longitude #23 - 53

Unmanned aerial vehicles

52 - longitude #23

Military technology

Alexis de Tocqueville once said: “There are twothings that a democratic peoplewill always findvery difficult, to begin a war and to end it. Al-

though war gratifies the army, it embarrasses and of-ten exasperates that countlessmultitude ofmenwhoseminor passions every day require peace in order to besatisfied.” The “exasperation” that commonman feelswith regard to war is generally tied with the loss of hu-man life: primarily the citizen or soldier of his nation,secondly the civilians of the nation where the nation-al army is deployed. In the new modern war, democ-racy and media are bound together. The loss of a sol-dier (or his “failure” to come home in one piece eitherphysically or mentally) can adversely affect the entirecivil society. Democracies are trying to craft a new typeof “soldier” to fill the gap between the security needsdemanded by the democratic population for their sol-diers deployed in “peace enforcement” missions andthe need to lower the cost of “boots” deployed on theground and the attendant issues of soldiers’ injury ordeath.

The democracy of drones is at its dawn. Still, a fewimportant steps need to be taken to allow the all dem-ocratic nations to be able to engage in peacekeepingoperations with a minimum of casualties. Almost asecret back in 2001, the drones have seen theirmost in-tensive deployment in the recentUSmilitary operationin Central Asia andMiddle East. First Afghanistan thenIraq became perfect theatres in which to test and de-ploy a large number of drones, first the aerial ones, thenthe land units. The wars in those two nations allowedthe dronemanufacturers to develop their devices andlet the main armies involved – primarily the US army

Dronedemocracy

As the technology behind unmanned aerial vehiclesbecomes more accessible and the industry expands intothe private sector, our skies and landscapes may becomemore crowded in ways we have only just begun toimagine.

The Raven, an aerialreconnaissancevehicle, being launchedjust outside the villageof Madowza’i Kalay,near Kandahar,September 7, 2012.

by enrico verga

TONY

KARUMBA/A

FP/G

ETTYIM

AGES

longitude #23 - 55

Unmanned aerial vehicles

54 - longitude #23

Military technology

andUK aswell as other allies like Canada and Italy – to“experiment” and test the new weapons.

Several nations are engaged in the drone manu-facturing industries. By 2030, for example, the RAF es-timates that a third of its force will be unmanned air-craft. AMinister of Defence (MoD) report, “TheUKAp-proach to Unmanned Aircraft Systems,” predicts that“unmanned aircraft will eventually take overmost or allthe tasks currently undertaken by manned systems.”The expensive F35BLightning II fighter currently on or-der will be, it predicts, the last RAF fighter with a pilotin the air. The UAV technology under developmentsounds like science fiction – frombee-size nano-dronesthat can fly through windows to nuclear-powered (orsolar powered for the“greener armies”) drones that canfly for weeks without refueling. Even if these wilderplans never see the light of day, the MoD has beenfunding the development of Taranis (even more ad-vanced then the Predator “family”), a long-range jet-powered UAV attack aircraft that will be able to flyacross continents.

Even the Italian industry sector is seizing the op-portunity offered by this fast growing trend. Finmec-canica is working on various non-lethal tactical un-manned aerial systems that range from the Falco (a the-atre surveillance system that can fly for 14 hours) to thesmallerMini Unmanned Systems. Among the tiniest isthe Spyball, a 3-kilogram unit with an operationalrange from the operator of 5 kilometers and a flight du-ration of 30minutes. The Spyball can be easily carriedin a soldier’s rucksack and deployed in fewminutes, of-fering a reconnaissance solution to the ground troops.While initially the remote-controlled vehicles were de-

ployed mainly for surveillanceand control that was cheaperand safer than standardmanned air scouting, the gen-erals of Western armies de-ployed in Iraq and Afghanistangot used to having 24/7 “landcoverage.” Afghanistan hasbeen the ideal conflict for theReaper (the most commonunits used for killing mission).Unlike conventional fast-jets,which provide intelligence totroops on the ground only forshort periods before having torefuel, the Reaper can stay inthe air for 18 hours. It canstream real-time video feeds totroops for the duration of a skir-mish, allowing them to see theTaliban’s positions on their lap-tops. And if they are required tofulfill their other major role,

killingTaliban forces judged an immediate threat, theycan circle for hours above a compound or a village,waiting for a confirmed sighting in the openof their tar-get, before dispatching one of their laser-guided Hell-firemissiles. TheTaliban fighters are hardly aware thatthey are being watched; at 15,000 feet, Reapers usual-ly fly too high to be seen or heard.

The business of drones formilitary purposes – andin a not so distant future, for civil application as well –is a market that is attracting the attention of differentorganizations, both private and public. The Pentagonitself has activated plans to raise a new generation ofsoldiers: the remote soldier. It’s no secret that the con-trol system panels of some drones are similar (espe-cially the small ones guided remotely troops deployedon ground for area recon) to the consoles ofmost stan-dard videogames. This similar control system couldallowmany teenagers to get used to the control systemand, if they decided to join the army, be already fit forthe position, with less training cost for the army.

