WIDER ATLANTIC POLICY PAPER SERIES

NORTH-SOUTH REBALANCINGThe Role of Innovation, Technology Transfer, and Sharing of Best Practices BARBARA KOTSCHWAR

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On the cover: A sugar cane plantation in Brazil. © wsfurlan/istockphoto

North-South RebalancingThe Role of Innovation, Technology Transfer,

and Sharing of Best Practices

Wider Atlantic Policy Papers

May 2014

By Barbara Kotschwar1

1 Barbara Kotschwar has been a research fellow with the Peterson Institute for International Economics since 2007. She is also adjunct professor of Latin American studies and economics at Georgetown University, where she has taught courses on political economy and trade and integration in the Americas since 1998.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Trade Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Heading Off Resource Curse Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Social Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Environment and Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

North-South Rebalancing 1

Introduction1

Between 1980 and 2011, South-South trade increased from less than 8 percent to more than 26 percent of world merchandise trade.

The initial decades of the 21st century mark the emergence of the global South. Countries long classified as “developing” have taken on

a greater weight in the world, and their growing influence is changing the dynamics of international economics, politics, and society.

The Atlantic region has long been a source of ideas and inspiration. From the society-changing products of the industrial revolution to the technological leaps and bounds emanating from Silicon Valley, Europe and the United States have been the traditional founts of innovation. Now the countries of the South Atlantic are contributing to this tradition, offering innovative policies responding to modern conditions. These countries, by offering innovative solutions to 21st-century challenges, are crafting a new, modern transatlantic space.

This paper will focus on four trends in which countries of the South Atlantic have emerged as thought leaders. The first is agenda-setting in the international trading regime. As trade has become a greater component of GDP across the board, the rules within the World Trade Organization’s (WTO) agreements have become more important and, arguably, more contentious. South Atlantic countries have played key roles in advancing developing-country needs in this arena. Second is in the policy response to best mitigate against challenges emanating from the “natural resource curse.” As Asia’s demand for primary goods has expanded, so has the risk to primary commodity exporters of the negative consequences of sudden good economic fortune. Countries in Latin America and Africa have developed and implemented innovative measures that will guard their country’s prosperity for future generations and can serve as a model for others. Third is the challenge of poverty alleviation. The paper explores several policies that have proven to be key factors in the rise of the Latin American and African middle

classes — policies from which best practices can hopefully be replicated to keep those that have escaped poverty in the coveted middle class as well as spur greater opportunities for those still below the poverty level. Finally, the challenge of climate change threatens countries that are closer to the equator more immediately and more intensely than those that are farther away. The South Atlantic countries are responding to this threat and developing innovative approaches to address this issue.

The “emerging market and developing economies” have seen their share of global income rise from 39 to 48 percent during this time period, and are projected to reach 50 percent by 2015.1 Between 1980 and 2011, South-South trade increased from less than 8 percent to more than 26 percent of world merchandise trade.2 In contrast, the G7 economies, which in 2003 made up over 60 percent of world income, had fallen to just over 50 percent by 2013. This shift has been driven largely by the rise of developing Asia, notably China,3 a region whose share of world GDP rose from 16 to 23 percent during these ten years. However, developing countries in the Wider Atlantic geo-economic area have also experienced an upward shift in their economic and political status.4 The growing influence of developing countries,

1 IMF. 2013. World Economic Outlook. Washington, DC: Inter-national Monetary Fund.

2 UNDP. 2013. Human Development Report 2013. The Rise of the South: Human Progress in a Diverse World. New York: United Nations.

3 China is currently the world’s second largest economy when measured in terms of GDP at current prices in 2010. If measured in PPP terms, it is the world’s largest economy (See Subramanian 2011a and 2011b).

4 For a definition of the Wider Atlantic, see Sparding, Peter. 2014. “Trade in the Wider Atlantic and the Transatlantic Trade and Investment Partnership.” Wider Atlantic Policy Papers. Washington, DC: German Marshall Fund. March. http://www.gmfus.org/archives/trade-in-the-wider-atlantic-and-the-transat-lantic-trade-and-investment-partnership/

The German Marshall Fund of the United States2

pictured in Figure 1, are changing the dynamics of international economics, politics, and society.

This phenomenon is keenly felt in the Wider Atlantic. The principal protagonists driving the economic, strategic, and cultural interactions between the countries on either side of the Atlantic Ocean have traditionally been the European countries, the United States, and Canada (though the latter is often aggregated with the United States). As Ian Lesser writes, the future of the Atlantic space will be heavily influenced by the South Atlantic, with this shift “driven by the rise of Brazil and South Africa as global actors…”5 Other South Atlantic emerging markets such as Mexico, Chile, Ghana, and Botswana are also making their presence known by implementing policies, devising

5 Lesser, Ian O. 2010. “Southern Atlanticism: Geopolitics and Strategy for the Other Half of the Atlantic Rim.” Brussels Forum Paper Series. March. http://www.gmfus.org/archives/southern-atlanticism/

mechanisms, and effecting changes felt across the Atlantic and around the globe.6

6 This paper refers to the South Atlantic as those countries in Latin America and Africa whose coastlines border on the Atlantic Ocean. Latin America’s Atlantic side includes the Southern Cone countries — Argentina, Uruguay, Brazil, and Paraguay (although Paraguay is landlocked, it is included because it is a member of the MERCOSUR customs union) as well as Chile (while most of Chile borders the Pacific Ocean, it kisses the Atlantic Ocean at its southernmost territory, including the geopolitically important free port Punta Arenas), the Carib-bean, and Mexico. African countries include Angola, Benin, Cameroon, Cape Verde, Republic of Congo, Côte d’Ivoire, Dem. Rep. of Congo, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mauritania, Morocco, Namibia, Nigeria, Senegal, Sierra Leone, South Africa, and Togo.

