How Can Capital Markets Serve Pension Systems in EU28? Part 2

Pensions Outlook 2014Today’s post is by Markus Schuller, Panthera Solutions

The trends we discussed in Part 1 are influencing how we structure financially feasible pension systems. EU28 pension systems are well researched by European institutions and the OECD (here, here and here for example) They are rather moderate in their conclusions as these tend to carry politically explosive messages, notably: the first pillar is becoming more and more an anti-poverty provision, leaving it to the second and third pillars to secure an adequate retirement income. So how can we stimulate Pillars II and III? (The “three pillars” come from a 1994 World Bank publication describing: “a publicly managed system with mandatory participation and the limited goal of reducing poverty among the old [first pillar]; a privately managed mandatory savings system [second pillar]; and voluntary savings [third pillar]”).

A total of EUR 1 717 billion (gross) was spent across the EU on pensions in 2012, representing approximately 13.3 % of the EU GDP. Expenditure varies considerably between countries. Greece spent 17.5 % of GDP on pensions in 2012, more than any other country, while three others (Italy, France and Austria) also spent over 15 % of GDP. Estonia, Ireland and Lithuania, meanwhile, spent 7.9 %, 7.3 % and 7.7 % of GDP respectively on pensions (see EUROSTAT Social Protection Statistics).

The EU Commission and EU regulators are increasingly taking on the task to regulate and stimulate the use of Pillars II and III. On January 30th, 2015, the European Insurance and Occupational Pensions Authority (EIOPA) published a statistical database for occupational pensions in the European Economic Area (EEA). This publication represents an important financial stability data source allowing EIOPA to better monitor developments in the market and identify at an early stage trends, potential risks, and vulnerabilities. Currently 21 of the 28 EU jurisdictions have provided information for this database.

In July 2014, the EC called EIOPA for advice on the development of an EU single market for personal pension products. The original timeline, as mentioned in an EIOPA presentation from October 2014 has changed. EIOPA will now publish a consultation document on how a single market for personal pensions could be created in July 2015. As EIOPA’s Task Force on Personal Pensions has not yet drawn final conclusions, no documents are publicly available yet. Stakeholders will be asked to respond to the issues raised in the consultation document between the beginning of July and the beginning of September 2015 during a public consultation. EIOPA will then answer to the Commission’s Call for Advice by 1 February 2016.

In short, the European Commission and EIOPA are currently trying to understand the market for personal pension products. The EC is asking the right questions in this document, from a push towards an EU-wide framework, over solving principal-agent issues to a push for multi-pillar diversification. In order to support the EU institutions in their orientation phase, I suggest the following for the third pillar.

  • Include Single Market for Personal Pensions in Capital Markets Union (CMU) Framework
    The European Commission’s Green Paper on establishing a Capital Markets Union until 2019 currently focuses on 5 aspects to facilitate capital market based debt financing for SME and infrastructure investments. Rightly so. Having said that, ensuring adequate income in retirement through direct capital market exposure is equally important. So far, the Green Paper does not even mention the third pillar. It only touches the second pillar lightly in two short paragraphs. The hopefully bold proposals from the “EIOPA Task Force on Personal Pensions” in Q1-2016 on how to strengthen the third pillar in EU28 need to be added as priority to the CMU framework.
  • Product Structures in the Client´s Interest
    Up to now, third pillar products like the Riester Rente (Germany) or the Private Pensionsvorsorge (Austria) are based on the belief of the Greater Fool Theory. Product managers and distributors hope to find an even greater fool that signs up for a fee-overloaded, inflexible, intransparent and strategy-constrained financial instrument. Consumers are taking the bait of a minor government subsidy while ignoring the significant downside of those products. And it works (see here, here and here). Instead, consumers need to be offered a low-cost, transparent, flexible and strategy-unconstrained vehicle to participate in the long-term rise of the global capital stock. US FinTech providers show the way. Traditional capital market access via costly gatekeepers like IFAs, Banks and fund managers needs to be avoided.
  • Regulatory Approach
    Personal pension plans (PPPs) are covered by many sectoral EU-laws, or none (21 out of the 80 PPP’s surveyed in the EIOPA database have no EU legislation applicable). PPPs should have their own simple and clear regulatory approach. It should facilitate competition amongst financial services providers to offer a low-cost, transparent, flexible and strategy-unconstrained PPP-vehicle. It also needs to overhaul incentive structures to solve currently pressing principal-agent issues.
  • Capital Markets Education & Cultural Change
    Without educating the private investor on capital markets know how, PPPs will not achieve the reach and level of acceptance required. This education needs to take place in a cultural environment in which capital markets are not demonized by governments. This is a rather self-evident insight, though not necessarily followed by continental European politicians. Even if education and societal sentiment are in place, the inequality momentum will restrain large parts of the population from being able to sufficiently save money for capital market investments. Governments need to offer more significant tax shields – e.g. by automatically transferring parts of the paid income tax to the third pillar account of the citizen.
  • Civil Society Research Support
    Despite significant research being conducted on EU28 first pillar pension systems, the databases and research publications on PPP are nascent. In addition to EIOPAs current effort to establish the research infrastructure, civil society support should be facilitated to help conduct research and raise public awareness. Is it via lobby-like institutions like a TheCityUK for PPP topics or by installing a “Kapitalmarktbeauftragten” (capital markets commissioner) like in Austria – where a good idea failed due to political reasons. Such a commissioner could be appointed by the parliament and equipped with sufficient freedom and budget to promote the topic through new initiatives.

