural areas to cultivate their land in a sustainable manner using methods involveing biochar, if you like.

Even in the western world we seems to "forget" that we need to produce our own food and preferable based on local common knowledge and manpower.

"Small is beautiful", seems to be a usefull slogan from now on and in the future to come.

Posted by Otto Formo
This is my comment.
Dear Colleagues ... Otto

You make the case for value accounting very well. The Burgess Method (TBM) is all about getting some balance between making money and creating value. When TBM value chain analysis is done it is apparent that charcoal may be profitable but there is substantial value destruction.

I have worked in many developing countries ... more than 50 over almost as many years ... and the energy crisis is not that petroleum resources will run out in the future, but that firewood has already run out. Your figure of 3% of the forest cover left in Haiti is bigger than the 2% number I have been using!

The value chain analysis in TBM suggests that bringing back forest cover has huge value ... but not very much of the activities needed are able to make short run monetized profit. This means that the modern and quite foolish system of project analysis based on money return on investment will fail to allocate resources to activities that build forest cover ... at the same time that they will fund forest projects that extract timber from the forests!

The prevailing system of metrics is a global disgrace and must be changed. My hope is that TBM will help this to happen.

Peter Burgess

Posted by Peter Burgess

A World Bank competition to create apps that will use the data they have

Dear Colleagues

The World Bank has spent several decades working on "development" and has built a huge collection of data. I am impressed by the amount of data ... but I am appalled at how little use these data are for meaningful decision making.

Maybe this is going to change! I have been alerted to a World Bank competition that challenges people to develop software applications in support of the Millennium Development Goals (MDGs) ... and with the conditionality that the applications use one or more of the World Bank datasets. When I look at the available datasets it confirms that there is an abundance of data ... and probably not much that is particularly useful for what interests me.

Specifically, I want to see data that have an ability to be disaggregated to the community level. Most of the data of the World Bank has been aggregated to a national level without any ability to get the data related to a place and time. There are data by "project" in some of the available datasets ... but these project data have no drill-down to progress and performance in any real location. The World Bank has been a source of employment for economists for decades and the data show it ... meanwhile the data that are needed to manage anything are missing.

Anyone that manages resources wants something more than weak correlation ... decision makers need specific cause and effect ... and if it is difficult to predict an outcome, decision makers want meaningful metrics about progress and performance as soon as possible after resources are deployed. I have not met a World Bank official (in the period from 1978 to now) that really understands this idea ... and it is no surprise that so much money has been disbursed with so little success.

It is possible that The Burgess Method (TBM) of value accounting at the community level could use some of the World Bank data as rather crude benchmarks against which community progress is measured ... whether or not this would be enough to satisfy the competition rules, I do not know.

The following is the message that alerted me to the competition.

Peter Burgess
Apps for Development - competition by the World Bank
Posted by Narendran T on October 10, 2010 at 9:46am

The Competition challenges participants to develop software applications related to one or more of the Millennium Development Goals (MDGs). Submissions may be any kind of software application, be it for the web, a personal computer, a mobile handheld device, console, SMS, or any software platform broadly available to the public. The only other requirement is that the proposed application use one or more datasets from the World Bank Data Catalog available at

More information at:

Putting The Burgess Method (TBM) on stage

Dear Colleagues

What to do? TEDxEast has sent a e-mail with the subject line "Do you dream of giving your own TED talk?" to interested TED followers and I am thinking about what to do!

I have drafted a response, immediately below, but not yet sent ... I have a little time to think about it. The text of the original TEDxEast message is below at the end.

What do you think I should do? How should my work with The Burgess Method be positioned in this context?

Peter Burgess

Dear Colleagues

Do you dream of giving your own TED talk? Actually no! For me this is more a nightmare!

And the subject ... interconnectivity ... is more than likely to make me hyper-mad, rather than my normal state of just plain mad!

My issue is simple ... during my career lifetime there has been something like a million-fold increase in the power of the technology used for "interconnectivity". That is a lot.

Better ... technological power is accelerating. In the past five years ... or is it perhaps five months ... there have been increases in this power by another order of magnitude ... or two!

There are some very impressive things going on ... every single page of print is likely to be "a click away" very soon courtesy of Google, and I can get millions of items about almost anything in less than a second, again courtesy of Google. I can access all of this on an I-something courtesy of Apple anytime and anywhere.

All of this is exciting ... but from my perspective completely begs the question. Why, given all this technological power, are some 4.5 billion people on this planet poor and hungry? Why? Why are so many other things wrong with our local and global society?

What are the elements of a solution?

I am an accountant. The big firms in my profession gave up the ghost some time in the 1980s and have made themselves rich by making profit a priority. The idea that "numbers don't lie" is dead ... and nobody remembers the old idea of "true and fair". I am pretty disgusted with the way these things have evolved ... and the good news is that I am not the only one!

