Land Grabbing in South America: Fueling Displacement and Inequality

Mackenzie Blog Pic

Photo of a woman in rural Paraguay, as part of a series of photographs that reflect the challenges and dignity of the rural poor being displaced at the hands of an agricultural export model. By Flickr user Ministerio de Cultura de la Nación Argentina under an Attribution-ShareAlike 2.0 Generic license.

By MacKenzie Hammond

As the global population continues to rise, land and other natural resources will only grow in importance. Foreign companies have taken advantage of cheap lands and corrupt governance in Latin America, Southeast Asia, and Africa to expand their operations. Worse yet, more than 60 percent of those crops are exported, often leading to rural displacement and food insecurity in developing countries. ‘Land grabbing,’ was first defined in the Tirana Declaration in 2011 as an acquisition of land that violates human rights, dictates unfair contracts, disregards impact on social, economic, or environmental conditions and ultimately causes rural farmers to lose their way of life. Land is packaged and sold to multinational corporations which uproot families and take land away from indigenous populations and the rural inhabitants without offering alternative options for employment.

Foreign investors, such as multinational corporations, promote their commitment to add value to the national economy of countries they invest. Although selling land to foreign investors can increase agricultural exports and contribute to overall economic growth, it does not always translate into economic inclusion for local land owners. Wealth does not trickle down from multi-national corporations to benefit local impoverished populations because increased mechanization reduces labor costs and agricultural employment opportunities. Throughout history, land ownership has been a key determinant of power and wealth. Today, land ownership continues to favor wealthy stakeholders and frequently disadvantages low-income communities. This article analyzes the impact of land acquisition in rural communities of South America and, specifically, the current initiatives in place to improve the livelihoods of impacted populations in Paraguay.

El Gran Chaco is a region in South America that extends across Paraguay, Argentina, Bolivia, and Brazil. The basin has been a focus of foreign investments in the last few decades because of low land and production costs, loose environmental regulations, and high returns. Land is easily acquired in these countries by foreigner’s due to weak land governance and an unequal distribution of resources. Some unenforced policy environments have enabled opportunities for exploitation. One intention of channeling foreign direct investment (FDI) into developing countries is to promote integration into an increasingly globalized market. Developing countries should export common commodities like soybeans, palm oil, and beef to new markets. For example, soybean exports from Argentina, Brazil, and Paraguay combined in 2016 were worth $24.3 billion and accounted for nearly 47 percent of the world’s total soybean exports.

The international demand for products, such as soybeans, and the required land-intensive processes have created extensive problems for the local populations excluded from participation in the global economy. These include increased urbanization and poverty, loss of economic opportunity, and negative environmental and health impacts. Many efforts are tackling the symptoms of the problem, but more attention should address the root cause of the problem – land ownership.

In recent years, local unrest has prompted governmental action in Brazil and Argentina to limit land grabbing. Argentina enacted a land acquisition act in 2011 which limited foreign land ownership to 1,000 hectares. Additionally, Argentina and Brazil have a tax on soybean exports, which puts a burden on producers, but supports the local economy. Argentina recently increased this tax to 50 percent, which has the potential to drive out producers. Through these actions, governments are taking a stance against foreign abuse on the resources and people of these countries.

While countries such as Brazil and Argentina are taking intentional actions to alleviate the issue, others are not taking the effective steps to protect the local populations or land. Paraguay, for example, lacks thorough restrictions on foreign investments for commodities like soybeans and struggles to properly enforce current laws that protect rural populations.

Case Study: Paraguay and the Soybean Monocrop

Paraguay has one of the most unequal land distributions in the world. Nearly 80 percent of agricultural land is held by only 1.6 percent of landowners. Former President Alfredo Stroessner sold or gave away 25 percent of Paraguay’s fertile land during his 35-year dictatorship. Over the years, wealthy land owners have sold their land to large private investors. Companies like Louis Dreyfus or Monsanto are among the many investors who purchase land in Paraguay because of its low valuations, tax incentives, and comparatively good agroecological potential. Since the 1990s, most of these investments have contributed to the expansion of soybean plantations. 75 percent of all arable land in Paraguay is dedicated to soybean plantations. Of these plantations, over 96 percent of soybeans cultivated in Paraguay are exported, primarily to Russia, the European Union (EU), and Turkey, where it is then used primarily for animal feed.