Useful links

OECD work on pensions

How Can Capital Markets Serve Pension Systems in the EU28? Part 1

Pensions Outlook 2014Today’s post is by Markus Schuller, Panthera Solutions

The global financial stock has quadrupled between 1990 and 2010. As capital markets exist to serve society and not the other way round, this article will address the following questions:

How can the changing demographics in EU28 be better managed through benefitting from capital market access and techniques?

As a consequence, how can we strengthen the third pillar (private pension provision) in times of rising inequality, equity market/risky assets discrediting and the dominance of non-value adding financial instruments for end investors?

We are entering the fifth year of financial repression in the EU28, meaning that policies have been put in place by governments and central banks that result in savers earning returns below the rate of inflation while providing cheap loans to governments to reduce their burden of repayments. Only recently public debates began addressing the negative implications of this in the context of the ECB’s quantitative easing preparations. The delay in public perception should not surprise. It is driven by a cognitive dissonance for which slow, gradually progressing changes are difficult to detect and to classify by the individual. Inequality trends, “cold progression” and financial repression qualify for this definition. The latter is a well established tool. Both, the United States and the United Kingdom used it successfully after WWI to support the deleveraging of their economies. Keynes would define it as follows in The Economic Consequences of the Peace (1919).: “By a continuing process of inflation, ­[note: negative real interest rate] governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Since the Great Recession, financial repression also contributed to the inequality trend in our societies that started to dynamically accelerate back in the early 1980s. Despite the strong rebound of risky asset prices, especially of listed equities, the wealth effect for the vast majority of European citizens remained insignificant, thanks to their lack of direct or indirect capital market participation. In my OECD Financial Round Table contribution of autumn 2014, I highlighted the lack of a risk equity culture across Europe as an important obstacle in benefitting from rising risky asset prices. In Germany, only 13,8% of the population invests directly (7,1%, 2013) or indirectly via funds (6,7%, 2013) in listed equity securities, compared with around 50% in the US (45% in 2008, ICI Survey / 52% in 2014, Gallup Survey). Both the US and Germany saw a slight deterioration in equity ownership from 2000 until today, explained by the long-term effects of the dot-com bubble during the 2000s and the pro-cyclical behaviour of retail and institutional investors, leading to a reduction in their exposure caused by the Great Recession.

The 20th century has seen the evolution from economies being driven by the primary and secondary sectors to the services sector playing the dominant role. Time doesn’t stand still. The late 20th century is dominated by the rise of the fourth sector, information technologies. In short, servicing digital natives in a knowledge-based economy. The shift from sector three to four is driven by a classic carrot/stick situation. Entrepreneurs moving the frontier of what can be done versus the stick called automation technologies that squeeze out traditional job profiles from primary, secondary and, increasingly, tertiary sectors. The consequent bifurcation of job markets is causing a headache.

If that was not enough, industrial espionage by governmental and non-governmental agencies puts the fourth sector in danger. Innovation-driven, knowledge-based economies with global reach require the assurance that market forces and not secret services are deciding who benefits economically from an invention. Not that espionage is new, but the scale definitely is. The thrust of the labour force entering the 4th sector while a level playing field is not assured is like two trains on a collision course.