As a foundation, the double entry accounting construct is very powerful ... and I want to get this back on track as the core system of some meaningful metrics for society.

The Burgess Method (TBM) is simply this ... business accounting but with both money and value measures, and done with community (that is the place we live and work) as the reporting entity and not just the organization.

There are three main ideas: (1) State of the community ... which is like a business balance sheet with money and value elements; (2) Progress ... which is the change in state from the beginning of a period to the end of a period; and (3) Performance which is (a) efficiency, or the cost of an activity relative to what it should have cost; and (b) effectiveness, or the amount of progress for the cost (or resources consumed).

When you change the way the game is scored you change the way the game is played. TBM is scorekeeping ... and to the extent possible there will also be "stats" so that granular performance of the elements of society may also be available.

And there will also be value chain analysis ... because in so many business activities there are profits for some and losses for others. In optimized socio-economic performance there is more win-win than zero-sum.

If these metrics are on everyones i-phone ... and in the cloud ... I argue that there will be a new era of socio-economic progress ... and a paradigm change for inclusion.

Peter Burgess
And this is the TEDxEast email message!
October 10, 2010

This may be your chance to take the stage...

We are inviting our community to pitch their ideas for 3-minute talks and we are going to pick the most intriguing, unusual, spell-binding and quirky ideas (and their speakers) to become part of our program on November 11, 2010.

So, if you have been inspired by others and even rehearsed your own TED talk in your head... now is the time to think about sharing it.

How this will work:

1. Remember, the theme is "Interconnectivity". This should be used to frame your talks so they fit with the overall program.
2. The max time slot will be 3 minutes- but we want you to send us a 1-minute video with your pitch- why your idea, why you? We will watch all of them and then reach out to those who make us want more.
3. We are a team of volunteers- so once you make your submission you will have to be patient. We will contact the folks we choose but will not likely have time to communicate with everyone who sends in an idea. So, take a leap of faith, give it a try...but please do not send us a bunch of emails asking about the status because we will not be able to respond.
4. The absolute drop-dead cut off for submissions is midnight of Sunday, October 24, 2010.

If you think this sounds good, come up with something unique, inspiring and delightful and send us a link to your video pitch. Please embed the link of your pitch within the body of your email. Send all pitches to

We are excited to put our community on the stage!


Julianne, Marisa, Connie, Vico, Lucy, Rona, Tommy, Susanna, Ofelia, Jennifer.

You are receiving this email because you have applied to or attended TEDxEast.
Our mailing address is:
603 W 115th Street #376
New York, New York 10001

Copyright (C) 2010 TEDxEast All rights reserved.

World Bank and IMF ... Ministers of Finance ... Single Treasury Account

Dear Colleagues

A long text follows ... but, in my view, worth discussing. There are many issues that were covered both in the International Monetary Fund and World Bank Group Annual Meetings and in the various related events. Sadly ... many items get mentioned ... but most issues remain a point of discussion for ever and ever, and rather little of meaningful change gets done.

But my broad observation is, in itself, dangerous. There are good things that are happening ... some very good things. There are also a lot of bad things that continue unabated. One has to be careful not to "throw out the baby with the bathwater".

I will mention now just one issue that I consider very important .. and relevant in connection with meetings of Ministers of Finance. Other questions that arise based on the transcript of this press conference will be handled separately.

Getting accountability in government has been an issue for many centuries ... and it was improved significantly about 400 years ago with the advent of a system called the Single Treasury Account. The idea was quite simple ... that all the revenues of government would be put in this one account, and nothing would come out of this account until the elected representatives voted for its disbursement. In other words, the Monarch did not have sole control over the funds raised from the subjects. This idea is still the foundation of government accounting in almost every country in the world. This is the reason what the budget legislation is so important because it is this vote that allows the government to disburse moneys including civil service salaries and everything else.

The problem of government bribery and corruption in developing countries and the mis-use of government resources could have been mitigated enormously if the single treasury account concept had been actively supported by the official development assistance (ODA) community and especially organizations like the World Bank, the IMF, the UN and bilateral donors. Instead these organizations supported a "project" management and control model that has proved to be a bonanza to the corrupt while totally sidelining the control mechanisms of the Ministry of Finance.

As a professionally trained accountant, I am appalled at the way this has all played out. The Ministry of Finance has an important responsibility ... and it is disgusting the way rich donors have subverted this core financial control mechanism of government and the public sector.

What is worse is that most development experts do not even realize this has been going on for decades ... essentially since many of these countries became independent around 50 years ago!

The following is the text of the Press Conference given by four African Ministers of Finance last Friday, October 9.

