Is there an institutional trap in middle-income countries?

By José Antonio Alonso, professor of Applied Economics at the Complutense University of Madrid. He is co-editor of the recent book: Trapped in the Middle? Developmental Challenges for Middle-Income Countries, Oxford University Press, 2020

It is assumed that, as countries progress, they require better institutions to manage the societal issues that emerge with more extensive and sophisticated markets and respond to the needs of a more demanding society. In other words, the development process requires a path of institutional change. However, economic and institutional processes do not necessarily evolve at the same pace, as institutions are subject to greater inertia. As a consequence, inertial institutions can fall behind social demands, or else changes in institutions may not be properly rooted in social behaviour.

These issues are particularly relevant to middle-income countries which tend to experience episodes of intense economic growth that put their institutional frameworks under pressure. Transforming expansive episodes into sustained economic convergence with high-income countries requires a continuous and successful process of institutional improvement. However, these two processes are difficult to synchronise.

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We must act now to stop the COVID crisis from undermining Africa’s energy future

By Dr Fatih Birol, Executive Director of the International Energy Agency (IEA)

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

We must act now to stop the Covid crisis from undermining Africa’s energy future

The COVID-19 pandemic continues to cause major disruptions to societies and economies around the world, and has dealt a worrying blow to years of hard-won progress in reducing the number of people in Africa who lack access to electricity. For seven years in a row, the number of Africans living without electricity has steadily decreased, thanks to efforts from governments, businesses and civil society. But this year, it is set to rise by 13 million amid the turmoil brought by the pandemic, according to IEA analysis. The worst effects are being felt in countries such as Nigeria, the Democratic Republic of the Congo and Niger. By putting energy services out of reach of more and more people, the crisis threatens to deepen their difficulties and those of economies across Africa.

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Fiscal policy in the time of COVID-19: a new social pact for Latin America

By Pablo Ferreri, Public Accountant and former Vice Minister of Economy and Finance of Uruguay

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

We could say that ultimately the role of government remains unchanged overtime: to achieve ever higher levels of development with the understanding that true development means achieving sustained economic growth while generating greater equity and social cohesion. This must be done through more and better exercise of civil rights and in an environmentally sustainable manner. But in achieving this ultimate goal, challenges change according to realities that governments must face.

Challenges that Latin America faced fifteen years ago, when it enjoyed high levels of growth and a commodity boom in an increasingly open world, are quite different to those that have been brought about by economic slowdown, lower international prices and new isolationist tendencies.

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Africa state of the climate report: an urgent call for climate-related development planning

By Blair Trewin, Lead Author of the World Meteorological Organization’s 2019 State of the Climate report for Africa

Tropical Cyclone Idai approaching the Mozambique coast on 14 March 2019 (Source: NASA)

Africa is highly vulnerable to the influence of the climate. The continent contains many of the world’s least developed countries, who have limited capacity to mitigate against the impacts of extreme events. The continent is also highly dependent on rain-fed agriculture which is at the mercy of fluctuations in rainfall from season to season. Amongst the most vulnerable areas are the semi-arid regions of the Sahel and the Greater Horn of Africa; many of these regions also suffer from unstable security situations, and in the worst cases, drought and conflict can combine to trigger famine, as in Somalia in 2011-12.

Like the rest of the world, Africa is warming. 2019 was likely the third-warmest year on record for the continent, after 2010 and 2016. Over the last 30 years, the continent has been warming at a rate of 0.3 °C to 0.4 °C per decade, a similar rate to the global average for land areas. 2019 was an especially warm year in southern Africa, where parts of South Africa, Namibia and Angola had temperatures more than 2 °C above the 1981-2010 average.

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We know what policies can fix the COVID-19 inequality emergency. But only people power can win them

By Ben Phillips, Advisor to the United Nations, governments and civil society organisations, former Campaigns Director for Oxfam and for ActionAid, and co-founder of  the Fight Inequality Alliance. He is the author of “How to Fight Inequality

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

COVID-19 did not create the inequality crisis. But COVID-19 is seeing inequality metastasise into the most socially dangerous global emergency since World War II.  The problem is clear. The OECD Secretary-General has rightly drawn the analogy with the Post-War reconstruction and Marshall Plan to illustrate the level of ambition needed. Opening the OECD conference on “Confronting Planetary Emergencies”, President Michael D Higgins of Ireland set out the need for a “radical departure” from “decades of unfettered neoliberalism” which have left people “without protection as to basic necessities of life, security and the ability to participate”. As he noted, “it is no longer sufficient to describe, however brilliantly, systemic failure. We must have the courage to speak out and work for the alternatives.”

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L’Afrique pense par elle-même son développement

Par Firmin Edouard Matoko, Sous-directeur général, Priorité Afrique et Relations extérieures

Ce blog fait partie d’une série qui invite acteurs et penseurs à renouveler le discours actuel sur l’Afrique et son développement.

Les africains ont aujourd’hui plusieurs certitudes quant au futur de leur continent: celui-ci regorge de richesses naturelles (« un scandale de la nature » disent certains) ; il est culturellement riche et abonde de ressources humaines talentueuses. Enfin, après des décennies d’enfermement idéologique et d’injustice épistémique, l’Afrique est désormais capable de penser par elle-même et d’écrire son avenir[1].