The versatility of soybeans makes it an attractive crop to produce, yet sharing the benefits of this industry has remained a challenge for Paraguay. Rural inhabitants who are uprooted from their land do not benefit from soy exports because soybean plantations increasingly use mechanized processes instead of physical labor. Rural populations not only lose their land but are left without a job to support their families. The expansion of soybeans has forced nearly 9,000 Paraguayan families each year to migrate to the cities in search of work and a better livelihood.

These displaced individuals need a plan for integration into the local economy, whether they have migrated to urban settings or attempted to stay in their rural environments. For example, the World Bank developed a strategy for Paraguay that aimed to improve financial inclusion, increase access to basic services for impoverished communities, and foster market integration for smallholder farmers. The country partnership strategy will be ending in 2018, and the World Bank has not released a progress report on the impact of this strategy yet.

In addition to multilateral organizations – human rights groups, local NGOs, and campaigns are helping attract attention to this immediate concern and provoke a response from the government. Organizations such as the Global Forest Coalition and Friends of the Earth are providing land-use planning methods, legal advice and training for farmers, and human rights interventions to protect the land and freedom of rural inhabitants. Others, like the International Fund for Agricultural Development (IFAD), aim to increase rural capacity in municipalities and organizations. Local government and civil society organizations (CSOs) can strengthen and empower small farmers through facilitated dialogue between affected citizens and government, community protection programs, and cooperation agreements.

Other development organizations in Paraguay link rural farmers to markets through partnerships with the private sector. This way, smallholder farmers are reintegrated into the supply chain of agricultural exports. Despite these efforts for economic integration in Paraguay, these challenges are deeply rooted in structural and political capacity issues that will require institutional actions to improve regulatory frameworks and laws that protect land owners and help those that have already been displaced.

Conclusion

The land management crisis extends beyond Paraguay and El Chaco, beyond soybeans and indigenous populations; more international attention should be given to the situation in Paraguay and in countries around the world where land and wealth divide populations, cause conflict, and destroy livelihoods. Land grabbing will continue to increase urban density and stretch resources, housing, and jobs; youth populations will have higher aspirations than what those jobs can provide; food demand will increase as populations do and agricultural production will struggle to fulfill it. These consequences will intensify if the root of this problem is not addressed proactively. Preventing future land grabs will require an integrated stakeholder response to secure effective and sustainable resource distribution, environmental and human rights protections, and government accountability and transparency.

Doing Business: Icebreaker – not Gospel

By Michael Klein

15 years of Doing Business

It takes less than a day in New Zealand to register a small business. It takes 230 days to do the same in Venezuela – that is, if one follows the law. There is a purpose to registration – notably identification for the tax and social security system.  Doing Business advocates sound rules, not their abolition.  Make the purpose simpler to achieve and people will comply more readily.  Business and job creation become easier. People can do business without paying bribes and without special connections. The informal sector shrinks. Safety nets can improve.  The Scandinavian countries are prime examples of how rules that are easy to use underpin both wealth creation and social safety nets. This illustrates what “Doing Business” is about.

By now the World Bank’s annual Doing Business report has been published for 15 years. It currently covers 190 countries.  Over the years it recorded 3,180 reforms worldwide.  Some 920 of these reforms have in part been triggered by the report.

The very fact that it is politically salient gives rise to periodic disputes, most recently in Chile.  The dispute has triggered broader debate. This note lays out my overall perspective on the report, which I helped launch in 2003 and oversaw until 2009.

To start with, a reminder of what Doing Business does.  In 11 indicator sets, the report records and codes formal rules that govern the life of business from entry to exit – how easy it is to register a firm, how complex to enforce a contract, and so on.  The data are based on the laws and regulations made by governments – not on expert assessments.  Details are available online for anyone who wishes to delve into the nitty-gritty.  The basic methodology of coding rules is state of the art and similar to the other main effort to capture official rules for businesses – the OECD’s Product Market Regulation indicators.

Doing Business Matters

Why does it matter?  Doing Business helps analyze basic institutions that underpin wealth creation and poverty reduction: first, rules that facilitate competition – the entry of new firms and the exit of underperforming firms – and, second, rules that allow businesses to invest and contract.

The Doing Business data are informative.  Peer-reviewed research underpinning the indicators shows their importance for matters like growth, employment creation, and the size of the informal economy.  The data characterize basic processes, for example, those used to enforce a contract.  It is not a priori clear that simpler enforcement leads to greater justice.  Research confronting the Doing Business indicators with perceptions of firms on fairness of outcomes suggests, however, that in fact “justice delayed, is justice denied”.   The data thus help understand how regulations relate to desired outcomes.