Given there are no wars, epidemics or asteroids causing “black-swan” like disruptions, forecasting demographics is rather feasible. In 2012, just over a quarter of the EU population (26 %) – around 130 million people – received at least one pension. The proportion of the population receiving a pension is highest in Lithuania (31.5 %) and also exceeds 30 % in Bulgaria, Estonia and Slovenia, but is below 20 % in Ireland, Spain and Malta and only 14.8 % in Cyprus (source: EC Social Protection Statistics).

In Eurostat’s latest population projections (EUROPOP2013) the EU-28’s population is projected to increase to peak at 525.5 million around 2050 and thereafter gradually decline to 520 million by 2080. During the period from 2013 to 2080, the share of the population of working age is expected to decline steadily, while older persons will likely account for an increasing share: those aged 65 years or over will account for 28.7 % of the EU-28’s population by 2080, compared with 18.2 % in 2013. The old-age dependency ratio for the EU-28 was 27.5 % on 1 January 2013; as such, there were around four persons of working age for every person aged 65 or over. The old-age dependency ratio ranged across the EU Member States from a low of 18.4 % in Slovakia to a high of 32.7 % in Italy (with Germany and Greece also recording values above 30 % according to EC Population Structure & Ageing)

Governments have defined “adequacy of pensions” as one of their primary goals for the first pillar of their pension systems. As the EC Fiscal Sustainability Report puts it: “Pensions – mostly from pay-as-you-go public schemes – are the main source of income of older people in Europe. European pension systems are facing the dual challenge of remaining financially sustainable and being able to provide Europeans with an adequate income in retirement. Income provision in old age that is adequate to allow older people to enjoy decent living standards and economic independence is the very purpose of pension systems. Pensions affect public budgets and labour supply in major ways and these impacts must be considered in pension policy.”

It has been well established in pay-as-you-go public schemes that governments finance possible gaps between contributions and payoffs out of their public budgets. In Austria for example, the government spent around 13.5% of its 2014-budget to close the gap in its pay-as-you-go system, in addition to its civil servant pensions gap contribution of 8.8%. All together, more than 22% of the budget is dedicated to first pillar pension gap payments for a system that is supposed to finance itself.

Even if EU28 governments express the political will to keep financing the gaps, the increasing demographic pressure and tight public budgets will force them into reducing pension claims by reducing gross pension replacement rates (ranging between 33% in the UK and 91% in the Netherlands), by lowering gross pension payments – at least their purchasing power – or by increasing the retirement age. All together this will redefine what “adequate income in retirement” will mean when it comes to first pillar payments (see Oxford Institute of Ageing).

Useful links

OECD work on pensions

Legislation on responsible business conduct must reinforce the wheel, not reinvent it

Global Forum RBCToday’s post is by Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

The global economy has evolved at an impressive rate over the past several decades. Supply chains spanning dozens of countries are a common feature of businesses large and small. However, global regulatory frameworks have largely not kept pace with these trends. Rule of law remains weak in many developing countries and significant uncertainty and enforcement issues continue to exist in the context of transnational litigation and arbitration.

Some international instruments, such as the OECD Guidelines for Multinational Enterprises (the OECD Guidelines) and the UN Guiding Principles for Human Rights and Business (UNGPs) have been important tools for filling these regulatory gaps. For example the OECD Guidelines establish an expectation that businesses behave responsibly throughout their supply chains, not just within their direct operations, extending to activity in potentially institutionally weak contexts where international standards and domestic laws may not be adequately enforced.

Recently domestic law has also begun to follow suit in this regard by introducing legally binding obligations. Section 1502 of the US Dodd-Frank Act represents one of the first examples of legislation incorporating due diligence regarding human rights along the supply chain. Section 1502 provides that companies must report on whether they source certain minerals (tin, tantalum, tungsten and gold) from conflict areas. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas which was adopted as an OECD Recommendation in 2011 was the first instrument to define responsibilities in this context and is explicitly referenced in section 1502. Currently the EU is considering introducing similar obligations in a proposal aimed at regulating the import of conflict minerals into the EU. The proposed initiative will go through three separate reviews within the EU Parliament before being submitted to the EU Council level later this year.