Peter Burgess
Transcript of a Press Conference by African Finance Ministers at the International Monetary Fund and World Bank Group Annual Meetings
Washington DC
October 9, 2010

Mr. Hon. Albert Besse, Central African Republic
Minister of Finance
Mr. Mohamed Bacar Dossar, Comoros
Minister of Finance, Budget and Investments
Mr. Uhuru Kenyatta, Kenya
Deputy Prime Minister, Minister of Finance
Mr. Samura Kamara, Sierra Leone
Minister of Finance and Economic Development
Webcast of the press conference
MR. DIENG: Good afternoon, everybody, and welcome to the African Finance Ministers press conference. Joining us today, we have four ministers: Minister Samura Kamara from Sierra Leone, Uhuru Kenyatta, Deputy Prime Minister and Minister of Finance of Kenya, Mohamed Bacar Dossar from the Comoros and Minister Albert Besse from the Central African Republic. Each of our ministers will have a very short opening statement, and then we’ll open it to questions. So, without further ado, I’ll hand over to Minister Kamara.
Minister KAMARA: Thank you. As we are seated here, we are representing firstly our respective countries. We are also representing Africa. And at the same time, we are looking at this through the country level, but the regional and global perspective. So we are part of the global economy. Some recognize my name, Minister of Finance for Economic Development in Sierra Leone. Sierra Leone is a post-conflict country. Of course, we are recovering. We’re coming away from humanitarian emergency assistance. We’re now trying to move towards achieving sustainable development as well as deepening our intervention on human development, in particular health and education.
There are serious challenges. We have an agenda for change which is a five-year program, and hopefully we want to look at a successful program. In the agenda, we’re trying to address two things. For the first time, like many other countries in the Third World, we’re addressing the drivers of growth because these economies have never been able to grow substantially, and therefore we want to give a lot of our resources towards achievement of growth. And by so doing, we are looking at infrastructure development; we are also addressing agriculture and food security. Energy is a great challenge, and water supply and sanitation are challenges. On health and education, it’s a question of increasing access to health, access to educational services. So these are very big challenges at the national level. I think we are turning around. We hope the economy will continue to survive and to grow through the implementation of our agenda for change.
From the African perspective, I’m sure we all have commonalities. We do not quite represent a homogenous group, but in terms of the challenges that face Africa we’re very, very close--challenges of growth, challenges of poverty reduction, these sorts of things. And I think we all have the same agenda, especially relating to food security and agricultural productivity.
Now what is happening to us in the context of the global economy is that there is a widening and deepening of global resource in Africa. Africa has never been in this particular situation. It was not part of the cause of the crisis, but today Africa is part of the solution, and therefore we cannot ignore that. And that’s why at our meetings we all try to exchange ideas, and try and have consensus on how we think we should approach the Bretton Woods institutions in particular since these institutions are at the center of trying to look out for solutions in the crisis that is affecting the world.
At our level, we have taken a position. We are doing correspondence through both we have a memorandum, writing to the IMF Funding Director and to the World Bank President. Tomorrow, we will be meeting them separately to present our case. I hope from there we’ll be able to move.
In terms of the challenges that are facing the global economy at the moment, perhaps you can say one of them is the reform of the IMF. Africa has taken a position. We quite agree with what is imagined. What is imagined is really if we are to follow what happened in [inaudible] some time back. Of course, the quota reform as well as representation, these are two critical issues.
On quota reform, we have a position that we need to have PRGT countries protected substantially, and at the same time we had one country that suffered during the second round, South Africa. We think South Africa also needs to be protected, so that’s a good move forward. But the idea is not to let any other African countries suffer during the third round. So that’s why we are following closely with the permutations that I imagine.
In the case of the World Bank, we are happy that we will now have a third chair in the World Bank, and we have done our permutation, our reconstitution of member countries. We have now filled that chair. The good thing is even though perhaps we may not have been all happy with the outcomes, but the good thing is we have maintained the third chair. There’s a third chair in the World Bank Executive Board now for Africa. In the Fund, we have a second alternate. Hopefully, as the time goes on, we’ll start pushing for another third chair. I think I can stop there.
MR. DIENG: Thank you, Minister Kamara. Minister Kenyatta.
Minister KENYATTA: Thank you. Maybe I begin by joining my colleague in saying that as much as we speak for our respective countries we are also speaking for our entire constituency in the African continent.
And may I begin also by just giving a short overview of the situation in Kenya and say that as many of you are aware we have now passed a new constitution which is now being implemented--a constitution that has resulted in an increase in optimism in terms of our economic outlook, going forward, and a constitution that helps us strengthen our government structures, helps us in terms of establishing firmer and stronger institutions. And all of these, we believe in the medium to long term will result in greater growth in Kenya.
With regard the economic outlook, as many of you are aware, as a result of both the post-election violence and the situation that prevailed with a major drought that affected the Kenyan economy, this was added to by other factors that were well beyond the control of Kenya, largely reflecting the financial or the global financial crisis, and resulted in a downturn from the year 2007, from a growth of approximately about 7 percent. This was reduced to about 1.7 percent in the year 2008-2009, but we are now seeing a strong rebound, and we are expecting a growth trajectory of approximately 5 percent in the year 2010.