The official rules matter.  Lant Pritchett of Harvard and Mary Hallward-Driemeier of the World Bank confronted the Doing Business data with data from the World Bank’s enterprise surveys, which I also sponsored as a complement to Doing Business.  They found, unsurprisingly, that in real life firms do not always follow the law to the letter.  Yet, the key finding was that simpler rules for a given purpose make it more likely that the law guides firms.

At the same time it is obvious that the world is more complex than captured by the report.   The data do not constitute an investor attractiveness measure. They do not capture politics.  In fact, the report comes with its own “health warning”.  Those who think that fixing a few indicators will automatically lead to higher growth may be in for a disappointment.

Many data we use are imperfect.  GDP is a case in point.  Enrolment rates for education are rather imperfectly related to educational quality, and so on.  But the data help and are used in all sorts of ranking – witness the UNDP’s human Development Index.

The Doing Business Report is a diagnostic tool.  Like Cholesterol measurement in medicine it captures risk factors that matter.  Some people still do fine regardless, whereas others suffer even when their measure looks good.  So it is with economies.

Icebreaker

Informing debate.  Some 30 years ago I started working on analysis of markets and underlying institutions.  It was clear that good institutions matter.  When discussing with a government whether its rules for businesses were overly complex, it was hard to prove that things could be done more easily.  Who says that contract enforcement is taking too long?  Unsurprisingly, the defenders of the status quo argue in great detail that prevailing rules are the best they could possibly be.  Doing Business helps challenge such arguments by benchmarking performance.  It shows how other countries solve the same problem. It often reveals problems countries were not aware of.  It shows that things can be better.  It provides detailed ideas on what could be done.  It even provides contact persons in other countries with whom reform ideas can be discussed.

Providing perspective.  In 2006 I visited Ghana.  At the time a meeting of aid donors suggested that Ghana did not reform its business environment – pots of aid money were sitting around unused.  Ghanaian officials, however, claimed they were doing a lot.  Who to believe then?  As it happened, the Doing Business report of the year showed that Ghana was the third most active reformer of business environment rules worldwide.  The government “just did it” – without donor funded consultants.

Creating momentum. Without benchmarking and summarizing, the regulation agenda easily drowns in complexity.  Some 10 years ago, in Mexico private firms opposed a government reform of corporate governance.  They claimed it would make business harder.  The government argued its proposed law would improve markets.  Parliamentarians were confused.  Who is right – the bureaucrats or the people operating in the market?  A person in the government had the idea of using the Doing Business method to benchmark the draft law against other countries.  It turned out that the government proposal would bring corporate governance more in line with good practice. The objection by the private incumbents seemed based on preserving power, not enhancing transparency.  Doing business thus helped government win the parliamentary vote against vested business interests.

Benchmarking shines a light on matters that vested interests rather keep hidden.  Who cares if someone claims, that business registration processes are cumbersome in country A?  Interest rises when it is shown that other countries have simpler rules.  Political interest is really piqued when global rankings show country A looks worse than country B – particularly, if the latter is looked upon a bit askance in country A.  Political momentum is created without a penny of donor funding on the table.

There are those who argue that the global rankings of Doing Business should be dropped.   Indeed, the world is more complex than expressed in the rankings.  Yet, the aggregation of all the data is informative and it stimulates debate.  The challenge is to have a reasoned debate.  The disputes that I experienced typically led to eventual reform.

We also launched a companion project to Doing Business – “Women, Business and the Law.”  Most people debating Doing Business don’t even know about it.  It has escaped major disputes.  In retrospect, I wish we had devised a global ranking so that important issues of discrimination had a brighter spotlight too.

The way ahead

The agenda highlighted by Doing Business matters.  The data help diagnose issues.  The rankings create political momentum.  That leads to improvements.  In a nutshell, that is the case for the chosen approach.

What is to be done?  Implement well.  Make sure data mistakes are corrected and acknowledged when they happen.  Keep methodology changes to a minimum.  Explain the rankings well.  Help a sensible debate about reform unfold.  Use the report as a tool, not a gospel.

Emerging from the Darkness: Albania’s Informal Economy

Bruna Blog ImagePhoto of New Bazaar in Tirana, Albania by Flickr user Tokil under an Attribution-ShareAlike 2.0 Generic license.