Figure 1. Selected regions’ share of world GDP (percent, measured in current US$)

0

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Developing Asia LAC MENA SSA G7 Emerging markets

Source: IMF WEO database April 2014

North-South Rebalancing 3

Trade Policy2Emerging economies are participating more

and more in the international trading system, and their increased prominence has been

noticed. Table 1 shows the increasing share of developing regions — South and Central America, the Commonwealth of Independent States (CIS), Africa, the Middle East, and Asia — in world exports, and the declining share of the United States and Europe. Developing countries have taken an increasingly active role in the international trading system.7 The Doha Development Round was stimulated in part by the increased participation of developing countries in the World Trade Organization (WTO). Traditionally, the structure and rules of the General Agreements of Tariff and Trade (GATT) were established by the United States and Europe.

While the original 23 GATT Contracting Parties represented a diverse swath of countries,8 the main protagonists in its implementation and operation have tended to be the United States and the countries of the European Union. For example, six of the nine GATT/WTO heads have hailed from a European country.9 That the recently appointed director general of the trade body is a Brazilian points to the rising prominence of the South Atlantic in trade.

7 See, for example Odell, John S. 2006. Negotiating Trade: Developing Countries in the WTO and NAFTA. Cambridge: Cambridge University Press; and Hoekman, Bernard, Aaditya Mattoo, and Philip English. 2002. Development, Trade, and the WTO. Washington, DC: World Bank.

8 Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxem-bourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom, and the United States.

9 1948-1968: Eric Wyndham-White (United Kingdom); 1968-1980: Olivier Long (Switzerland); 1980-1993: Arthur Dunkel (Switzerland); 1993-1995: Peter Sutherland (Ireland); 1995-1999: Renato Ruggiero (Italy); 1999-2002: Mike Moore (New Zealand); 2002-2005: Supachai Panitchpakdi (Thailand); 2005-2013: Pascal Lamy (France); 2013-present: Roberto Azevedo (Brazil).

The emerging South Atlantic middle powers have not only seen their weight in international trade enhanced, they have also had an impact on the substance of the international trading regime. Their impact has been particularly evident in the Doha round of WTO negotiations, where developing countries have come to play an increasingly important role in the negotiating process. Sometimes serving as representatives of the global South, both Brazil and South Africa have had considerable influence on the negotiating agenda, proposing new issues, or, at times, blocking the negotiations.

One outcome successfully spearheaded by Brazil and South Africa was the inclusion of access to affordable medicines on the international trade agenda. Despite strong initial resistance from pharmaceutical exporters, they ultimately prevailed, the end result being the 2001 Doha Declaration on the TRIPS Agreement and Public Health (known as

Table 1. Selected regions and countries’ share in world exports (percentage)

2003 2012World 100.0 100.0

North America 15.8 13.2

South and Central America 3.0 4.2

Brazil 1.0 1.4

Europe 45.9 35.6

CIS 2.6 4.5

Africa 2.4 3.5

South Africa 0.5 0.5

Middle East 4.1 7.5

Asia 26.1 31.5

China 5.9 11.4

Japan 6.4 4.5

India 0.8 1.6

Source: WTO International Trade Statistics 2013

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the Doha Declaration), and subsequent Decision on the Interpretation of Paragraph 6 reached in 2003, which affirmed the flexibilities available under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to member states seeking to protect public health. This decision was a win for developing country consumers, who often do not have access to expensive medicines, and a boost to the generic drug industry in several developing countries.

This issue resonated in both Latin America and Africa. Brazil has long been an example of success in the fight against the AIDS epidemic, and as such was a natural leader for this initiative. Brazil’s

technical capacity and political commitment to eradicating AIDS included the implementation of national prevention programs. In 1996, Brazil’s Congress passed a law mandating universal provision of retroviral medication. At that time, South Africa had the largest number of people suffering from HIV or AIDS, so it had a significant interest in ensuring low-cost access to medicines. South Africa, as part of the African Group of WTO members, pushed to have access to generic medicines on the Doha agenda. The final version of the declaration was negotiated by the United States and Brazil.

North-South Rebalancing 5

Several South Atlantic countries have successfully forged policies to mitigate the negative impacts of extraction-based wealth and stabilize economies that are highly vulnerable to external shocks and fluctuations. Two prominent examples are commodity exporters Chile and Ghana.