This said, we are still faced with a number of challenges--challenges especially with regard to food security, challenges with regard to expectations as a result of the implementation of the passage of the new constitution. But we have addressed ourselves through a number of stimulus programs, as a government that we have instituted.
We have had, and managed to have, the necessary fiscal space in order to create a number of incentives largely targeted at the social sectors, at the health sector, at the education sector, also trying to deal with our issues of food security through increased budgetary allocations towards irrigation, as well as job creation in terms of a number of measures that we are instituting as a government to support our private sector.
As a country, we are strongly and firmly on the path that growth must be private sector led, and towards this regard we also acknowledge statements made yesterday by both the IMF Managing Director and the President of the World Bank, recognizing that the potential that the African continent has and a potential that can only be realized through increased investment, through increased flows of FDI into the African continent.
And towards this end, we as a country, as a continent, are appreciative of the initiative being undertaken by the government of South Korea, who are now going to assume the chairmanship of the G-20, and the agenda of propelling investment and job creation as being part and parcel of the global economic recovery, with a realization that unless we are able to deal with the issues of job creation, food security, climate change, that the recovery still ultimately remains very fragile.
With regard reforms in the World Bank, as my colleague has said, as much as they are challenges, we must say that indeed we are happy with the creation of the third constituency for ourselves, and we believe that this will result in greater representation for the African continent.
We are also looking forward and actively, as a continent, working towards the next replenishment of IDA where we do hope that the larger players, the more developed and emerging markets, will realize the need for not just a replenishment of IDA but an increase in the replenishment of the upcoming IDA, given the fact that yes, while Africa may be a very small percentage of the overall global GDP the fact that we have been able to achieve the kind of growth rates that we have achieved goes to show the increased potential of Africa becoming a much larger player in the world market. And we need also to acknowledge, as indeed has been accepted by some countries, that global recovery is going to be largely intertwined with increased growth in the developing countries.
With regard to the issue around both governance and indeed the quota with the IMFC, the position that we hold as an African continent is that yes, we do agree that there is need for an increase in quota in order to enable the IMF to intervene as it has. And we are grateful indeed for the quick response that they took in the aftermath of the global financial crisis.
But for this to be able to continue, we do agree that there is need to increase the quota. But that quota should not be at the expense of the poorer countries, especially those on the African continent, and there is need to ensure that the quota of the poorest countries in the world is indeed protected as we move on.
With regard to voice, we must also recognize that voice must not be a factor of shares alone. Voice must also recognize the fact that Africa represents a large number of countries, and we need to look at the voice issue both from a perspective of shares, but also from a perspective of number of countries.
And that is why I support what my colleague has said, that as a continent we continue to support the reforms to protect the quota of the poorest countries, but at the same time to ensure that we preserve a voice also for the countries on the African continent. And towards that end we will continue to push as we go forward for a third chair in order for that representation to be seen through.
Minister DOSSAR: [Interpreted from French.] Good morning. First of all, a few words to give you some background information about the Comoros. We’re in a set of islands off Mozambique between the African coast and Madagascar. The Comoros are a small island state, a small developing island state with some instability in the 90s that ultimately resolved itself in 2001 with the adoption of a new constitution that grants considerable autonomy to the various islands that make up the Union of Comoros, while preserving national unity through a federal system.
Since then, the country has recovered growth and stability back. We witnessed in 2001 democratic change, with free and transparent elections, and a change of government. We’re in the process now of organizing new presidential elections, and we hope that these too will be free, transparent and democratic.
In other words, over the last 10 years or so, our country has experienced relative stability in political terms. Clearly, this has also helped us improve our financial situation, in particularly through our accession to a decision point last June 29. Our country was one of the very last of the continent to reach that stage and gain access to the program which is a very significant challenge for us. We’re supposed to reach the end point, completion, in 2012.
Economic activity, although not very strong, has nevertheless recovered, and GNP growth has grown from 1 percent to 2.8 percent. It’s not very high yet, but it’s on the right path, and we hope that in the months and years to come this trend will be further confirmed.
We’ve also engaged in a campaign to promote our country and open it ever more to FDI, especially from Arab states because we have cultural and historical links to that part of the world.
All of this culminated in the organization last year of a donor conference for our country, with pledges of over $350 million in development projects to be implemented in our country, and this opens up new vistas in terms of improving infrastructure, in terms of developing the private sector and also in terms of boosting the health and education sectors of our country.
Globally, in other words, our situation has improved although there is very much that we still have to do. As I said earlier, our greatest hope now is to witness further democratic change in December because the new president-elect will have a five-year mandate, and we hope that through this change we will be able to consolidate the progress that we have made, not only from a political standpoint but also economically and financially. So that is where we currently stand.