By Brunilda Kosta

Last year, Albania took the third step in the government’s plan to reduce economic informality, an issue which has long restricted development and prosperity for the country. For this article, the informal economy is defined as activities which are legal but do not fully comply with state regulations. They include tax evasion, lack of business registration, and labor regulation avoidance. Such forms of informal economic activity are detrimental to a country’s economic growth, and seem to occur more frequently in countries that are undergoing structural reforms and transitional economic adjustments, such as Albania.

Numerous studies have showcased the high level of informality in Albania. Friedrich Schneider, Professor of Economics at the Johannes Kepler University (2010), estimated that in 2007 the Albanian informal economy was equivalent to 32.9 percent of GDP. A 2013 study conducted by the European Bank for Reconstruction and Development (EBRD) surveyed business leaders in Albania,  40 percent of whom admitted that they are forced to compete with the informal sector. Finally, in 2015 the Albanian government disclosed that the informal economy makes up 50 percent of GDP. These startling figures encouraged the government to institute reforms. In 2015, the Albanian government elevated its focus on informality and undertook diverse actions to mitigate the associated issues. This article analyzes the Albanian government’s approach to reducing informality and aims to come up with actionable and pragmatic policy recommendations for implementing effective reforms.

The Albanian government has struggled to integrate the informal sector into the economy for many years. The informal economy moved into the spotlight in August 2015 when Albania’s Prime Minister publicly announced that the government would make it a priority, but failed to provide a timeline or specific details on how to do so. Following this announcement, Albania’s Minister of Finance vaguely explained their ideas for addressing informality but did not lay out a public strategy. In April 2016, the Minister of Finance announced the next action, a strategy designed in collaboration with the International Monetary Fund (IMF); however, the strategy remained vague. The business community and economic experts argued that these actions were taken haphazardly and with the purpose of increasing government revenues. The third phase was launched in September 2017 and went into effect at the beginning of October the same year. The government announced that it will spare no efforts to “eradicate” informality. These recurrent actions produced encouraging outcomes such as additional revenues and an increased number of registered businesses and employees. Simultaneously, these actions have had economic and psychological consequences for business operations.

One of the key actors in the informal sector is employees. In Albania, informal employment is manifested in various patterns as displayed in the chart below: 39.75 percent of employees declared not to have a written contract with their employer, while 30.29 percent of employees declared that they do not pay for social and health security benefits (Figure 1). When compared to the averages for Southeastern Europe (SEE), the biggest difference was between the number of employees with no written contract. One reason behind this high level of informal employment could be the short-term benefits to employees such as earning extra income that would otherwise have been taxed. Nevertheless, aside from some rudimentary benefits, the drawbacks of staying informal outweigh the informal benefits. For example, operating in the informal economy prevents employees from reaping the benefits of the formal sector like earning a pension and having a higher salary. A recent study estimates that Albanian workers earn 29.3 percent more in the formal sector than in the informal, despite widespread belief of the opposite.

Figure 1: Informal employment patterns

Bruna Blog Chart

Source: Albanian Center for Economic Research (ACER) & Southeast Europe Leadership for Development and Integrity (SELDI), 2016

Another pattern of informality is underreporting income. This often occurs among firms that utilize only cash transactions, which is a widespread practice in Albania. A study of the National Business Forum in Albania found that businesses underreport around 30 percent of annual turnover.

Many of these statistics support, to some extent, the government’s efforts to address informality in the last several years. The Albanian government’s intentions were positive, but its approach to combating informality has been flawed. The purpose is to incentivize informal firms to transition into the formal market; however, coercing firms out of the shadows carries significant risks. In Albania, formalized firms struggle to survive because regulations are burdensome, which is a contributing factor to informality. Some challenges for Albanian business owners, according to the recently released Global Competitiveness Index include tax rates, corruption, and access to financing. This report is corroborated by the most recent Doing Business report 2018 for Albania, which shows that ‘paying taxes’ is a major obstacle to the ability for businesses to grow and succeed. The Albanian government should decrease the regulations placed on businesses, which could naturally facilitate the formalization process.