Another example in the extractives sector where non-binding initiatives have acted as the harbinger for binding law is in the context of revenue transparency. The Extractive Industry Transparency Initiative (EITI), founded in 2003 was one of the first efforts to encourage government and private sector reporting on revenue streams of extractive operations as a strategy for battling corruption. Section 1504 of Dodd Frank, passed in 2010, requires that companies registered with the Securities and Exchange Commission (SEC) must publicly report how much they pay governments for access to oil, gas and minerals. The EU has since mandated similar obligations through Accounting and Transparency Directives and Norway and South Korea have expressed interest in doing the same.

In Drilling down and scaling up in 2015, I mentioned that the trend of hardening of soft law was among the top 5 issues to watch in RBC for 2015. I also noted that the UK, Switzerland and France had proposals in the pipeline to make due diligence regarding aspects of RBC mandatory. Since January, interesting progress has been made on these initiatives.

The Swiss motion, which proposed mandatory human rights and environmental due diligence for Swiss corporations was recently narrowly voted down in the Swiss Parliament. The deciding vote was 95 against and 86 in favour. In response to this result, the Swiss Coalition for Corporate Justice has announced that it will begin collecting signatures for a popular initiative on the proposal. If they gather 100,000 signatures in 18 months, the measure will be put to a binding public referendum.

The UK Modern Slavery Act was approved and enacted into law in March of this year. This act provides that commercial organisations must prepare a slavery and human trafficking statement annually detailing, among other matters, their due diligence processes in relation to slavery and human trafficking in their operations and supply chains.

The broadest scheme of the three remains the French legislative proposal which aims to mandate supply chain due diligence in accordance with the OECD Guidelines for Multinational Enterprises, thus covering a comprehensive range of RBC issues. Under the law French companies employing 5,000 employees or more domestically or 10,000 employees or more internationally would be responsible for developing and publishing due diligence plans for human rights, and environmental and social risks. Failure to do so could result in fines of up to 10 million euros.

An amended proposal approved by the French National Assembly will now be sent to the Senate, which might turn it down. However, in this case the National Assembly could still overrule the Senate. My assessment is that the proposal is likely to be adopted.

If such a law is passed in France there is speculation that it could generate spillover effects within the EU. The rapporteur for this proposal, Dominique Potier, has indicated that he will push the European Commission to develop a EU directive along similar lines.

The move from soft to hard law is a concern for many businesses. However, when it concerns the more severe issues of responsible business conduct, the jump between the two is not that high. Many companies already have due diligence systems in place. This means that the playing field for the more progressive companies will be levelled. That was one of the reasons why many British businesses supported the Modern Slavery Act. In addition, the UN Guiding Principle 23(c) already provides specific guidance on how companies should manage the risks of the most severe impacts; it says that businesses should “Treat the risk of causing or contributing to gross human rights abuses as a legal compliance issue wherever they operate”.

Another concern that businesses may have is that all these proposals will create a mess of different hard and soft standards. A proliferation of obligations (national, regional and international) has the potential to generate regulatory disarray and create challenges for businesses in navigating their obligations.

Uniformity and clarity around obligations and expectations will be important for establishing a level playing field for business. A large imbalance or contradictions in obligations regarding due diligence or reporting across jurisdictions may unfairly penalise companies operating in multiple jurisdictions or subject to more onerous standards. In ensuring that standards are aligned, administrative burdens for business will be eased and competitive risks will be mitigated.

Additionally such laws must be drafted carefully in order to be practical and fairly enforceable. Presently the language included in both the French legislation and UK law is highly general and therefore the obligations under the law remain somewhat abstract.

In order to ensure that such regulation is realistic, reasonable and effective, the regulations and guidance that will accompany these laws should be developed on the basis of carefully drafted non-binding standards, such as the UNGPs and the OECD Guidelines. They will also need multi-stakeholder input. In the context of the OECD, all due diligence guides interpreting the expectations of the Guidelines are developed in consultation with industry, government, civil society and worker organisations. This process has ensured that recommendations included in the guidance are endorsed by businesses, the ultimate users of the guidance, and that they are ambitious yet reasonable. Additionally, the role of non-binding instruments, as well as the organisations that crafted and implemented them should not be overlooked. The UN and OECD will be important sources of guidance on these issues.

Legislative proposals related to existing international instruments should not seek to reinvent the wheel, but to reinforce it. Existing instruments that are widely recognised and proven to be effective and reasonable should represent a foundation for their legally-binding counterparts.