I wish to add my voice to those of my colleagues who spoke just before me about Africa’s representation in these institutions because there are interests that require representation.
Minister BESSE: [Interpreted from French.] Thank you for this opportunity you’re giving us to address the situation in which we find ourselves today, especially in light of what’s happening in the world. I am the Minister of Finance of C.A.R., a country in the economic and monetary area CEMAC. We are at the center of the continent--623,000 square kilometers north of Congo and to the west of Cameroon.
We have had recurrent crises in the C.A.R. over the last years, both economically and politically. And as of 2003, with the help of the international financial community and of CEMAC, we gradually reviewed our macroeconomic policy framework, rebalanced that totally and negotiated a program with the international financial institutions that gave us access to a decision point within the HIPC initiative. Thanks to that, we gained a clearer understanding of what we needed to do, part of our debt was cancelled, and we mobilized further resources in order to begin our combat against poverty.
As you know, we’re a post-conflict country with a tremendous lot of challenges. We need tremendous investment in infrastructure, but I think that with our closer links and programs managed by international financial institutions we have made tremendous progress. Although the financial crisis reduced our growth from 4 to 2 percent, we’re hoping to be close to 3 percent at the end of the year.
As regards the financial crisis, we did suffer quite a bit because our main exports are timber, diamonds and some coffee, and demand for these goods sagged somewhat with the crisis. And with the impact of a drop in exports, we also witnessed a rise in unemployment.
Politically, we’re in the process of preparing elections that are currently scheduled to be held early next year. We hope they will be democratic and transparent, so that we can resume what work needs doing in order to ensure the development of our country.
At the subregional level in CEMAC, the issues are somewhat the same. CEMAC regroups six countries, but there are five among these six that are oil producers. But they also export other commodities and suffered to some extent because of variations in commodity prices worldwide. But on the whole, growth has resumed. Growth has not been durably impaired by the financial crisis, and things seem to be moving slowly forward.
Prospects for C.A.R., as I said, are linked to major investment projects focusing on infrastructure. As you know, we were recently a conflict country, and there’s a lot to be repaired. But as you know, we’re also suffering the impact of another conflict out of Darfur which borders our country, and local populations from Darfur have resettled on our territory. But today I think with the help of other CEMAC countries the situation on that front has somewhat stabilized, and I think we can view the preparation of the 2011 elections more confidently than we did in the past.
I think that the issue of representation of Africa within the IFIs is extremely significant. The third seat strikes me as being extremely important. I have the feeling that discussions are going in the right direction and will probably further good governance in political terms.
As far as the economy is concerned, I would like to say that in C.A.R. all the reforms that we’ve undertaken with the help of IFIs have yielded good outcomes, and we’re continuing to cooperate with the institutions and looking forward to these elections.
MR. DIENG: We will now take questions. Please identify yourself and your organization.
QUESTIONER: [Interpreted from French.] I would just like to know how you think we should take advantage of the considerable rebound of the economic activity on the African continent as a whole.
And secondly, what are the African positions as to the reform of the World Bank? Not only the representation and the seats within the World Bank, but what about the debt relief, what about climate change and also what about job creation?
Minister KAMARA: As far as the World Bank is concerned, we do--we appreciate the reforms that have come so far. We are looking for deeper representation. We’ve got it, and it is now with us. We protected our chair. And the Bank also has enough programs that will support Africa. They’ve gone ahead in the debt relief. We got a lot from debt relief. We also got a lot from climate change.
And at the moment, the Bank is developing a strategy for Africa, and we have been consulted more than once. The Vice President visited Freetown when we had our African caucus meeting. She made a presentation last year. She also made a presentation. So we’re working with that to develop this African strategy.
But the challenge there is how do we get together and convince the advanced countries to put more money in IDA because that is our window of opportunity. So that’s what we do.
Minister BESSE: [Interpreted from French.] I would just like to add some elements to what was said earlier. We know that we are working in the subregion. I was talking about CEMAC earlier. We have a regional economic program within CEMAC to work on investments, for example, and we believe that today whichever country we are dealing with--of course, the situations vary from one country to another, but we have to take this into account in our regional structures. But we do know how to adapt things to each particular country in terms of investments. And of course if we have surpluses we want to use them in different fields--health, education and so on.
A question was raised about our involvement in the program. When we have reached the decision point of HIPC, it’s true that when we reached the completion point the debt was totally cancelled for some countries. The question is how to encourage development in those countries where the debt relief was not full. So this is in a way an answer to the question, and yesterday we were talking about different possibilities to relaunch development in those countries. In terms of climate change, we have been able to set up a fund to fight against climate change, and I think that this is an issue that is being dealt with. A number of investments have been made in this respect.