Even universities are developing programs specif-ically targeted for the up-and-coming industry, andwhile many focus on design and operational training,several colleges are combining that curriculum withcoursework that address the numerous ethical ques-tions surrounding the growing use of UAVs. Both theUniversity ofNorthDakota andKansas StateUniversity,for example, currently offer four-year degrees for stu-dents looking to become drone pilots, while the Uni-versity of Nebraska-Lincoln has set up curriculumaimed specifically at exploring the potential rolesdronesmay play in the future of information gatheringandmedia.

The full deployment ofdrones on land, water and air,however, is still a topic of dis-cussion in several areas.The useof drones affects three mainsectors: drone deployment andusage inwarfare and in the civil-ian context, air traffic controland Soulware. Let’s discuss firstthe last topic. Soulware, a neol-ogism, can be defined as themix of hardware and softwareintegration aimed to create asemi-conscious drone, embed-dedwith engagement directivesto let the unit operate in a semi-autonomous way without re-quiring the constant presenceof a remote pilot. Hardware isthe first issue. Drone hardware,comprised of several sensor de-vices, is still incapable of a per-fect vision with respect to a po-tential target. For example, atthe moment a drone cannotmake the distinction between a7-year-old children playingwitha plastic weapon or an a adult of the same heightarmed with a real gun.While this example is extremeit leads to a simple assumption. If the drone is given di-rections to hit a target that seems to be carrying aweapon, nomatter the height, there is the risk of killingof an innocent. If the drones are directed to avoid any-one considered a civilian civilian, any person higherless then 1.4meters tall, then the potential enemywillescape alive. Even in recent incidents involvingmanned Apache helicopters using night vision cam-eras, mistakes were made. In one instance an Apachepilot killed civilianswho appeared to be aiming a shoul-der-mounted RPG,when in actuality theywere simplycardboard cylinders.While these accidents are alreadyextremely serious when made by live soldier, the lawand themedia are harsher in case of a drone accident.All the drone incidents in Pakistan have raise a lot ofcriticismof theUSPresident BarackObama. As a resultthe use of drones is still extremely limited.

A solution to this data-gathering problem may liein what is called a swarm-bot: a little flotilla of dronesthat interactwith on another: exchanging data gatheredfrom each single unit and learning from each other’s“errors” in order to be smarter and faster, merging aswam vision and thus amore accurate idea of the tar-get features. The significant advance in using a flotillaof drones instead of a single one is based on the peer-to-peer interaction that the drones can have amongthemselves. For example the new software platform

beeswarm can let an entire flotilla act like a singlecreature, able to gather a wider amount of data fromdifferent points of view, allowing the swarm to decidewhether a potential target is a real killing target. An ex-ample of a swarm-bot can be seen onYouTube wherehand-sized small drones are flying in formation andmoving in perfect coordination.While those examplesare still guided fly-by-wirewith a central camera (there-fore not a real drone-to-drone interaction) the impli-cation of the evolving peer-to-peer technology isbreathtaking. Properly configured and integrated, aswarm-bot can include different types of drones op-erating in different hierarchical solutions. A compari-son to thismixed drone flotilla can be anUS navy bat-tle group, in which the carrier is the main unit sur-rounded by AEGIS cruiser, submarines, etc. A similarsolution canbe deployed in the near futurewith dronesallowing, for example, a small hand-sized flotilla toscout the area at ground level while from a Reaperabove canwait silently, ready to engage and kill if a po-tential target is identified.

While the Soulware issue is the first complex cliffthat needs to be escalated two other issues are hang-ing like swords ofDamocles over the futuremassive de-ployment of drones. Assuming that in the near futurethe Soulware will be fully implemented to discernfriend from“target” (given that a drone deployment isnot limited to warfare but can also be used in civiliancontexts such as in the security or police sector) there

Israeli soldiers controlthe Air Force droneHeron in a control roomat Israel’s PalmahimAirbase.

The Drako Micro UAS isa quad-rotor electricalsystem designed forcommercial andsecurity operationssuch as lawenforcement,emergency response,disaster control andmanagement, searchand rescue,environmentalmonitoring and otherrequirements. Thesystem utilizestechnological solutionsderived from thedevelopment of SelexGalileo’s military MUASsystems.

FIN

MECCANIC

A

MENAHEM

KAHANA/A

FP/G

ETTY

IMAGES

longitude #23 - 57

Unmanned aerial vehicles

56 - longitude #23

Military technology

til sometime around 2020, ac-cording to the Government Ac-countability Office, the inves-tigative arm of Congress.