Useful links

OECD Guidelines for Multinational Enterprises

UN Guiding Principles for Human Rights and Business

OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas

Global Forum on Responsible Business Conduct

How the world reacted to the latest aid data

oda figures 2014Aid is one of those topics that always seems to attract controversy. So, it was no surprise that when the OECD released the latest data on Official Development Assistance (ODA) to developing countries last week, it attracted a flurry of comment and discussion – some positive, some negative.

On the plus side, many news reports noted that aid had stayed at close to historic levels in 2014, around $135 billion – a performance OECD Secretary-General Angel Gurría saw as encouraging “at a time when donor countries are still emerging from the toughest economic crisis of our lifetime”.

Less encouraging, a smaller share of that money made its way to the world’s poorest or least developed countries (LDCs). That looks to be part of a trend: “The decline in ODA to LDCs is something that we’ve been worried about for a couple of years,” the OECD’s Yasmin Ahmad said in The Guardian.

This shift away from supporting poorer countries was described as “shocking,” by ONE, an international advocacy organisation. “Alarm bells should be ringing,” it added. “In 2014, aid to the very poorest countries was cut by $128 million every week – enough to vaccinate 6 million children.”

There was concern, too, from Oxfam International. It pointed out that while total ODA appeared to have remained stable over the past two years ($135.2 billion in 2014 vs. $135.1 billion in 2013), this actually represented a fall of 0.5% in real terms.

Oxfam also argued that – with some exceptions – wealthy countries were still failing to meet a commitment to give 0.7% of their gross national income (GNI) in aid. “Governments first promised to deliver 0.7% of their national income to support poor countries when Richard Nixon was President of America and the Beatles were topping the charts,” said Claire Godfrey, Oxfam’s Senior Policy Advisor, said. “In the 45 years since only a handful of countries have delivered on this promise.”

Away from the headline story, much of the reporting focused on the performance of individual countries. Here, again, the picture was mixed.

Overall, 13 of the OECD’s Development Assistance Committee members increased ODA in 2014 while 15 did not. Countries in this latter group included Australia and Canada, where Stephen Brown of the University of Ottawa warned that “Canadian claims to leadership in international development are contradicted by our relative stinginess,” The Canadian Press reported. However, a government spokesman pointed out that Canada had increased its spending on humanitarian aid – funds distributed after natural disasters and so on – by 62% last year.

Other countries that cut back on ODA last year included France and Ireland. There, The Irish Times quoted Oxfam’s Jim Clarken as saying that “the poorest people on our planet need more ambitious action”. However, it also quoted a government spokesman as saying that the aid budget had been protected as much as possible “in the most difficult of economic circumstances,” and that Ireland remained committed to reaching the 0.7% of GNI target.

What about countries that raised their ODA? The United Arab Emirates proudly announced that it was now the “most generous” donor in the world, with ODA reaching 1.17% of GNI in 2014. “We will continue to reinforce our position as a global hub for humanitarian relief for all those in need of our help,” Prime Minister Sheikh Mohammed bin Rashid Al Maktoum was quoted as saying.

There was an impressive showing, too, from the United Kingdom. “While most countries cut foreign aid, ours goes UP,” a headline in The Daily Mail declared. In the report, Oxfam’s Max Lawson contrasted Britain’s record with that of other countries: “Aid saves lives. What we’re seeing is shameful indifference on the part of many of the world’s richest nations.” Still, not everyone was happy. The newspaper also quoted Conservative MP Peter Bone, who said that “when we have seen cuts at home, people find it very strange that we can give away so many billions of pounds a year.”

Useful links

Development aid stable in 2014 but flows to poorest countries still falling (OECD.org)

Detailed summary of 2014 ODA and complete data tables (pdfs)

OECD Insights: From Aid to Development

Join the Wikiprogress Online Consultation on Youth Well-being

BLI InitiativeThe Wikiprogress Online Consultation on Youth Well-being is open now and running until the 8th May.

How should we measure and define “youth well-being”?

What works for improving young people’s well-being?

How can we improve the process for effective youth policy?

For the next month, we want to gather ideas from as wide a group of people as possible about how to improve the way that governments and other social actors can improve well-being outcomes for young people.

The findings of the consultation will be presented at the OECD Forum in Paris in June, and a report will be handed out and made available to policy makers, foundations, civil society organisations and others in the Wikiprogress network.