The commodity boom spurred by strong demand in Asia gave rise to a decade of strong growth in many commodity-exporting

developing countries. Rising commodity prices often lead to the natural resource curse, which is associated with the so-called “Dutch Disease” of overvaluation and deindustrialization. It is also often associated with corruption and violence. Natural resource-dependent countries tend to score lower on the UN Human Development Index, and receive worse marks than other similar countries on indicators of corruption and transparency. 10 Several South Atlantic countries have successfully forged policies to mitigate the negative impacts of extraction-based wealth and stabilize economies that are highly vulnerable to external shocks and fluctuations. Two prominent examples are commodity exporters Chile and Ghana. Chile’s steady management of commodity price fluctuations in a manner that allows counter-cyclical fiscal policy has served as a model for others. Ghanaian officials carefully adopted a way of disciplining oil revenues and distributing these gains to the populace, so far avoiding the nefarious effects of oil wealth on the societies of some of its neighboring countries.

Chile: Institutionalizing Fiscal Stability

Chile’s counter-cyclical policy framework, largely inspired by the Scandinavian model and adapted to developing country’s needs, is widely cited as an example to follow. Chile’s main policy challenge is to manage the volatility of copper tax revenues, particularly given its increasing dependence on them, which currently make up about 24 percent of total government revenues, or 6 percent of

10 For a comprehensive discussion of this phenomenon, see Cullen S. Hendrix and Marcus Noland, forthcoming. “Confronting the Curse: The Economics and Geopolitics of Natural Resource Governance.” Washington, DC: Peterson Institute for International Economics.

GDP.11 Chile’s experience could be instrumental, particularly as Northern countries endeavor to consolidate their fiscal position and construct effective automatic stabilizers.

Chile adopted a Copper Stabilization Fund in 1985 that mandated that revenue be saved when copper’s price rose above a certain target and allowed withdrawals when the price fell below the target. Several improvements were made to this model. In 2001, Chile adopted a non-binding fiscal responsibility rule that institutionalized consideration of the business cycle as well as copper price fluctuations and mandated a structural budget surplus of 1 percent of GDP. In 2006, this rule was codified as Law No. 20128. Chile also created two sovereign wealth funds that replaced the original Copper Stabilization Fund: the Pension Reserve Fund (PRF) and the Economic and Social Stabilization Fund (ESSF), established with the revenues from the old Copper Stabilization Fund, to finance Chile’s goals in the areas of public education, health, and housing. The Fiscal Responsibility Rule also mandates that the difference between the effective fiscal surplus and the contributions to the pension fund and the Central Bank be deposited into the ESSF.

The Chilean model is thus comprised of three pillars:

• A budget target, initially set at a surplus of 1 percent of GDP, then revised, in 2008, to balanced.12

11 Dabán, Teresa. 2011. “Strengthening Chile’s Rule-based Fiscal Framework.” IMF Working Paper WP/11/17. Washington, DC: International Monetary Fund.

12 The target was revised to 1 percent under President Michelle Bachelet in 2007 as macroeconomic conditions and the Central Bank of Chile’s balance sheet had improved and to 0 percent in 2009 to allow for countercyclical fiscal policy in the wake of the global financial crisis.

Heading Off Resource Curse Outcomes3

The German Marshall Fund of the United States6

Conscious of the natural resource curse, the

Ghanaian government developed a mechanism

to slow government oil spending and avoid

some of the outcomes seen in oil-producing

neighbors, with the rich benefitting, the poor

getting even poorer, and the degradation of the

non-oil economy.

• The mandate that the budget target be defined structurally. According to Chilean policy, deficits are only allowed if output falls short of trend or if copper prices fall below trend.

• The establishment of an independent panel of experts to project trend prices.13

Chile was an early adopter of fiscal rules, which are used to improve the sustainability of public debt, control government size, or contribute to fiscal stability, and is a good example of what the Economic Commission for Latin America and the Caribbean (ECLAC) has termed the “fiscal covenant” in Latin America, with countries designing an institutional structure that enforces the principles of stability and responsibility.14 The number of countries adopting fiscal rules has grown in the past decade. According to the IMF,15 there were 10 such countries in 1990, 30 in 2001, and over 50 in 2009. Chile’s important innovations are the independent panel of experts and a regular and transparent review of the mechanism.16

Ghana: Balancing Petroleum’s Excesses

Significant offshore petroleum discoveries were made in Ghana starting in 2007. By the end of 2013, the government’s share of oil revenues was forecast to exceed $1 billion per year. Conscious of the natural resource curse, the Ghanaian government developed a mechanism to slow government oil spending and avoid some of the

13 Jeff Frankel (2011) points out that this has helped Chile avoid the over-optimism seen in 32 other governments — including the United States and several European governments — whose trend forecasts were consistently overly optimistic.

14 ECLAC. 1998. The Fiscal Covenant: Strengths, Weaknesses, Challenges. LC/G.1997/Rev 1. Santiago: Chile.

15 IMF. 2009. “Fiscal Rules - Anchoring Expectations for Sustainable Public Finance.” Discussion paper approved by Carlo Cottarelli. Washington, DC: International Monetary Fund. December 19.