Last but not least, there isstill an entire legal frameworkto be laid related to authoriza-tion for drones engaging a tar-get (for lethal or non-lethal ac-tivity). At themoment the situ-ation is confusing and the droneactivities, especially tied withengaging and killing a target ison the legal borderline. The USpolicy of using aerial drones tocarry out targeted assassina-tions presents amajor challengeto the system of internationallaw that has endured since theSecondWorldWar, aUnitedNa-tions investigator has said.Christof Heyns, the UN specialrapporteur on extrajudicialkillings, summary or arbitraryexecutions, told a conference in

Geneva that President Obama’s attacks in Pakistan,Yemen and elsewhere, carried out by the CIA, wouldencourage other states to flout long-establishedhumanrights standards. In his strongest critique so far ofdrone strikes, Heyns suggested somemight even con-stitute “war crimes.” His comments come amid risinginternational unease over the surge in killings by re-motely piloted unmanned aerial vehicles (UAVs). Ad-dressing the conference, which was organized by theAmerican Civil Liberties Union (ACLU), a second UNrapporteur, Ben Emmerson, who monitors counter-terrorism, announced he would be prioritizing in-quiries into drone strikes. If the US or any other statesresponsible for attacks outside recognized war zoneshave not established independent investigations intoeach killing, Emmerson emphasized, then “the UN it-self should consider establishing an investigatorybody.” Also present was Pakistan’s ambassador to theUN in Geneva, Zamir Akram, who called for interna-tional legal action to halt the “totally counterproduc-tive attacks” by theUS in his country.The Pakistani am-bassador declared that more than a thousand civil-ians had been killed in his country byUS drone strikes.“We find the use of drones to be totally counterpro-ductive in terms of succeeding in the war against ter-ror. It leads to greater levels of terror rather than re-ducing them,” he said. Claims made by the US aboutthe accuracy of drone strikes were “totally incorrect,”he added.Victimswhohad tried to bring compensationclaims through the Pakistani courts had been blockedby US refusals to respond to legal actions. The US has

defended drone attacks as self-defense against al-Qae-da and has refused to allow judicial scrutiny of theUAV program. The ACLU estimates that as many as4,000 people have been killed inUS drone strikes since2002 in Pakistan,Yemen and Somalia. Of those, signif-icant proportions were civilians. The numbers killedhave escalated significantly sinceObamabecamepres-ident. The US is not a signatory to the InternationalCriminal Court (ICC) ormany other international legalforumswhere legal actionmight be started. It is, how-ever, part of the International Court of Justice (ICJ)where cases can be initiated by one state against an-other. Ian Seiderman, director of the InternationalCommission of Jurists, told the conference that “im-mense damage was being done to the fabric of inter-national law.” One of the latest UAVdevelopments thatconcerns human rights groups is the way in which at-tacks, they allege, havemoved towards targeting groupsbased on perceived patterns of behavior that look sus-picious from aerial surveillance, rather than relyingon intelligence about specific al-Qaeda activists.

Soulware, traffic issues and a proper legal frame-work will be the major challenge that the drone in-dustry, comprised of producer, training, and end user,will have to solve with politicians in order to allow foramassive deployment of these device. It does, howev-er, seem plausible that risk-free, long-distance strikesusing UAVs could insulate the Western public fromthe human toll of war. If killing can be performedwith

such ease while protectingWestern lives and avoidingthe costs of deploying troops, will the bar be lower forgovernments to wage war? Already, the creep towardsa permanent state of war, via drone strikes, can beseen. This year alone, the Obama administration hasconducted drone strikes against al-Qaeda and its alliesin Afghanistan, Libya, Yemen, Pakistan and Somalia.The Department of Defense candidly warns of thesedangers in its report: “Wemust ensure that by remov-ing some of the horror, or at least keeping it at a dis-tance, we do not risk losing our controlling humanityand make war more likely.”

Perhaps before we enter the era of drone democ-racieswe should ask the question: Is it fair? Soldiers fac-ing soldiers was in past boundwith a code of honor, re-spect of the enemy and humanity. The massive de-ployment of drones will wipe out part of this martiallegacy. However, the question goes back centuries.Once it was sword versus sword, and somebody start-ed shooting arrows at the enemy. Every time there’s anadvance inmilitary hardware, the other side says, “Areyou playing fair?”

remains the legal framework related to engaging targetsand air traffic (sea and land traffic rules will likely fol-low after some years) to be worked out. Recently re-leased documents show that under pressure to openthe nation’s skies to drone flights, federal US regulatorsare relying on decades of aviation rules that imagineda human being in the cockpit, prompting questionsaboutwhether federal flight rules for drones are strongenough to prevent accidents and midair collisions.Congress in February 2012 directed regulators tomorerapidly establish guidelines for the wider embrace ofdrones, and a subsequent debate about them leaves theimpression for many Americans that unmanned air-craft have rarely operated here.Yet experimental droneflights accompanied by their own set of rules have oc-curred for years and are described in thousands ofpages of FAA experimental flight records obtained bythe Center for Investigative Reporting through theFreedomof Information Act. Public safety officials arelobbying for the broader use of drones to save moneyon expensive piloted fleets and to better visualize dis-asters, uncover drug cultivation and conduct surveil-lance before carrying out a raid.The documents revealhow much more complicated safety could become inthe national airspace once unmanned aircraft leave thelargely uninhabited areas where they are tested today.The FAA predicted four years ago that a sophisticatedcollision-avoidance system for drones could cost asmuch as $2 billion and was still far into the future.Regulators also anticipated then that a framework forbroader drone flights in the US wouldn’t be ready un-

The Falco is the onlytactical UAS entirelydeveloped andmanufactured by aEuropean Company,from the aircraft to thesensors to the groundcontrol stations.