Let me come back to the Central African Republic. We have the Congo Basin that covers just about the five countries of CEMAC, and the six countries of CEMAC. Of course, the question is how to get, how to find the appropriate funds in order to carry out those innovative projects, in order to have new financial initiatives in order to finance this fight against climate change. This is what I had to say about the question raised.
MR. DIENG: Thank you. We’ll take another question, at the back of the room.
QUESTIONER: Last year, news broke of a crisis within the Bank of Central Africa that is in charge of the safer denomination for Central Africa, with the result that in May the IMF suspended disbursements to that bank. I understand that it has quite recently resumed those, and I wondered if Minister Besse could comment on the effects of this crisis. I understand two officials have been forced to leave the employ of the bank, and whether there are going to be any more actions against them. And what structural reforms and other reforms and measures have you taken to assure the people of Central Africa, the Central African region, of the effectiveness and accountability of systems within that bank?
Minister BESSE: [Interpreted from French.] Yes, thank you. Yes, this has also been covered by the media, and it’s a real issue. But you have to remember that as of January 2010, when there was a summit of the heads of state of CEMAC in Bangui. So this is a matter that has been followed by the highest authorities of the state.
So what happened at the central bank in terms of governance since then? I personally chair the Monetary and Economic Union for Central Africa, and I took part in various decision-making summits that concern this matter, and we have tried to change the whole team at the head of the bank. The IMF was quite right in its approach to safeguarding our major institutions. They intervened with great rigor. But we had a major program of reform in force even before December 2009 that had been negotiated with them, and some number of prerequisites were defined.
I was mandated after the suspension of disbursements to meet the Managing Director of the IMF with two other ministers and the governor, and we really answered all of the specific questions that were raised regarding the connection between the central bank and its international partners. And as you know, the program for CMAC on the IMF part was restored.
We have, by now, covered 97 percent of what was required of us, and I think that we now need to go on closely--we’re going to go on closely monitoring the whole issue at the ministerial level, and we’re going to further strengthen control structures within the central bank. We have strengthened the capacity of the internal controls. We’re still extremely attentive to the situation, to make sure that there are no further incidents like the ones that happened last year, and we hope that we will therefore in a position to avoid further program suspensions because let me say that that was a bit of a shock to us.
QUESTIONER: Three questions: One, with regard to the ongoing reconfiguration of representation of countries on the IMF/World Bank Board, please help us understand how will this affect disbursements to African countries, and especially with regard to concessionary lending that most Sub-Saharan African countries have been getting.
My second question is on growth and employment in Africa. We are talking about growth rebounding in Africa, but we do not seem to be putting emphasis on, or rather, even when we do, we’re not giving figures of employment.
I was looking at the World Economic Outlook report that the IMF released on Wednesday, and many African countries do not have unemployment figures indicated. And when I asked the IMF they said the respective countries, including my country, Kenya, did not have figures of unemployment. So how are we going to tackle this problem of joblessness in Africa if we do not even have the numbers, if we do not know the unemployment rates in Africa?
My third question is Kenya-centric. The World Economic Outlook report projects that Kenya’s economy will grow by 4.1 percent. Finance Minister Uhuru Kenyatta just said that the projection is over 5 percent growth rate. Kindly help me understand why there’s a difference in these projections. Thank you.
Minister KENYATTA: Thank you, and as I address that question I’d like just to make a brief comment on one of the issues that was raised earlier by a colleague.
That is to say that indeed I want to agree that one of the ways in which we can address ourselves to the kind of rebound that we’re seeing in the region is through increased regional trade, and to say that if we take a look at the East African Community for example, one of the reasons why we were able to be resilient, despite the downturn in terms of demand for our products from the developed countries, was the increase in regional trade that took place.
Towards that end, we are working as a region towards further strengthening this. We have now the Common Market which is in place as of the end of July 2010, and we are also working in order to improve infrastructure, so that this increased inter-regional trade can continue to play the role that it has played. There is that recognition, and therefore the need to further develop and strengthen the infrastructure in the region.
With regard the issue of disbursements, this is one of the key issues why we are saying we need to protect the quota of the poorest countries in the world, because we need to also ensure that with regard to disbursements and access to much needed finance is indeed protected, and that is not reduced with the ongoing discussions with regard both quota and voice reform.
Voice reform is also important to ensure that the voice of Africa continues to be heard, and I think that is the position we have taken as an African continent. And therefore the need for another chair to ensure that the voice of Africa continues to be heard, not necessarily in terms of representation, in terms of quota, but in terms of both size, population, but more importantly number of countries that are on the African continent.
With regard to the issue of growth and employment, I think I mentioned in my own statement that there is a recognition that growth will continue to be fragile unless we are able to equally handle the major challenges of unemployment and food security. This continues to be an emphasis. Let me speak especially for the Kenyan government, that a lot of the programs that we’ve been trying to initiate are programs that are aimed first and foremost at increasing opportunities for job creation. This is the reason we are focusing a lot in terms of infrastructure, in terms of the energy sector, in terms of expanded infrastructure with regard to technology, the fiber cables that we are laying. All this is aimed at reducing the cost of doing business, increasing the attractiveness of both Kenya, East Africa and indeed of the African continent, and as an investment destination because, like I said, we are great believers that the ultimate sustainability of our economies must be based on private sector-driven economy and hence the investment in some of those sectors.