16 IMF. 2007. “Assessing Chile’s Reserve Management.” IMF Survey. Washington: International Monetary Fund.

outcomes seen in oil-producing neighbors, with the rich benefitting, the poor getting even poorer, and the degradation of the non-oil economy. Ghana’s Petroleum Revenue Management Act (Act 815) was implemented in 2011,17 and it has been lauded as an innovative approach.18 The law outlines clear mechanisms for collecting and distributing petroleum revenue, indicating the percentage that should be directed to the annual budget and how much should be saved for later. The law also enhances transparency in the use of oil revenues by creating an oversight body: the Public Interest and Accountability Committee (PIAC). The PIAC is comprised of 13 members from civil society. Its role is to monitor compliance with the law, publishing its findings semiannually. Its first report, which found positive fiscal news but also identified areas for improvement, was lauded by the Revenue Watch Institute, an NGO dedicated to accountability in the extractive sector, as “setting a new standard for accountability.”19

Chile’s and Ghana’s responsible fiscal management and even-handed promotion of transparency will serve their future generations well and are excellent models for other countries struggling to manage commodity wealth.

South Atlantic developing nations have also played an important role in boosting transparency in the international resource regime. South Africa’s key role in convening African diamond-producers in 2000 to exclude conflict diamonds

17 Available at http://www.mofep.gov.gh/sites/default/files/reports/Petroleum_Revenue_Management_Act_%202011.PDF.

18 Dovi, Etam. 2013. “Ghana’s ‘new path’ for handling oil revenue: Seeking to avoid the ill effects of Africa’s resource ‘curse.’” Africa Renewal. January 20; and Moss, Todd and Lauren Young. 2009. “Saving Ghana from Its Oil: The Case for Direct Cash Distribution.” CGD Working Paper 186. Washington, DC: Center for Global Development. October.19 Tarrant Tayou, Emma. 2012. “Ghana Oil Report Sets New Standard for Accountability.” Revenue Watch. May 18. http://www.revenuewatch.org/news/blog/ghana-oil-report-sets-new-standard-accountability (accessed March 3, 2014).

North-South Rebalancing 7

from the legitimate trade by introducing a certification scheme has arguably influenced other transparency initiatives geared towards the natural resource sector such as the Extractive Industries Transparency Initiative (EITI) and the UN Global Compact.

The German Marshall Fund of the United States8

The South Atlantic has made a significant

contribution to how the world thinks about

alleviating poverty, particularly the problem

of poverty in middle-income countries.

One of the principal driving trends in the global economy is the dramatic rise of the middle class in the developing world. Both

Latin America and Africa have seen a significant portion of their population move from poverty into the middle class. The African Development Bank estimates that the middle class in Africa has tripled in the past 30 years.20 Latin America’s middle class has famously grown by 50 percent over the past decade, and now represents 30 percent of the population, according to the World Bank.21

The South Atlantic has made a significant contribution to how the world thinks about alleviating poverty, particularly the problem of poverty in middle-income countries (MICs). The high and sustained growth of the 2000s has served to allow many developing countries, particularly commodity exporters, to move from lower to higher income categories as defined by international development institutions22 and to bring people out of poverty and into a growing, though often still vulnerable, middle class. A major challenge for middle income countries is maintaining macroeconomic stability while enacting policies that promote growth as well as social equity and more equitable income distribution.

The middle income countries in the South Atlantic have a track record of best practices in the area

20 The ADB defines middle class as those spending between $2 and $20 per day. African Development Bank. 2011. “The Middle of the Pyramid: Dynamics of the Middle Class in Africa.” ADB Market Brief. April 20. www.afdb.org.

21 Ferreira, Francisco H.G., Julian Messina, Jamele Rigolini, Luis-Felipe López Calva, Maria Ana Lugo, and Renos Vakis. 2013. Economic Mobility and the Rise of the Latin American Middle Class. Washington, DC: the World Bank.

22 For example, in July 2013, Antigua and Barbuda, Chile, Latvia, Lithuania, the Russian Federation, and Uruguay all moved from Upper Middle to High income; Belize moved from Lower to Upper Middle; and Hungary from High to Upper Middle in the World Bank’s country classifications (http://data.worldbank.org/news/new-country-classifications).

of poverty alleviation. Brazil has lifted about 20 million people out of poverty with a mix of sound macroeconomic policies, particularly by bringing inflation under control and through directed social programs.23 President Dilma Rousseff has called her administration’s “most obstinate fight” the fight to eradicate indigence (defined as those earning less than $45 per month).24

Conditional Cash Transfer Programs: Effective Tools to Boost Social Capital

One principal vehicle for poverty alleviation has been conditional cash transfer programs (CCTs). Pioneered by Mexico and Brazil in the late 1990s and early 2000s, CCTs have been characterized by The Economist as “An anti-poverty scheme invented in Latin America […] winning converts worldwide.”25 The innovation of CCTs is that monetary transfers are conditioned on the recipients’ meeting a set of requirements, often designed to advance social objectives. The Latin American CCTs aim to alleviate short-term poverty, but also seek to serve the medium- and long-term goals of directly enhancing social capital through improved participation in education and health services, particularly for the young. CCTs offer two innovations to poverty alleviation. First, financial transfers are channeled directly to qualifying candidates, generally mothers (or any caregiver directly responsible for children). These transfers are then contingent on the recipient demonstrating compliance with particular requirements, in this case, school attendance and vaccination of the caregiver’s child/children. Second, the CCTs must

23 See, for example, Ferreira et al.

24 Dilma Rousseff, quoted in Forero, Juan. 2011. “Fast-growing Brazil Tries to Lift its Poorest.” The Washington Post. May 11. http://www.washingtonpost.com/world/americas/fast-growing-brazil-tries-to-lift-its-poorest/2011/05/10/AFqgEEpG_story.html.