FIN

MECCANIC

A

enrico verga is an institutional relations manager andassociated researcher at ISAG (Istituto di Alti Studi in GeopoliticaScienze Ausiliarie).

An Iranian boy holds aportrait of Ayatollah AliKhamenei near areplica of the capturedUS RQ-170 drone ondisplay next to theAzadi (Freedom) towerduring the 33rd

anniversary of theIslamic Revolution inTehran, February 11,2012.

ATTA

KENARE/A

FP/G

ETTY

IMAGES

longitude #23 - 61

Transatlantic relations

60 - longitude #23

Global trade

In 2013 the pillars will be set for the biggest andstrongest economic area in the entire world – withenormous political consequences. The United

States and Europe have flirted for years with the ideaof taking the world’s largest trade relationship to thenext level.With growth lagging on both sides of the At-lantic Ocean, the concept is getting a fresh look. Inany case, nobody can deny that the jointWhiteHouse-EuropeanUnion committee is preparing the technicalbasis to create amassiveUS-EU free trade bloc, pullinghalf theworld’s economic output into a zone of loweredtariffs and coordinated regulation.You need, of course,the political conditions to close the negotiations, butthe Obama administration has always been stronglybehind the process and now, with another four yearsahead, the reelected president will be able to achievehis goal, leaving his stampon amajor historical change.

By lowering costs for business, reducing importduties and further openingmarkets onboth sides of theAtlantic, the benefits could be substantial, adding closeto a full percentage point to the 27-nation EU’s GDP, orabout $150 billion. A study by Sweden’s National Boardof Trade said that trade between the two sides couldjump 20%– upwards of $200 billion annually – if an ag-gressive agreement were enacted, and perhaps farmore than that. The interest for both sides is clear.Unemployment remains high, especially in Europe,and both the EU and theUS are trying to boost exportsas away to improve their economies (Obamapromisedto double US sales abroad).

“The push for broad trade talks has come mostlyfrom the European side,” Howard Schneider wrote inThe Washington Post, “as the continent struggles to re-new economic growth, the smaller eurozone regionof 17 nations battles a financial crisis and close US

trade partners like the United Kingdom fight off re-cession. Officials have been concerned that the Oba-ma’s ‘pivot’ toward Asia – and its related push for thetrans-Pacific Partnership free trade agreement – couldleave Europe behind in the emerging global system,seen more as a source of risk because of its problemsthan as a region of opportunity.”

The US and the EU together account for almostone-third of all trade. About $5 trillion in trade and in-vestment flows each year betweenmarkets represent-ing 54% of global GDP.This back and forth is largely inbalance: the US runs a deficit in goods, a surplus inservices and direct investment is roughly even, ac-cording to Bloomberg. In 2011, Europeans boughtthree timesmoreUS goods ($286.1 billion) than did theChinese, and Europeans sold about twice to the US($368 billion) as they did toChina. In 2010,USdirect in-vestment in the EU reached $1.9 trillion, while theEU’s share in theUSwas $1.5 trillion. About 15millionjobs are directly linked to the transatlantic trade.

At the end of last December the joint committee is-sued a report and the negotiations are scheduled to be-gin this month. According to the EU trade commis-sioner, Karel De Gucht, an agreement could be con-cluded bymid-2014.The economies of the EU and theUS don’t have the disparities in social, labor and envi-ronmental standards that have made other bilateral

trade agreements so difficult. And this one has somepowerful champions including German ChancellorAngela Merkel, UK Prime Minister David Cameron,the Italian Premier Mario Monti (ex-European com-missioner for competition) and business leaders onboth continents. Even the AFL-CIO and other laborunions, which traditionally oppose trade deals, haveurged negotiators to push ahead.

Although the remaining tariffs on goods are com-paratively low (5% to 7%, on average), bringing them tozero would increase US-EU trade by more than $120billion within five years and generate combined GDPgains of about $180 billion, according to a study by theUS Chamber of Commerce which, along with its Eu-ropean counterpart, BusinessEurope, is pushing hardfor a comprehensive agreement. More than one-thirdof transatlantic trade is conducted between affiliates ofthe same companies, and eliminating the tariffs theypay wouldmake companies on both sidesmore com-petitive. There are even larger prizes to be had frompruning regulatory barriers to trade – the myriad re-strictions on the sometimes-specious basis of healthstandards, national-security concerns or consumerprotection.

Areas still in dispute are only about 1% to 2%of thetotal trade in goods and services. These issues includeperennial arguments over agricultural products such as

US-produced chicken washed in chlorine or tit-for-tat recriminations over unfair subsidies to the aircraftmanufacturers Boeing and Airbus. Other stickingpoints include access tomarkets for services, which ac-count for about 70%of both sides’ economies; EU con-cerns over internet privacy and the flow of electronicdata; and the lifting of restrictions on investment andbidding for public procurement contracts. The twosides have been meeting since November to assesswhether some of these points can be resolved preven-tatively. These exploratory discussions could ensurethat no single issue, industry or interest group cansabotage the talks, as has happened in the past.