We have started the consultation with some broad questions, but want the debate to evolve as more people contribute and add their own questions and ideas. So sign up now and join the debate!

Useful links

For more information contact us via:

Nigeria is the winner, West Africa, too!

Nigeria's new broom
Nigeria’s new broom

Today’s post is by Julia Wanjiru of the Sahel and West Africa Club (SWAC) Secretariat

During the past weeks, analysts continuously warned about Nigeria’s high-risk elections. The initial poll date was postponed by three weeks in response to security concerns in the three Boko Haram plagued northeastern states. All land and sea borders were closed three days before the contest; expatriates and well-off Nigerians carefully moved their families out of the country, anxious about possible post-electoral violence. But in the end, Africa’s most populous country and number 1 economy managed to organise peaceful elections, which were internationally recognised as “free and fair” and led to the first democratic transition in Nigeria’s history.

Many Nigerians, including those in the diaspora who closely watched the event, were relieved when President Goodluck Jonathan recognised his defeat. On 31 March at 5:15pm, he called his challenger Major-General Muhammadu Buhari to congratulate him, almost nine hours before the Independent National Electoral Commission, INEC, formally declared Buhari winner of the poll. “I promised the country free and fair elections. I have kept my word. […] nobody’s ambition is worth the blood of any Nigerian. The unity, stability and progress of our dear country are more important than anything else,” President Jonathan declared. This early statesmanlike decision to accept the result undoubtedly contributed to avoiding post-electoral violence.

Religious and ethnic affiliations have always played an important role in Nigerian politics. However, all major political parties cover the whole territory and are comprised of Christians and Muslims alike. Within the powerful People’s Democratic Party (PDP) which has governed the country for the past 16 years, a rotating system was established alternating power between a northern Muslim president supported by a southern Christian vice-president and vice versa. In the eyes of many northern Nigerians, this informal power-sharing agreement was broken when acting President Goodluck Jonathan (the first Ijaw president coming from one of the southern Niger Delta minority groups) was elected president in 2011 (see the 2011 interview with Nigerian Ambassador to France). His decision to run for president again in 2015 was perceived as provocation by many PDP party members. With the Katsina State-born new president, power is shifting back to the Muslim-dominated North, re-establishing a certain sense of justice in the eyes of some.

Can Buhari’s victory be seen as a revenge of the Muslim North against the Christian South? Not really. The election results seem to show that the role of ethnic, religious and geographic factors is gradually shrinking. The 2015 election results map indicating the winning parties by state illustrates that the North-South divide is less marked than in the 2011 elections when President Jonathan won with a comfortable majority against Buhari.

Nigerian-electionsbystate2011-2015

These results must be nuanced and interpreted against the backdrop of a very low voter turnout (43.6%) which had a major impact on the PDP results. Almost ten million people who cast their votes in the 2011 elections, decided not to participate in the 2015 poll. While Buhari was able to gain the confidence of 3.2 million additional voters, the incumbent president lost almost ten million votes compared to the 2011 elections.

The PDP results map reveals that even during the 2011 elections the presumed North-South divide was less strong in reality. President Jonathan was able to gather wide support across the nation. He won between 30 to 50% of votes in six northern states, notably in the populous state of Kaduna where the PDP garnered the support of 1.19 million people (46.3% of votes).

PDP results

Similarly, this time, the same opposition candidate, Buhari attracted strong support from southern Nigerians. His newly formed All Progressives Congress party (APC) won in eight traditionally PDP southern strongholds. The most striking example comes from the megacity Lagos where the PDP lost for the first time in its history. This new voting behaviour is further leveraged by influential opinion leaders (e.g. former president Obasanjo) and religious figures who publically distanced themselves from the current government. For example, a Catholic priest openly called for a vote for Buhari: “I don’t care if Buhari is a Muslim and from the North; all I care about is that Buhari can save Nigeria”, he said.

Nigerians largely voted for change. Buhari’s “vote for positive change” slogan convinced many Nigerians who are hoping to put an end to corruption, poverty and the Islamist insurgency in the North. In his acceptance speech, Buhari made a strong commitment: “I assure all foreign governments that Nigeria will become a more forceful and constructive player in the global fight against terrorism and in other matters of collective concern, such as the fight against drugs, climate change, financial fraud, communicable diseases and other issues requiring global response. I want to assure our fellow African nations that Nigeria will now stand as a more constructive partner in advancing the matters of concern to our continent, particularly with regard to economic development and eradication of poverty.”