25 The Economist. 2008. “An anti-poverty scheme invented in Latin America is winning converts worldwide” February 7. http://www.economist.com/node/10650663.

Social Policy4

North-South Rebalancing 9

The success stories from Mexico and Brazil have spurred widespread emulation by other countries. Also notable is their scale: Mexico’s Oportunidades reaches more than 5 million households, Bolsa Familia more than 11 million.

conduct controlled experiments to discover which policies are working, determine best practices, and adjust accordingly.

Mexico initiated the CCT trend on a large scale with the 1997 adoption and implementation of the Programa de Educación, Salud y Alimentación (Progresa), which subsequently evolved into the current program known as Oportunidades in 2002. Oportunidades targets poverty by providing payments to families in exchange for demonstrated school attendance, health clinic visits, and nutritional supplements. While Progresa was set up under President Zedillo, and Oportunidades under President Vicente Fox (from a different political party than Zedillo), efforts were made to establish the program as independent from party politics, which was instrumental to its success and longevity. An important element of the program since the beginning has been its independent evaluation. Progresa was first evaluated in 1997, then in 2000 by the International Food Policy Research Institute (IFPRI).26

While Mexico’s Oportunidades was the first of its kind, Brazil’s Bolsa Familia and its network of related programs is the largest CCT program in the world. Brazil launched a network of social policies in the late 1990s and 2000s that are widely credited for bringing tens of millions of its citizens out of poverty. Upon taking office in 2003, President Luiz Inacio Lula da Silva implemented a program called Fome Zero, or Zero Hunger, citing the right to food as a basic human right. This built upon programs implemented by Belo Horizonte Mayor Patruz Ananias, who was later named Minister of Social Development and Hunger Alleviation, as well as upon the Bolsa Escola program, which had been implemented in Brasilia in the 1990s. This led to

26 Frankel (2012b) attributes this in part to fuelling the Randomized Control Trials (RCT) movement in development economics, most famously espoused by prize-winning econo-mist Esther Duflo.

a web of conditional cash transfer programs, now known as Bolsa Familia, which many credit with dramatically reducing poverty in Brazil. Surveys of Latin American CCTs show that they have been effective in bolstering human capital accumulation in poor households by increasing school enrollment rates, improving preventive health care, and raising household consumption.

The success stories from Mexico and Brazil have spurred widespread emulation by other countries. Also notable is their scale: Mexico’s Oportunidades reaches more than 5 million households, Bolsa Familia more than 11 million.27 The rationale for having the government subsidize the cost is to address societal bottlenecks to particular social services, in this case health and education. The governmental subsidy serves to cover the costs of obtaining these services — transportation costs, lost time, and lost income from child labor — and the cost is compensated by the long-term societal benefits. Equity considerations — giving the poor equal access to education and health services — also play a role. Payments are made from the government directly to the recipient family in an attempt to reduce overhead and avoid corruption. Other countries, such as Chile, Jamaica, Honduras, Nicaragua, Peru, Malawi, and Zambia have also taken note and instituted similar programs. New York City has famously adopted similar reforms, with the Opportunity NYC program directly inspired by Oportunidades (right down to the name).28

27 Feitosa de Britto, Tatiana. 2009. “The Emergence and Popu-larity of Conditional Cash Transfers in Latin America.” Chapter 9 in Lagarde, M (ed) Social protection for the poor and poorest: concepts, policies, and politics. Basingstoke: Palgrave-McMillan.

28 Opportunity NYC was a CCT program launched by NYC Mayor Bloomberg in 2007. It was the first CCT program in a developed country. See, for example, Riccio, 2010. http://www.npc.umich.edu/publications/policy_briefs/brief22/policybrief22.pdf.

The German Marshall Fund of the United States10

In Africa, a key story has been the rapid jump in

mobile phone adoption, particularly for business

use and banking but also to help drive a

thriving grass-roots civil network.

Mexico has also paved the way with regards to how the original program has developed in keeping with the country’s evolving needs. At first, Progresa served to bolster the incomes of the poor during difficult economic times as Mexico was still picking itself up from the economic hit of the 1980s debt crisis. Then, buffeted by the 1994 peso crisis, it recognized and sought to overcome decades of underinvestment in human capital among the poor and in specific regions of the country. When Progresa evolved into Oportunidades in 2006, this transition also increased the scope of the program: Oportunidades now includes education beyond secondary school, skills training for the unemployed in urban areas, and additional subsidies for seniors over 70.29

As demonstrated, many Latin American countries have taken steps to rewrite the social contract, with significant results.

Middle Income Countries, New Technologies, and Democracy

Another prominent feature of middle class societies is the demand for better quality institutions, better services, and greater welfare. This has given rise to a network of communication and a new class of civic expression among countries and regions.