A deal could have benefits beyond the immediateeffect on growth. By enhancing competition and re-ducing regulatory barriers, it could compel the coun-tries of the EU to adopt themore flexible economic, in-vestment and labor policies thatmany economists saywill be necessary to restore growth and bring downdeficits. In other words, it could help achieve whatmany European governments say they want, but lackthe political clout to do. It also could serve as a templatefor future trade negotiationswith rising powers such asChina and India, setting commonEU-US standards onregulation, tariffs and investment rules.

But the devil is in the details, as usual. Let’s take alook at themwith the help of Simon Lester of the Cato

Free tradeacross the Atlantic

Almost one-third of all world trade occurs between theUnited States and the European Union. Any free tradeagreement between the two would be a game changerin the global economy.

US Secretary of StateHillary Clinton and EUcommissioner forEnergy GüntherOettinger shake handson December 5, 2012prior to a EU-USEnergy Council inBrussels.

by stefano cingolani

GEORGES

GOBET/A

FP/G

ETTY

IMAGES

longitude #23 - 63

Transatlantic relations

62 - longitude #23

Global trade

Institute, a libertarian think tank inWashington, strong-ly free trader, maybe too strong to fully understandthe traps and the contradictions hidden in the proposalagreement.

Tariffs. The goal would be to eliminate all duties onbilateral trade, with the shared objective of achievinga substantial elimination of tariffs upon entry intoforce and a phasing out of all but themost sensitive tar-iffs in a short time frame. In the course of negotia-tions, both sides would consider options for the treat-ment of the most sensitive products. It is not clearenoughwhat will be “sensitive” andwhat not. But thisis the best part of the draft report.

Services.The aimof negotiationswould be“to bindthe existing autonomous level of liberalization of bothparties at the highest level of liberalization captured inexisting FTAs, while seeking to achieve new marketaccess through efforts to address remaining long-standing market access barriers, recognizing the sen-sitive nature of certain sectors.” This sounds good butit goes off in a different direction: the US and the EUwould include binding commitments to provide trans-parency, impartiality and due processwith regard to li-censing and qualification requirements and proce-dures, aswell as enhancing the regulatory principles in-cluded in current US and EU FTAs.

“Impartiality” and “due process” are useful con-cepts in domestic law. But can they be effectively usedin international trade agreements? Are these conceptsappropriate for binding international agreements, ordo they turn trade agreements into a kind of global con-stitution?

Government procurement. The goal of the negotia-tions would be to enhance business opportunitiesthrough substantially improved access to government

procurement opportunities atall levels of government on thebasis of national treatment.While there is a good free mar-ket objection that governmentsspend too much on procure-ment, nonetheless, if they aregoing to spend, it would be bet-ter to do so in a non-protec-tionist way. This part of the re-port promotes economic wel-fare through non-discrimina-tion in government procure-ment. Americans buy Europeanproducts and services, and viceversa.

Investment. The aim wouldbe to negotiate investment lib-eralization and protection pro-visions on the basis of the high-est levels of liberalization and

protection that both sides have negotiated to date. Ac-cording to Lester, there are two very different conceptsincluded: “Investment liberalization is great. By allmeans, let’s make sure foreign investors are welcomeand not subject to discrimination, in both the US andEU. But protection of foreign investors is somethingelse entirely, as the rules on this issue in other agree-ments go far beyond a simple non-discrimination re-quirement. Furthermore, of all the groups that need‘protection’ in thisworld, I would put ‘foreign investors’near the bottom of the list.”

Rules. Trade facilitation/customs; trade-related as-pects of competition and state-owned enterprises;trade-related aspects of labor and environment; hori-zontal provisions on small- and medium-sized enter-prises; strengthening supply chains; and access to rawmaterials and energy. “It’s great tomake customs pro-cedures more efficient,” Lester maintains, “but in-cluding labor and environment provisions in tradeagreements makes the whole exercise seemmore likeglobal governance than free trade.”

Regulatory issues and non-tariff barriers. There aretwo very ambitious chapters: one on Sanitary and Phy-tosanitary (SPS), including establishing a bilateral fo-rum for improved dialogue and cooperation, and oneonTechnical Barriers toTrade issues (TBT) (e.g., prod-uct regulations) including establishing a bilateral forumfor addressing bilateral trade issues arising from tech-nical regulations, conformity assessment procedures,and standards. The report also asks for: horizontal dis-ciplines on regulatory coherence and transparency forgoods and services, including early consultations onsignificant regulations, impact assessment, upstreamregulatory cooperation, and good regulatory practices;provisions or annexes containing additional commit-

ments or steps aimed at promoting regulatory com-patibility over time in specific,mutually agreed sectors.“The principle of non-discrimination has long been acore part of international trade rules,” Lester objects.“The principlementioned here, ‘regulatory differencesthat unnecessarily impede trade,’ is potentially muchbroader, as it intrudes into domestic policy-making toa greater degree.”