With regard the projections that we have, you will recall growth projections. We did have in our fiscal year 2010-11 a projection of 4.1 percent. But the kind of trends that we are seeing in terms of both the tourism subsector, the agricultural subsector as well, the manufacturing and construction, give us an indication that if that kind of trend continues through the third and fourth quarters, we are likely to see a growth rate of around 5 percent. So we are hoping that we will be able to achieve a much higher level than we had previously anticipating, assuming the third and fourth quarters continue as along the same path we saw in the first and second.
QUESTIONER: What is the unemployment rate in Kenya?
Minister KENYATTA: Well, sorry, that was another. Indeed, we have a need to strengthen our own statistics, and that’s another area that we are all looking at. We need to be able to strengthen our ability to gather these statistics and we are investing in that particular side as well.
But we must also recognize that as we strengthen the gathering of these statistics the formal sector in many African countries--and let me be more Kenya-specific, the formal sector that is normally captured does not take into account the informal sector which is today one of the largest single employers in Kenya. And this is why together with the central bank, together we are working on a process of financial inclusion by bringing a lot of the people in the informal sector and mainstreaming them into the formal sector. This will enable us to capture a lot of people who are currently not being captured through the formal statistics that we currently are using.
So we believe strongly that financial inclusion will help us in achieving a much greater level of capturing those who are actively engaged in the informal sector and are currently not being captured, as we go about our statistics collection, as well as strengthening the capacity of, for example, the Kenyan Bureau of Statistics in being able to capture some of this data that had previously not been captured.
Minister BESSE: I’d like to add something regarding employment because jobless growth corresponds to what? You can do all sorts of computations, but what does it mean for the population? It means that there are no prospects. We need to work for our population, but employment has a [inaudible] training. For countries that are post-conflict countries, such as mine, this is a major issue. But quite clearly the government is working to try to resolve this and in essential sectors such as education, health care and agriculture as well, which is another extremely important sector for us. A country such as mine experienced famine in 2008. So we need to strengthen intervention in these areas.
And there is real employment in these sectors, although very often the actual extent of employment is not covered by statistics. The innovative initiatives are normally taken into account in modern statistics.
But you have to understand that our government is working to make sure that our whole population benefits from the improved economic situation, to better job prospects that have to be supported by training initiatives, but the government can’t be the sole employer. The private sector has to intervene as well, so as to support the work undertaken by the public authorities and industry. Thank you.
MR. DIENG: Thank you, Minister Kenyatta. We are running out of time, so we’ll take two or three questions at a time now. Here, at the end of the room.
QUESTIONER: The question is regarding the resource sector of the whole African continent. What we are seeing is that more and more countries are coming at a different sort of resource taxes. Like in Australia, they recently introduced a resource tax, and Canada is also following the same way. In 2007, Zambia came up with a copper tax which was taken off the next year. What are the chances, or how do you guys see that this trend is going to be more and more evident in the African continent, number one? And question number two, what sort of impact do you think it may have on FDIs or foreign investors?
MR. DIENG: Thank you. We’ll take a second question.
QUESTIONER: [Interpreted from French.] Let me say something, introduce some clarification. It’s true that the third seat has been granted, but what is the actual trend at the IMF because there is talk of going down from 24 seats to 20, and we’re talking about a third seat for Africa. So could you tell us a bit more about what trends are at play?
MR. DIENG: Maybe you can take that one, Minister Dossar.
Minister DOSSAR: [Interpreted from French.] Yes, you know that in the past there was an arrangement that allowed to increase the number of seats from 20 to 24. This was an agreement that was extended year after year, but this time around the United States opposed the extension, and they requested that legal counsel look into this and that the Europeans renounce one or two seats in favor of French-speaking Africa. As far as we can tell today, the Europeans seem willing to do something along those lines. So we do hope that our European partners will free seats to allow for permanent representation of French-speaking Africa rather than have to live through year after year the negotiation of a transitional situation.
MR. DIENG: I will ask Minister Kamara to say something on the tax issue.
Minister KAMARA: Yes, I’m not sure whether the situation in Zambia is replicated in other countries, but I think the general challenge for our economies, as we try to attract quality investment--mind you, you want to avoid these fly-by-nighters. You want quality investment. What type of fiscal regimes? What incentives, incentives package? Many of them come and request incentives packages, this sort of thing. Now that is a delicate balance in taxation for investment.
The other choice as a country is to get your taxes up-front. You frontload your taxes, or you backload? If you frontload, you might just deter, you might discourage investors. Investors will go away, this sort of thing, especially when many times the accruals are not very certain.