Beyond Nigeria, West Africa is a winner too. Nigeria has a major impact on the whole West African region far beyond its immediate neighbours. A large part of West African economic activity is concentrated in Nigeria. Cross-border activities closely link Niger to the Hausa economy; Benin and Togo benefit from the vitality of the economic and commercial capital of Lagos and Ibadan. Cameroon and Chad’s trade are also strongly oriented towards the Nigerian market. Nigeria is increasingly making investments in the franc zone, particularly in the banking sector. As West Africa’s largest military power it has historically played a leading role in ECOWAS peacekeeping efforts, though slightly less so now as it suffers its own major security crisis. Boko Haram-related violence is spilling over to neighbouring countries already grappling with a strong influx of Nigerian refugees. A pacified, strong Nigeria will benefit all of West Africa.

Useful links

OECD Investment Policy Reviews: Nigeria 2015

SWAC Maps and Facts:
– Number 22, Nigeria’s presidential election, April 2015
– Number 5, Boko Haram November 2014

Atlas of the Sahara-Sahel:
Historically, the Sahara plays an intermediary role between North Africa and sub-Saharan Africa. Commercial and human exchanges are intense and based on social networks that now include trafficking. Understanding their structure, geographical and organizational mobility of criminal groups and migratory movements represents a strategic challenge. The Atlas is based on an analysis of mapped regional security issues and development objectives to open the necessary dialogue between regional and international organizations, governments, researchers and local stakeholders tracks.

West Africa Gateway/Portail de l’Afrique de l’Ouest:
The West Africa Gateway, managed by the SWAC Secretariat, provides a regional database, a map centre, a document library, a contact database, an events calendar, thematic dossiers, West African viewpoints, interviews etc. The Gateway is also dedicated to sharing information and promoting work produced by SWAC Members.

Diving into empty pools

world water forumToday’s post is by Bill Below of the OECD Directorate for Public Governance and Territorial Development

We humans have a dynamic relationship with the water we depend on. Call it fluid. Indeed, the story of civilisation is a water story. And, we’ve had fairly good success taming and stabilising our supplies of it. Other stories began well and ended badly. A theory posits that the fall of the Roman Empire can be traced in part to the high marginal cost of securing water for its colonies. There have also been unmitigated disasters. The desiccation of the Aral Sea in the 1960s, the failure of China’s Banqiao and Shimantan dams and the ongoing pollution of our precious groundwater reserves are examples.

Thirst has an edgy urgency. It informs the brain in no uncertain terms that the situation must not escalate. Perhaps that’s why when we think about water scarcity, we tend to focus on drinking water (the same water we in the developed world use to water our lawns, clean our clothes, take showers and flush our toilets). But in terms of global usage, drinking water accounts for only 8% of water use, with 22% used by industry and 70% for farming and irrigation. Effective water governance must mediate across a broad set of actors and needs that cut across all economic sectors.

This mediation is critical, for tough times lie ahead. The OECD 2012 Environmental Outlook projected that by 2050, the world’s population will have risen to 9 billion, 4 billions of which will live in severely water-stressed basins. By then, demand for water will have risen by 55% globally, and global nitrogen effluents from wastewater will have grown by 180%. According to the UN, over the last century water use has been growing at more than twice the rate of population increase. UNESCO reports that at the current rate, demand is set to surpass availability as early as 2050.

We can be oddly optimistic when faced with hugely challenging news. Unpleasant choices, novelty, the momentum of the status quo or just wishful thinking can delay necessary action. But even diehard optimists should not expect the present crisis to be solved by reclamation technologies, desalination or eleventh-hour innovations. Not even by rain. In many regions prolonged drought requires substantial precipitation and snowfall over many seasons—a trend that may very well remain elusive. Nor will population growth, a critical stress factor, suddenly abate. This leaves the onus on citizens, the private sector, civil society, governments and political leaders to forge solutions.

Scarcity is the crucible of good governance. Shedding light on what countries are actually doing to manage freshwater and wastewater is the focus of the OECD report “The Governance of Water Regulators.” Independence, accountability, the ability to collect accurate data as well as enforcement of regulations and standards… these qualities are critical if water regulators are to meet present and future challenges.