Intellectual property. Both the EU and the US arecommitted to a high level of intellectual property pro-tection, including enforcement, and cooperate exten-sively through the Transatlantic IPR Working Group.Both sides agree that it would not be feasible in nego-tiations to seek to reconcile across the board differencesin the IPR obligations that each typically includes in itscomprehensive trade agreements. Before the launch ofany negotiations, both sides would further consult onpossible approaches to dealing with IPR matters in amutually satisfactorymanner. ”It has never been cleartomewhy intellectual property should be included intrade agreements at all,” writes Lester. “Now theUS andthe EU, who often push for strong protection in thisarea, will work together to achieve very tough interna-tional rules (except where they can’t agree, as with ge-ographical indications, which will be left out).”

This is going to become one of the most contro-versial issues. But the real weak part of the agreementis about agriculture, a very sensitive subject in Europe.“No coverage of agricultural subsidies, or possibly agri-culture trade of any sort! Thatmeans excluding one ofthe biggest sources of protectionism, not to mentiontwo other big ones, with trade remedies and aircraftsubsidies also out. Those are some serious omissions,”according to the Cato Institute. Something that risks todiminishing the great deal, reducedmuchmore to a bi-lateral agreement, substantially protectionist.

TheUS-EU FTA could really change the face of theworld trade, if it is not going to become a larger Atlanticfortress. But we are risking to give birth to an enforcedWestern economic blocwhich is going to challenge theFar East. After a decade of Chinese leadership in theworld economy, America and Europe feels that theyhave to fill the gap, building a bridge across the AtlanticOcean. It is not the Marshall Plan any longer (luckily)but the spirit is the same; not by chance the GermanMarshall fundhas been on the forefront to push the en-tire process.

What will be the impact on the World Trade Or-ganization? Clyde Prestowitz, President of the Eco-nomic Strategy Institute is seriously worried: “There isnot a problem with trade between the US and the EU– other barriers are not substantial. And a US-EU freetrade agreement would probably destroy theWTObe-cause the US and the EU together represent some-where between two-thirds to half of the world econo-my. If half of the global economy entered into an FTA

and excluded the other half – where would that leavetheWTO? I think these FTAs are counter-productive.Wecall them free-trade agreements, but they’re really pref-erential trade agreements. They’re the reason we cre-ated the GATT and theWTO in the first place. This waspart of the problem in the 1930s. After the war we cre-ated the GATT, and now we’re reverting back to the1930s with the spaghetti bowl of bilateral trade agree-ments.” It is a very strong objection. But the support-ers of US-EU FTA, are convinced that a global reformof theWTOand (even less) of the IMF is out of question.Nobody has the political strength to reconcile the con-flicting interests of the major powers. That is why it ismore fruitful to go ahead step by step. And a leap for-ward like Euro-American agreement could give theclick for a new start. Let’s hope so.

EU Trade CommissionKarel De Gucht (R) andUS TradeRepresentative RonKirk attend a session atthe World EconomicForum in Davos.

Source: European Commission Directorate General for Trade

2009

51.5

151.9203.4

EU-US TRADE IN GOODS STATISTICS (in billions of euros)

EU IMPORTS EU EXPORTS BALANCE

76.3

184.2260.6

2011

71.9

170.4242.3

2010

EU-US TRADE IN SERVICES STATISTICS (in billions of euros)

-6.41,194.91,201.4

2010

2009

2010

127.1130.5

-3.4

119.1123.9

-4.8

2008131.4132.1

-0.7

FOREIGN DIRECT INVESTMENT (in billions of euros)

CHRIS

TIA

NHARTMANN

/REUTERS

stefano cingolani is a columnist for the Italian daily Il Foglioand author ofGuerre di Mercato.

EU-US TRADE PICTURE

longitude #23 - 65

Transatlantic relations

64 - longitude #23

Global trade

Ifyoubelieve everything the press and the public aresaying, then we can soon write off Europe and theUnited States as global leaders. According to the

prevailing rumors, economics, industry, politics andeven science will be dominated by China and emerg-ing countries in the next decade. Australia’s PrimeMin-ister Julia Gillard brought this opinion to a higher lev-el onOctober 28, 2012when she announced her visionfor Australia in the upcoming “Asian century.” Propa-gating an almost exclusive re-orientation of her coun-try towards Asia, she called theWestern world outdat-ed and set new and ambitious goals for Australia. Everyschool there should soon teach Chinese, Hindi andIndonesian. By 2025, Prime Minister Gillard aims tohave ten Australian universities among the top 100 intheworld. Her list of goals goes on. Backing upGillard,a well-knownAustralian journalist asserted that by theearly 2020s, China’s and India’s GDPwould top that oftheUS and the EU. Similar assertions have beenmadein other countries – for example at the Asia-PacificConference (with 750 high-ranking participants) thattook place in New Delhi in November 2012.