In Africa, a key story has been the rapid jump in mobile phone adoption, particularly for business use and banking but also to help drive a thriving grass-roots civil network. Africa is the host to the most sophisticated mobile payment system in the world in the form of Kenya’s M-Pesa (the m stands for mobile; pesa is the Swahili word for money). Originally developed to allow repayment of microfinance loans, M-Pesa allows any user with a national ID card or passport to deposit, withdraw, or transfer money through her or his mobile device. In Africa, mobile banking has rapidly leapfrogged

29 Feitosa de Britto.

traditional banks, allowing users to effect business transactions, receive remittances, or even receive grants.

The continent has, in just over a decade, become the world’s second most connected region, following East Asia and the Pacific. This has drastically increased the flow of information and social organization, with dramatic effects on civic participation (particularly among the young), and has served as a robust platform for business. Technologies currently used in electronic commerce are being explored for bolstering the continent’s health services and educational system.

To supplement this potential, African entrepreneurs have begun to explore the low-cost technology niche market, a highly dynamic group of consumers and potential consumers. The Encipher Inye is a tablet computer developed by a group of Nigerian entrepreneurs. The Inye’s appeal is in its low price and its simplicity: it can connect to the Internet via a dongle (a small device that plugs into a computer), thereby overcoming the infrastructure constraints that characterize many poor countries. Wireless and broadband technology is not yet widely available in many public places. This can help tech-savvy youth who cannot afford a traditional computer to become even savvier and to apply their talents to commercial or educational uses. This availability can also spur indigenous innovation: local developers are designing apps that address issues such as HIV, water and sanitation, and education.

In Latin America, those citizens who have for the first time experienced what it is to be middle class — to have education, better health outcomes, and comforts that were unthinkable half a generation ago — will fight to maintain their new position. In Brazil, a rise in public transportation fares kicked off a weeks-long outpouring against corruption, waste, and poor government policies,

North-South Rebalancing 11

fueled by rising inflation and low growth. In Mexico, previously reticent citizens have taken to social media to name and shame elites violating rules and taking advantage of their position.30 In Europe, people have streamed into town squares in countries like Turkey and Bosnia, demonstrating against political repression, corruption, and lack of access to freedoms and opportunities. A Turkish protestor put it as follows: “We are all linked together, Bulgaria, Turkey, Brazil. We are tweeting in English so we can understand each other, and supporting each other on other social media…We are fighting for different reasons, but we all want our governments to finally work for us. We are inspiring each other.”31

30 The Economist (May 17, 2013) cites the famous case of “Lady Profeco,” the daughter of the head of the consumer protec-tion agency, whose father was fired by the president after his daughter called upon the agency to punish a trendy restaurant that did not have a seat for her. Though the father was in the hospital, staff from Profeco responded and disrupted service at the restaurant. Other similar stories abound, with social media helping to shine light on behavior that previously was taken for granted and allowed to take place. http://www.economist.com/blogs/americasview/2013/05/mexicos-cosseted-elite.

31 Faiola, Anthony and Moura, Paula, “Middle-class rage sparks protest movements in Turkey, Brazil, Bulgaria, and beyond,” The Washington Post. http://www.washingtonpost.com/world/europe/middle-class-rage-sparks-protest-movements-in-turkey-brazil-bulgaria-and-beyond/2013/06/28/9fb91df0-df61-11e2-8cf3-35c1113cfcc5_story.html.

The German Marshall Fund of the United States12

In Brazil, biofuels have not only led to social

and environmental benefits (although

ethanol certainly comes with its own

environmental challenges), but also

innovation benefits, as the establishment of

flex fuel engines has led to other developments.

A significant challenge confronting the Wider Atlantic — and indeed the world — is that of climate change. While all of humanity

will feel the effects of climate change, developing countries will feel the earliest and harshest effects.32 It is perhaps no surprise, then, that developing countries are at the vanguard of developing new technologies aimed at reducing reliance on highly polluting fossil fuels and at other means for safeguarding the environment. The following section examines a few such cases that can serve as models for other countries.

Latin America as a region is aggressively working to mitigate the effects of climate change. According to the World Bank, “For the past 20 years, Latin America has been at the forefront of biodiversity protection. One-fifth of the region’s land has been set aside for conservation, a total which far surpasses the 13% averaged by other developing regions.”33 Thus, it is no surprise that the region is a model for best practices in climate and energy conservation-related initiatives above and beyond conservation targets. One principal innovator is Brazil, which has long been at the forefront of the ethanol revolution. Costa Rica, a key destination for ecotourism, is developing innovative instruments to use in the carbon marketplace.

Brazil: Flex Fuel Innovation

Brazil has gained international attention for its innovative sugarcane system and the resulting widespread adoption of flexible fuel cars. Brazil effectively weaned itself off foreign oil imports by 2006, in large part due to the development of the ethanol industry, starting in the 1970s. This innovation was spurred by the 1973 oil shock and the recognition that energy costs were becoming a bottleneck to growth. The 1975 National Ethanol

32 See, for example, World Bank (2012).

33 http://www.worldbank.org/en/news/feature/2013/09/25/latin-america-climate-change-environment-green-innovation.