The business plans that are drawn by investors, many of them do look into these national stock exchanges. They develop a very robust business plan to sell shares, to sort of marry a lot of shareholders, irrespective of what the resources are on the ground. We have seen that happening. And of course in the end the interest in making capital is very good there. Therefore, tax incentives should be reflected in that cash plan, that business plan, and make the project look so, so, so impressive for outside investors.
So this is the challenge that we have--how to create this balanced between them. You don’t want to lose revenues and fall out at the formative stage. But a good thing is that African capacity for negotiated investment is now improving considerably. So in the case of Sierra Leon, where we don’t have the capacity we seek international technical assistance to help us in negotiating. So I think this is where we are.
I don’t think I can talk for Zambia. Now I read about it, so that it will not be replicated in Sierra Leone.
MR. DIENG: Thank you. We’ll take a final round of questions. Here, at the back of the room.
QUESTIONER: The problem of statistics is one of the major problems, to know the number of, the rate of jobs and joblessness. So how do you really calculate real growth?
And the second thing is that Africa has said there is growth, but on the ground the poverty level is a big challenge. So how do you explain the two situations?
Minister KENYATTA: Let me put it this way. I appreciate what my colleague is saying there, and I appreciate the question, but at the same time we also have to recognize the fact that as much as the quality of statistics may not necessarily be the best in fact. If you heard the debate that was going on in the IMFC today, there was a big argument between developed and emerging countries as to how do we, and are they, going to calculate the size of the global economy and hence the quotas that should be assigned by each, with the emerging markets having a different perspective to the numbers that had been tabled.
But ultimately, we have to have a base that we use, and the base that we have is indeed based on the formal economy that we currently have registered, on the exports that we have, on the manufacturing and services sectors that we have.
But I would tend to believe a little bit opposite from what you said because if we were to take into account the informal sector, and I wanted to use the example of Kenya.
If we were to take on board the informal sector, I believe the growth projections that we would show would be much large than is actually projected by the formal numbers because there are a lot of people involved in the informal sector that are not captured. If you take a look, for example, at our farming community--and this is a debate that we were having yesterday--we would normally consider our small-scale farmers to be peasant farmers living from hand to mouth. Yet, we do have a large number of farmers who are actually commercial farmers, with tea, with coffee and other products that they take to market, and they actually farm on a commercial basis. These again are numbers that are not fully captured. So I believe that once we continue strengthening of our own data, improving and strengthening the agencies assigned with the statistical data collection, we may see that the kind of projections that we’re showing are actually not lower, but rather higher, than we had previously projected.
MR. DIENG: [Interpreted from French.] Thank you. Minister Dossar, you could maybe take the question on the connection between growth and poverty.
Minister BACAR DOSSAR: [Interpreted from French.] This question is related to employment. We all want growth that is emerging in our countries that leads to better and higher employment. This is a slow process. We are just feeling the growth in our countries. So we have to be patient. And as my colleagues who just talked before me said, we have to make efforts in order to support the private sector, so that he can come and replace the public sector. And also we have to further encourage the private sector to promote jobs and job creation in our countries. I think this is the best way to fight poverty, to give opportunities to the populations. I believe that we do have a strong potential in our countries. Africa’s attractiveness adds to further improving the future, so as to attract capital inflows and greater, much greater investments on the African continent.
Minister BESSE: [Interpreted from French.] Let me add a few words here. I would like to thank the lady who asked this question on statistics. It’s of extreme importance. We have to count, and then we have to measure. If we don’t count, we can’t measure. You have here finance ministers from African countries, and when you go into the informal sector it’s very difficult to count. So it’s a good thing to try and further improve our statistics, so that really everything can be taken into account.
My colleagues talked about one particular sector which is of major importance and where efforts are being made. When you go through our countries and you see that there is some improvement in the quality of life, but it’s difficult to measure. So this is why we need these better statistics, in order to find answers to all the problems we are faced with.
It’s difficult for a statistician to go and see a farmer and ask him or her to count the number of baskets that he harvested, for example. This is difficult, but we will further increase our work in this respect, so that we are soon able to both count and measure.
MR. DIENG: Thank you. We have run out of time. I will give the floor to Mr. Kamara for the concluding remarks of this press conference.
Minister KAMARA: Well, on behalf of my colleagues, and certainly of Africa as a whole, I will need to thank you for this opportunity. We hope you will go back and help us sell Africa to the rest of the world because we need it. The media is a very important partner in development, and therefore what you write, what you perceive in development, the type of information that you quote I think means a lot to us. It also means a lot to the outside world because you want to inform them, this sort of thing.
Therefore, I will only urge you that we are all open. As ministers of finance, we are open. Our ministries are open. All of our ministers are open for information. I’m sure you can get our email addresses from the coordinator here. So we want to thank you very much for the opportunity.
MR. DIENG: Thank you. This brings an end to our press conference, and we’ll post the transcript later on the IMF web site.