Fortunately, sustainable change is starting to occur. For example, it is worth applauding the government’s recent withdraw from its initial plan to include small businesses in the value-added tax scheme. This shows that the government’s genuine efforts to diminish the informal economy, coupled with effective dialogue with the business community, could yield positive results and generate a win-win scenario. Moreover, the government has stimulated notable positive results despite its lack of transparency and collaboration with the business community. For example, in 2016, Albania had an average of 56 registered firms per 1,000 people, while in 2014 it had 40 registered firms per 1,000 people. This shows that there was an increase in the number of businesses registered over the span of two years. On the other hand, more than 100,000 businesses deactivated their status or initiated their forms for closing procedure. The tough actions of putting people in jail raised psychological pressure and fear among businesses which disrupted normal business operations.

The fundamental question remains: how can the government encourage informal businesses to move into the formal sector, while minimizing the negative consequences of doing so? The following policy recommendations should be considered:

  1. The government should stop prematurely talking about actions without the knowledge base to support those actions. Working in the hidden economy in SEE is often socially embedded and not simply a matter of rational choice to maximize personal benefit. Hence, a comprehensive understanding of social norms, cultural customs, and historical facts should be understood first.
  2. The government should include interrelated issues that incentivize formalization. For instance, small businesses often fear that coming out of the shadows will mean more shakedowns by corrupt officials or entanglement in bureaucratic red tape. Corruption is a clear concern and burden for the business community and should be addressed by the government.
  3. Using structural reforms and technology to curb informality could also benefit government finances, growth, and poverty reduction.
  4. Tackling informality should be a joint effort strategy; the government should improve their dialogue with the business community and effectively engage with and accept their reasonable proposals.
  5. Finally, the government should design a clear strategy for informal economy mitigation, drawn on sectoral basis, and associated with a rational action plan.

It is difficult for any economy to eradicate informality entirely. However, bringing informal activity out of the shadow economy has the potential to boost tax revenues, increase productivity, spur economic growth, and improve the quality of life for Albania’s citizens.

Power Sharing for Post-Conflict Development: The Case of Rwanda and Burundi

264341670_eb5ff2f192_b

Photo of Kigali, Rwanda by Flickr user oledoe under an Attribution-ShareAlike 2.0 Generic license.

By Francis Jung

Introduction

According to the World Bank, the IMF and the US Agency for International Development (USAID), Rwanda is doing exceptionally well at attaining the development goals outlined in its Vision 2020, despite the Rwandan Genocide of 1994.  Burundi, on the other hand, is not doing so well; especially since President Pierre Nkurunziza’s announcement to run for a third term in April of 2015.  Why is Rwanda doing so well, while Burundi is doing so poorly when it comes to achieving human development goals?

At face value, the question seems broad and mundane to which any number of people in the development community could provide a separate answer, half of which would start out with, “that depends;” but a deeper analysis of their similarities suggest that it would be reasonable to draw from the two something specific that explains why one country has driven down poverty and infant mortality while maintaining stable growth rates and the other is all but re-immersed back into conflict.

This article establishes that the reason Rwanda is doing so well is mainly due to two factors:  first, the consolidation of power, the exclusion of opposing parties and the establishment of a single-party state early on its post-conflict development and second, Rwanda’s focus on implementing the Sustainable Development Goals; and Burundi is doing so poorly because the government is vulnerable to power seeking, would-be political entrepreneurs.

Continue reading

International Documentaries in Global Development: Outreach, Measuring Impact and Engagement

By Julie Tumasz

Public and private organizations can use documentaries to widen the public’s awareness of development issues, motivate public involvement, and have a beneficial impact on non-profits’ social change goals. Non-government organizations (NGO), federal governments, and the private sector use a variety of different strategies to reach, impact, and engage documentary audiences – both while watching the film and afterwards, through activism and advocacy. Measurable outcomes of documentary films can be seen in several steps of the documentary process: the story, outreach, impact and finally, engagement.  The best strategies for organizations to effectively complete these steps are to engage the viewer before, during, and after the viewing.

This article will examine two widely distributed feature-length documentaries from two different American filmmakers that focus on promoting the same social goal of education. World Vision Documentaries describes the importance to tell a development story from the perspective of an outsider because that is the same perspective as the audience the filmmakers are targeting; these films were primarily aimed at American audiences. These feature films, making use of long-form storytelling, appropriately match the complexity of development work unlike short-form advertising, spots or social media.

16536819459_9b4813c063_k

A filmmaker captures a rural school in Kabwe, Zambia. Documentaries inform and motivate the global public to participate in international development issues. Photo courtesy of Flickr User Francesco Volpi, under a Creative Commons Attribution-Share Alike 2.0 Generic License.

Continue reading