Program (Proálcool) encouraged resources to be oriented toward the ethanol-related agriculture production complex. Ethanol was bolstered by government mandates on production levels as well as subsidies that spurred the expansion of sugarcane cultivation, established distilleries, and encouraged the sale of vehicles that could run on ethanol. In Brazil, biofuels have not only led to social and environmental benefits (although ethanol certainly comes with its own environmental challenges), but also innovation benefits, as the establishment of flex fuel engines has led to other developments. The use of ethanol really took off in 2003, when flex fuel vehicles (FFVs) were introduced to consumers, allowing them to pick gas or alcohol to power their cars. Flex-fuel motorcycles were introduced in 2009.

Ethanol production from sugarcane, as produced by Brazil, has received considerable attention as a viable alternative to fossil fuels and a renewable energy source that mitigates the effects of greenhouse gas emissions.34 While Brazilian consumers are now able to completely customize their petrol-ethanol fuel mix, and thus gain price advantage depending on current market conditions, FFVs have been slow to take off in the rest of the world. To date, most countries lack the necessary infrastructure to support FFVs. This could change, as fuel prices remain high and as climate change considerations become more pressing.

Brazil has emerged as a clear leader in biofuels technology.35 It is a key participant in the main international agreements on biofuels: the International Biofuels Forum (IBF) and the Global

34 Furtado, André Tossi, Mirna Ivonne Gaya Scandiffo, and Luis Augusto Barbosa Cortez. 2010. “The Brazilian sugarcane innovation system.” Energy Policy.

35 See, for example, Hall, Jeremy, Stelvia Matos, Bruno Silvestre, and Michael Martin. (2011). “Managing Technological and Social Uncertainties of Innovation: The Evolution of Brazilian Energy and Agriculture.” Technological Forecasting and Social Change (78): 1147-1157.

Environment and Climate Change5

North-South Rebalancing 13

The EU and Brazil strategic partnership includes climate change and alternative energies as a priority area, and the two have agreed to develop production standards in renewable energy and to implement Triangular Cooperation projects with other countries such as the Portuguese-speaking African countries and Haiti.

Bioenergy Partnership (GBEP). Brazil also leads efforts in discussing and disseminating biofuels technology through South-South cooperation. The MERCOSUR customs union, in which Brazil is the largest member, includes a memorandum of understanding (MOU) and working group on biofuels with the aim of creating integrated production chains in ethanol. In 2009, the Brazilian government launched the Pro-Renova Program, which aims to provide technical assistance to developing countries, particularly in Africa. This includes trade fairs, seminars with experts in relevant fields, training courses, and the hosting of “Ethanol week.”36 Brazil has launched cooperation activities with the CARICOM countries, aimed at joint research and development on energy and marketing of biofuels. Biofuel production technology has been a significant area of cooperation in the India-Brazil-South Africa (IBSA) forum.37 A biofuels MOU sets out parameters for technology transfer, promoting compatible frameworks for biofuels production and consumption, information sharing on auto design for promoting the use of biofuels, and sharing of best practices for policymakers.38 Brazil has also implemented technical assistance and cooperation programs with a number of African countries, geared towards flex-fuel technology. Brazil’s agricultural research agency (Embrapa) opened an office in Ghana in 2008, with a view to helping develop that country’s national ethanol industry. A 2007 bilateral cooperation agreement signed with

36 For information on more projects, see UNCTAD. 2012. State of South-South and Triangular Cooperation in the Production, Use, and Trade of Sustainable Biofuels. New York and Geneva: United Nations Conference of Trade and Development.

37 See White, Lyal and Tania Cyro Costa. 2009. “Biofuel Tech-nology Transfer in IBSA: Lessons for South Africa and Brazil.” SAIIA Policy Briefing 7. November. http://www. saia_spb_07_white_costa_20091130%20(1).pdf.

38 See, for example, the description of the IBSA Energy Working Group, http://www.ibsa-trilateral.org/images/stories/documents/IBSA%20Energy%20rev%20KM.pdf.

Mozambique seeks to replicate Brazil’s ethanol production model in Mozambique through the transfer of technology and agricultural expertise.39 Brazil has also signed biofuel-related technical assistance accords with Angola, Congo, and Nigeria. For countries wanting to decrease their dependency on imported fossil fuels and possessing resources that could be converted to fuel usage, the Brazilian experience could serve as a model. In addition to the technology itself, the model of government working with academia and industry has shown success that could be worth replicating.

Brazil has also launched cooperation programs with developed countries, aimed at disseminating their biofuels production and consumption techniques. The EU and Brazil strategic partnership, signed in Lisbon in 2007, includes climate change and alternative energies as a priority area, and the two have agreed to develop production standards in renewable energy and to implement Triangular Cooperation projects with other countries such as the Portuguese-speaking African countries and Haiti. A 2007 MOU with the United States also established the strategic importance of biofuels in that bilateral relationship and pledged to advance research and development in this field. A further MOU signed in 2011 established a “Partnership for the Development of Aviation Biofuels” with the objective of preventing international barriers to biofuels trade and to promote biofuels as important to reducing GHG emissions.