But what will really happen in theworld in the next15 years? It’s amazing how thought leaders and themedia have completely forgottenwhat their assertionsare based on. They are being misled by percentagegrowth rates. It’s time for some clarifications. In the year2025, the US and Europe will still be leading. The USwill have the highest GDPof approximately $21 trillion,followed closely by the European Union. China will

be the third pillar of the world economywith a GDP ofabout $15 trillion. This is close to the GDP level of theUS today. India and Brazil will remain behind, as theircurrent base is simply too low. Per capita figures tell amuch clearer story. Per capita GDP in the US is cur-rently $48,387, in the EU $32,370, in China $5,414 andin India $1,389. In 2025, these numberswill increase to$60,000 in the US, $42,000 in the EU, $10,000 in Chinaand $2,838 in India. While the percentage spread isshrinking (between the US and China, a difference of790%down to a“mere” 500% in 2025), the absolute dif-ference of per capita incomes is actually increasing –between the US and China from $42,973 today to$50,000 in 2025.

This is the economic view. How does the political-military scenario of the future look? Of course, China’spowerwill continue to growhand in handwith its eco-nomic growth. But it will reach its limits. The Americanhistorian Robert Kagan summarizes, “TheUSwill con-tinue to be most powerful.” Aside from the economicstrength of theUS, there are other geostrategic reasonsfor Kagan’s statement. TheUS is located far from all itspossible opponents. China, in contrast, is surroundedby potential opponents (Russia, Japan and India) – allof whom will work hard to prevent China from be-coming too strong. The American Navy still rules theworld. The operations of the Chinese Navy are prima-rily restricted to the borderingwaters of China. Still, thepolitical weights will shift toward Asia and emergingcountries. In reaction to this, John Kornblum, the for-mer American Ambassador in Germany, supports re-inforcing “Transatlantica.” He purports that, from ageopolitical perspective, the power ofTransatlantica iseven more important than the advancement of theEuropeanUnion. I concurwithKornblum, but I see Eu-ropeanization and the Transatlantica initiative asequally important tasks.

So why does theWestern world persist in its supe-riority? The reason lies in its innovative strength –which applies more to the US than to the EU. Who

consistently wins the Nobel prizes? Where are theworld’s top universities? Which country attracts theworld’s best talents? The United States! But the inno-vative strength of the Europeans shouldn’t be under-estimated.The unique strength of Europeanmid-sizedcompanies is unmatched in the world.

What kind of impact will all this have on compa-nies? The first priority ofWestern companies is to de-fend their market positions in Europe and the US. Formany, this entails fighting for larger market shares inTransatlantica.Numerous European firms are still weakin the US – and vice versa. Of course, entering theemergingmarkets is also crucial.The emergingmarketswill play an increasingly important role. Yet for mostWestern companies, Transatlantica will remain the re-gion in which their fates are decided. China – yes, In-dia – yes, Brazil – yes, and then Africa. But never forgetTransatlantica!

Economic power will ultimately determine howwell countries are able to invest in training, research,

development and science. This is why, in the foresee-able future, the US and Europewill maintain their po-sitions as theworld’smost effective innovators.TheNo-bel prizes willmostly go to theUS, often to researchersthat hail fromother countries. The ability to attract theworld’s top talents is andwill remain America’s biggeststrength. The Europeans must work much harder tocatch up in this regard.The global competitionwill un-doubtedly intensify, especially coming fromAsia. In thestarting blocks of this process, Western skills and ex-pertise provide hope.Western countries will continueto play a decisive role in 2025.

Asia can wait

While the world joins together in shifting its centerof gravity toward Asia, a closer look at the indicatorssuggests that the transatlantic relationship between theUnited States and Europe will continue to hold swaywell into the second quarter of the 21st century.

A man prepares to flya kite against theShanghai skyline.

by Hermann Simon and Danilo Zatta

DOROTHEA

SCHMID

/LAIF

Hermann Simon is the Chairman of the consulting firm Simon-Kucher & Partners.

Danilo Zatta is partner of Simon-Kucher & Partners. They areauthors of the books I trend economici del futuro and AziendeVincenti.

longitude #23 - 67

BerlaymontBerlaymont

Asfar as the euro crisis is concerned,the year 2012 ended much betterthan it had begun. So says the ther-

mometer of the market, which hasn’t reg-istered high fever for a few months nowandhas been reacting to the ups anddownsof European and national policy with un-usual calm.

But the market isn’t the only indicator.There was also a rather eloquent demon-stration of calm at the conclusion of theEuropeanUnion summit inDecember.The27 leaders were able to wrap up the meet-ing and postpone a number of reforms tostrengthen the economic and monetaryunion without too much fear of a danger-ous boomerang effect.

How is this possiblewhen the problemsof the eurozone have remained almost un-changed throughout the year and with acontinuing economic recession that won’tallow for the consolidation of public fi-nances andwill only aggravate imbalances,notwithstanding a slew of spending cutsand sacrifices?

In 2012 expectations about the future ofthe euro changed.Whoever had bet on animminent Greek exit when it was totteringon the verge of default was wrong, as werethosewhopredicted the collapse of the sin-gle currency and its attendant doomsdayscenarios.

The breakthrough came in the middleof the hot summer, when EuropeanCentralBank President Mario Draghi, with explic-it political cover from German ChancellorAngela Merkel and French PresidentFrançois Hollande, stated loud and clearhis determination to ensure the defense ofthe euro in its integrity – at all costs andwith unlimited intervention.