La réalité d’une Afrique riche en ressources naturelles mais non encore totalement exploitées a été le fil conducteur des stratégies de développement post-indépendances d’inspiration classique ou libérale. Deux économistes africains, l’égyptien Samir Amin et le zimbabwéen Thandika Mkandawire se distinguent très vite par leurs analyses sur les conditions inégales de développement des pays africains et en se situant dans un schéma de rupture anticolonial. Dans un sens, on peut situer à travers les thèses de ces deux précurseurs le point de départ d’une pensée africaine du développement. D’ailleurs, la création en 1973 du CODESRIA dont les deux éminents économistes suscités furent secrétaires exécutifs avait pour objectif de « développer des capacités et des outils scientifiques susceptibles de promouvoir la cohésion, le bien-être et le progrès des sociétés africaines. Ceci passait évidemment par l’émergence d’une communauté panafricaine de chercheurs actifs, la protection de leur liberté intellectuelle et de leur autonomie dans l’accomplissement de leur mission et l’élimination des barrières linguistiques, disciplinaires, régionales, de genre et entre les générations ».

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Reimagining a post-COVID world

By Richard Kozul-Wright, Director of the Globalisation and Development Strategies Division, UNCTAD

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

The coronavirus has ruptured our world and, as with past global pandemics, raised fundamental questions about the way we organise society and the values that structure our lives. But it has also encouraged us to imagine a better world. However, if we are to act on that imagination, we will need to acknowledge the mistakes of the last decade, above all in the world’s richest economies.

Recovering better demands that we treat the COVID-19 pandemic as an opportunity to identify and address underlying structural barriers, at both the national and global levels, in the way of a more prosperous, equitable and resilient future. This did not happen after the global financial crisis when returning to business as usual was the winning policy mindset. But higher share prices or fuller treasuries, or more sophisticated supply chains will not be the basis on which future generations judge our response to the current crisis.

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Victoire historique devant la Cour suprême en Zambie : des milliards de dollars US en recettes fiscales supplémentaires et un message par-delà les frontières

Par Ignatius Mvula, Directeur adjoint, Unité de vérification dans le secteur minier, Administration fiscale de la Zambie, Mary Baine, Directrice, Programmes fiscaux, Forum de l’administration fiscale africaine, et Ben Dickinson, Chef de la Division des Relations internationales et du développement, Centre de politique et d’administration fiscales, OCDE

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En mai 2020, l’administration fiscale de la Zambie (ZRA) a remporté une victoire fiscale historique devant la Cour suprême contre Mopani Mining Copper plc. Le Tribunal a condamné l’entreprise à payer 240 millions de kwacha (13 millions USD) d’impôts supplémentaires. La décision tenait au fait que la Zambie devait baser la partie technique de son dossier en apportant la preuve de l’évasion fiscale par des stratégies de l’érosion de la base d’imposition et du transfert de bénéfices, ou BEPS.  Partout dans le monde, des entreprises multinationales exploitent les failles et les inadéquations entre les règles fiscales internationales, occasionnant aux pays une perte s’élevant jusqu’à 100 à 240 milliards USD par an, soit l’équivalent de 4 à 10% des recettes totales de l’impôt sur les bénéfices des sociétés dans le monde. Par ailleurs, pour les pays en développement, leur dépendance proportionnellement plus élevée à l’égard des recettes de l’impôts sur les sociétés signifie qu’ils pâtissent de l’érosion de la base d’imposition et du transfert de bénéfices de manière disproportionnée. La Zambie ainsi que beaucoup d’autres pays africains indiquent que l’utilisation abusive des règles de prix de transfert – telle que la fixation des prix des biens et des services entre parties liées d’une entreprise multinationale – représente l’un des risques les plus élevés de BEPS pour leur assiette fiscale.

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Landmark Supreme Court victory in Zambia: collecting millions in tax revenues and sending a message across borders

By Ignatius Mvula, Assistant Director – Mining Audit Unit, Zambia Revenue Authority, Mary Baine, Director – Tax Programmes, African Tax Administration Forum, and  Ben Dickinson, Head of the Global Relations and Development Division, Centre for Tax Policy and Administration, OECD

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In May 2020, the Zambian Revenue Authority (ZRA) won a landmark tax case against Mopani Copper Mining plc in the Supreme Court. The Court ordered the company to pay additional tax of 240 million Kwacha (USD 13 million). The judgement hinged on Zambia making a technical case showing evidence of tax avoidance through base erosion and profit shifting or BEPS strategies. In countries around the world multinational enterprises (MNEs) exploit gaps and mismatches between different countries’ tax systems, costing countries up to 100-240 billion USD in lost revenue annually, the equivalent to 4-10% of the global corporate income tax revenue. Moreover, developing countries’ higher reliance on corporate income tax means they suffer from tax base erosion and profit shifting disproportionately. Zambia and many African tax administrations report that the abuse of transfer pricing rules – the pricing of goods and services between related parties of a multinational enterprise – represents one of the highest BEPS risks to their tax bases.  

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Trapped in the middle? Developmental challenges for middle-income countries

By José Antonio Alonso, Professor at Universidad Complutense and member of the Spanish Co-operation Council and José Antonio Ocampo, Professor at Columbia University, and former UN Under-Secretary-General for Economic and Social Affairs and Finance Minister of Colombia – Editors of the recent book Trapped in the Middle? Developmental Challenges of Middle-Income Countries, Oxford: Oxford University Press, 2020

The intense growth enjoyed by a group of emerging economies during the last two decades drove some analysts to predict the beginning of a new stage of generalised economic convergence. In their vision, more and more middle-income countries (MICs) were likely to reach high-income status in the near future, taking advantage of the new opportunities provided by access to financial markets, information technology and international trade, including the development of global value chains.

Unfortunately, data have not confirmed these optimist predictions. Actually, up to now, economic convergence has been a selective opportunity for a small group of countries, and rather a generalised tendency for the whole group of MICs. Moreover, there is growing evidence that trespassing the low-income threshold and achieving middle-income status is not enough for countries to converge toward high-income levels. Few MICs have successfully completed that transition in recent decades, with the majority getting stuck in the middle-income group, thus facing what has come to be called the middle-income trap.

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