Carbon Offsets: Costa Rica

Costa Rica became the first country to negotiate the sale of forestry carbon credits in September 2013. The Costa Rican government and the Forest Carbon Partnership Facility (FCPF) signed a letter of intent to negotiate an Emission Reductions

39 2009. “Rhetoric Surpasses Reality on Biofuels.” Oxford Analytica. November.

The German Marshall Fund of the United States14

The government of Morocco has put into place a Solar Plan to reduce the country’s energy dependency

and create employment and growth by taking

advantage of the country’s access to the

sun.

Payment Agreement (ERPA) worth up to $63 million.

This initiative is an outgrowth of its Payments for Environmental Services (PES) program, initiated in 1999, which compensates landowners for planting new trees and for other environmental protection efforts. Under the PES, the Costa Rican government would pay private landowners to protect forests, to manage forests through selective harvesting, or to establish plantations on their lands. The payments acquired through the ERPA come from a national fund. This allows producers to grow a “commodity” called carbon that they can sell domestically through so-called Certifiable Tradable Offsets (CTOs). Through discussions with other countries, especially Norway, Costa Rica has found foreign investors willing to buy these carbon offsets. Industrialized countries may eventually use carbon offsets against their Kyoto Protocol emissions commitments.

The September 2013 move will allow large-scale performance-based payments. The FCPF will be able to negotiate the purchase of carbon credits up to $63 million, which would help meet demand for additional landowners to participate in the PES program. Costa Rica has pledged to achieve carbon neutrality by 2021.

Morocco: Concentrating the Desert Sun

Morocco depends on imports for more than 95 percent of its energy needs. It also has a high level of subsidization, which burdens the government budget, and like many countries in the region, Morocco is facing high unemployment. The government of Morocco has put into place a Solar Plan to reduce the country’s energy dependency and create employment and growth by taking advantage of the country’s access to the sun. One aspect of this has been to use solar power for electrification of often poor and rural and peri-

rural households, which are frequently outside the reach of the electrical grid.40 Morocco has been lauded by the United Nations for the government’s commitment to the goal of stimulating renewable energy, which has led to strong institutions with a clear division of responsibility. Morocco has also developed a solid enterprise networking platform allowing private sector players to play a significant role.41

Mozambique: Using Ethanol as a Clean Cooking Oil

While ethanol is most popularly used to replace petrol in automobiles, in Africa, cassava is being processed into ethanol for cooking. This is in part to address the serious issue of deforestation: forests in Africa are being cut down at a rate of 4 million hectares a year, more than twice the worldwide average. Charcoal is still widely used for home cooking, posing a threat to these forests as well as public health — the smoke from cooking using these solid fuels also triggers respiratory problems that cause nearly 2 million deaths in the developing world each year. The world’s first sustainable cooking-fuel plant opened in Mozambique in 2012, with the goal of producing 579,000 gallons a year.42

Kenya: Mitigating the Risk of Climate Change through Innovation

Kenya’s Climate Innovation Center, launched in 2012, will assist entrepreneurs in securing financing and other services for their companies while helping the country and region address the

40 See, for example, GTZ (2007)

41 Vidican, Georgeta. (2012). Innovation systems for renewable energy in the MENA: A comparative perspective on Egypt and Morocco. New York: United Nations University.

42 Biofuels Digest. 2012. “CleanStar launches first cooking fuel facility in Mozambique; alternative to charcoal cooking, health risks, at hand in Africa.” May 18. http://www.biofuelsdigest.com/bdigest/2012/05/18/cleanstar-launches-first-cooking-fuel-facility-in-mozambique-alternative-to-charcoal-cooking-heath-risks-at-hand-in-africa/.

North-South Rebalancing 15

effects of climate change. The CIC aims to become the business hub for African climate technology entrepreneurs. The center is the first of its kind in the world and will allow small and medium enterprises in Kenya and the region to address climate change by accelerating business in sectors such as energy, agriculture, and water supply. As the CIC continues to operate and more data become available, further investigation will be necessary to measure its success.

The German Marshall Fund of the United States16

The South Atlantic has come into its own. With high growth rates in many countries and economic, political, and social advancements

over the past decades, the countries of the South Atlantic are not only prepared to take on an increasing leadership role — by participating in groups such as the BRICS, for example — but are also producing innovative technologies and policies that satisfy their domestic needs and that could have much wider application.

The countries of Africa and Latin America have scored several victories in advancing developing country interests at the WTO, most importantly consolidating the access to medicines

for developing countries. Developing country commodity exporters have developed mechanisms for responsibly managing their commodity wealth, institutionalizing counter-cyclical spending mechanisms and transparent redistributive policies to ensure that the countries’ gains do not become their bane. In the area of social policy, South Atlantic countries’ innovative policies have been replicated in other developing countries, and even in places such as New York. In the area of climate change, a key challenge for the Wider Atlantic and the world, Southern countries are pushing the envelope to develop innovative policies that may help the world face its most pressing current challenge.

Conclusions6

North-South Rebalancing 17

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The German Marshall Fund of the United States18

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The German Marshall Fund of the United States20

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