A Second Hand Conjecture

(photo: William Bedzrah)

One of the traditional problems of economic development in sub-Saharan Africa is that internal African investment dollars tend to be spent outside the continent. Thus it’s interesting to see Nigerian investment in Ghana has now reached $580 million. Something that has sparked quick calls for a Nigeria-Ghana Chamber of Commerce and further liberalization of trade laws.

[George Kumi, Ghana’s High Commissioner to Nigeria] noted that what Nigeria and Ghana need is increase in trade investment and not foreign aids, said the business cooperation between the two countries would go along way in alleviating poverty.

“We need to move away from the old way of over protecting our internal trade. There should be free flow of goods from Ghana to Nigeria and vice versa.”
(BusinessDay)

Good stuff, to be sure.

One of the factors that makes these two countries compatible investors in each other is monetary policy and the (new) tendency of their currencies to retain value. Nigeria’s inflation rate which was as high as 16% in 2005, fell to 6.5% this year (comparable to Chile). Ghana has been experiencing an equally dramatic fall in inflation, from an astronomical 26.7% in 2004, to 11% in 2008 (better than Russia).

With falling inflation of this kind, the temptation to send your profits to Switzerland as soon as you make them is substantially reduced.

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Posted first at Registan.net

When last I touched on the global food crisis and how it is impacting Afghanistan and the rest of Central Asia, I noted that countries continuing to ban wheat exports would make the problem worse by restricting the global market, driving up prices even more, and limiting national coping mechanisms. One of the countries producing a glut of wheat this year was Kazakhstan, whose farmers were enjoying rather handsome profits from the wheat trade. Until now.

Kazakhstan joined other Black Sea grain exporters in curbing shipments on Tuesday, suspending wheat exports until Sept. 1 to combat double-digit inflation in Central Asia’s largest economy.

Analysts said they expected the ban, which excludes flour and will take effect 10 days from now, to cause a short-term spike in world wheat prices as supplies from Russia and Ukraine are already constrained by export limits or tariffs.

This is not insignificant. While Kazakhstan couldn’t lower world prices too much with Australia in a serious rut, an export ban not only fuels price hikes (which are affected by perception as much as supply), but is seriously bad news for poor people trying to feed their families everywhere. As friend-of-Registan.net neweurasia.net notes:

The other four Central Asian countries all import Kazakh grain, and the poor in all countries have been hit severely by recent price surges… Much of the region’s southern arable land is primarily used for growing cotton and cannot easily be converted into growing food crops.

Let’s hope that global food price inflation will come down during this year so that the Kazakh export ban really only has to last until September.

Yes, let us hope. Ben linked to some other interesting local anecdotes about how grain prices are adversely affecting quality of life in most of Central Asia, and they’re worth a read.

Kazakhstan’s behavior is confusing: though it is a much better reaction than a price freeze, an export restriction is of dubious benefit for combating inflation. Inflation is caused when money and credit increase out of proportion with an economy’s ability to produce goods and services. An export ban effectively limits the amount of goods Kazakhstan can produce by harming exporters—the Reuters report speculated it could potentially cause $800 million in losses.

(more…)

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Departing director of the National Bureau of Economic Research, Martin Feldstein, on the economy, credit markets and a lot more in his latest opinion piece and discussion on the Charlie Rose show.

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World markets are not happy with the stimulus plan. My breakdown of the plans likely impact can be found here.

Share prices in Asia, Europe and the Americas all plunged by significant amounts; Wall Street only avoided joining the tumble because U.S. markets were closed Monday for Martin Luther King Day.

Markets in Europe reacted with London’s FTSE 100 Index down 5.5 percent at 5,578.20; the CAC-40 in Paris down 6.8 percent to 4,744.15; and Frankfurt’s DAX dropping 7.2 percent to 6,790.19.

In Japan, the benchmark Nikkei 225 index closed on 13,325.954 points, a slide of 3.9 percent and its biggest dip in two years. Shanghai’s Composite index fell 5.1 percent.

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Chris asked what he thought the Federal Reserve could have done differently. I gave him an answer, but there was more to be said. My full answer is here. Scroll around, there is a lot more on the what could have been done, what might be done, and the general risks which now surround our economy.

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Milton Friedman’s research partner, Anna Schwartz, goes after the federal reserve:

As rebukes go in the close-knit world of central banking, few hurt as much as the scathing indictment of US Federal Reserve policy by Professor Anna Schwartz.

The high priestess of US monetarism – a revered figure at the Fed – says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. “The new group at the Fed is not equal to the problem that faces it,” she says, daring to utter a thought that fellow critics mostly utter sotto voce.

More thoughts from Anna and my musings on the Fed.

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