But there are leaks in the system. Water sources tend to span all forms of boundaries—administrative, geographical and political. Municipalities, regions and cross-border stakeholders must work in unison to ensure efficient, balanced and equitable usage of shared water resources. Surprisingly though, few mechanisms exist for concerted coordination. Nor are top-down solutions adequate to solve many of the local or regional issues of equitable water resource sharing. The OECD report concludes that best practices in water governance favour bottom-up, inclusive decision-making that involves a broad range of protagonists and stakeholders.

Yet, even long-standing, multi-stakeholder agreements are facing pressure. In the southwest United States, the Colorado River Compact comprises a complex web of federal laws, court decisions, compacts, decrees, contracts and regulatory guidelines determining water allocation to seven western states and Mexico. Allotments were defined in the 1920s, a time of relative water abundance at the start of the explosive urban expansion of the last century. Indeed, southern California’s growth was made possible in part by absorbing water surpluses not needed by the other states. Now, with drought and their own growing populations, those states are calling in their chits. Mexico, last served, is also vigorously defending its rights.

Cross border issues bring additional challenges. Approximately 40% of the world’s population lives in river and lake basins that comprise two or more countries. Over 90% of the world’s population lives in countries that share basins. More than 44 countries depend on other countries for over 50% of their renewable water resources. A United Nations convention offers the only global framework for dealing with shared basin disputes, but water rights remain a contentious international issue in many parts.

This is the case in the Tigris and Euphrates, the Nile and other shared river basins where water issues are enmeshed in a number of upstream and downstream disputes mixing sovereign rights, modified water volumes through hydroelectric and other developments, drought and the growing population needs of all riparian neighbours.

The takeaway: drought and population growth create uniquely acute pressures, and in the quest to secure water resources, sovereign, regional, local or sectorial entities will always put their constituencies first.

In the face of scarcity, societies must find new channels to inclusive growth. Better governance towards more efficient use of water will play a big role. Less water-intensive crops need to be promoted along with less wasteful irrigation techniques. Urban water management also must rise to the challenge of growing their economies with less water. The upcoming OECD publication “Water and Cities, Ensuring Sustainable Futures” underlines the necessity of interlinking finance, innovation, urban-rural cooperation and governance in achieving this.

But enforcement of water usage remains challenging. While the use of surface water can be more easily controlled by water authorities, groundwater use is often neither measured nor scrutinized. California, for example, passed its first law limiting groundwater pumping last year. Understanding both surface water and aquifers as a single system is crucial to a meaningful water policy designed to protect against aquifer depletion. As it stands, even developed countries are strangely schizophrenic on this point.

Part of this may be the difficulty of accurately measuring groundwater. New methods based on satellite gravimetry developed by NASA and Jay Famiglietti of the University of California, Irvine, enable remote measurement of groundwater, allowing scientists to gather objective data on regional volumes and depletion. The other dimension may prove thornier: namely, the complexity of water rights. Political, legal and even cultural blowback to attempts to create a more comprehensive, modern and inclusive approach to water rights is guaranteed.

Water governance and meaningful reform are a matter of scale. It requires widening the number of stakeholders in order to limit policy capture by regional or sectorial interests that run counter to goals of inclusiveness and sustainability. That means local interests must link up with regional and even national and transnational governing bodies. This subject is treated in depth in the OECD’s upcoming publication “Stakeholder Engagement for Inclusive Water Governance.” The political complexity can be daunting, and yet this is exactly where evidence-based policy tools and recommendations can make a difference. As accurate information flows in regarding how real-world policies are working, or not, and more precise global scientific data becomes available as to the true, net effect of policies on surface water and aquifer depletion, progress may be possible.

In the absence of adequate and equitable governance arrangements, water scarcity will impose its own organisation, or chaos. As always, the hardest hit will be the planet’s most vulnerable populations. The work of the OECD on water governance focusses on providing evidence-based data on governance arrangements so that government at its various levels may learn from the experience of others.

A drop in the bucket, perhaps, but along with political will and good old human resolve, we might just get the bucket back to sustainable levels.

Useful links

OECD Principles on Water Governance

UNESCO World Water Report, Water and Energy, 2014

OECD at the 7th World Water Forum in Daegu & Gyeongbuk, Republic of Korea

OECD Water Governance Initiative at the 7th World Water Forum

The Governance of Water Regulators

Water and Cities, Ensuring Sustainable Futures

Stakeholder Engagement for Inclusive Water Governance