Aftermonths of stop-and-go hesitation,it finally sank in among the “lords” of thesingle currency that saving Greece and theeurowould be a task far less expensive thantorpedoing them. Gradually, the marketsgot the message and then realized thatspeculative attacks against governmentbonds were nowmuchmore risky.

So now they’re all just waiting to see

what will happen.On the whole, Europe has not funda-

mentally changed its behavior. It continueswith its politics of patching up threadbareareas of the EU fabric, with decisions takenwhen its back is against the wall, draggedalong by events, and going out of its way tonot do anything preventatively. But the fearof the ECB’s bazooka and the political willthat serves as ammunition was enough tohypnotize the markets into a relative lull.

That said, the year 2012 gave rise to a se-ries of concrete decisions: agreements tostrengthen budgetary discipline by reduc-ing public deficits and debts. It also sawthe birth of the European Stability Mecha-nism, the permanent rescue fund thatshould also cover the direct recapitaliza-tion of banks and serve as an anti-spreadshield once fully operational.

But that’s not all. After so much uncer-tainty and procrastination, Greece, whichwas on the brink of the abyss, has gottenback on the right path, with Europe in theend resolved to release the aid package andavoid a sovereign default.

Portugal and Ireland have by now en-tered the antechamber of convalescence.Spain has managed to close the year with-outmaking the formal request for aid for itsbanks in serious trouble. Even Italy has em-barked on the path of reform that shouldlead to recovery.

As if that weren’t enough, just when itseemed out of reach, the year endedwith apolitical agreement on banking supervi-sion entrusted to the ECB. Even if it was re-stricted to themajor banks, about 150 of themore than 6,000 in the EU, and due to takeeffect fromMarch 1, 2014, it’s a first step to-ward the European banking union, that is,toward the termination of that perverse re-lationship between the sovereign debt cri-sis and the financial crisis, which has tight-ened the screws on the euro crisis.

And then therewas the unexpectedNo-bel Prize for Peace, which may have at-tracted more amazement than pats on theback among its recipients, but which hasbeen interpreted by many as an incentive

not to look at the EU as an expensive andout-of-fashion construction, the child of aforgotten era.

Now the decisions have been taken andeveryone is waiting to take action. This, ofcourse, is the most insidious stage, wherethings often get stranded in some bureau-cratic bog, orwhere the pactsmorph on theedge of real or perceived intra-Europeanmisunderstandings.

Perhaps this is reason why the Decem-ber summit preferred to postpone furtherreforms – and not just because of the Ger-man elections slated for September 2013,

which are holding up thework in the EU soas not to impede the reappointment ofMerkel. It might be better to digest the re-forms that have already gone into effectand see how they’ll work in practice beforemoving on to other changes in an unchar-acteristic fit of ambitious activity. Accord-ing Hollande it might also be best to waitfor the European Parliament elections inthe summer of 2014 and the renewal of theEuropean institutions before getting to theheart of the debate.

The globalized world keeps changingfaster and faster, but Europe’s defaultmode

of plodding along is still as drawn out asever. And this is alright, as long as the trucein the markets doesn’t stop in 2013.

by adriana cerretelli

Europe ended a bad year on agood note. Things may not bemoving as fast as most wouldhope, but a few crucialmeasures have kept the biggestperils at bay.

All’s well that ends well

adriana cerretelli is the Brussels correspondentfor the daily Il Sole 24 Ore.

GEORGES

GOBET/A

FP/G

ETTY

IMAGES

66 - longitude #23

Press conference at theEU Headquarters onDecember 14, 2012 inBrussels, on the lastday of a two-dayEuropean Unionleaders summit.

68 - longitude #23

Europe

longitude #23 - 69

Germany

Theworld population nowexceeds seven billion, butin Europe population

growth remains very low. Andwithin Europe it is Germanywhich has one of the lowestgrowth rates. The relative fig-ures released last year by theMinistry for Internal Affairswere alreadyworrying. Last Oc-tober, the Federal Statistics Of-fice announced that the population of Germanywouldfall by at least tenmillion by 2060. It is evident that thefuture demographic composition of the German Fed-eral Republicwill be one of themost important subjectsfor public discussion in the next few years. German so-ciety is gradually and inexorably diminishing and age-ing. Germany has a birth rate which is among the low-est in the world (only the Japanese do worse than theGermans).

The question that now needs to be asked is this: Isit possible for an economy which is Europe’s guideand model to have such a low birth rate?What futuredoes theGermanpopulation have? Is Germany self-de-structing?Today theGerman Federal Republic is a sol-id and robust socialmarket economy, but its econom-ic supremacy is not destined to last long if it is deniedthe possibility of generational change.

According to the Federal Statistics Office, today inGermany the percentage of young people under 15 isthe lowest in Europe whichmakes the German popu-lation the oldest in Europe. In 2010 just 13.5% of thepopulation were under 15, less than one person inseven; while one in five were over 65. And it does notend there. Already by 2030 the amount of citizens over64 will probably be as high as 29% of the total popula-tion. By 2060 it will be 34%, or one in three and thenumber of people turning seventy will be double thenumber of births. It could be said that Germany real-ly seems a country for the old.

Currently in 2012 there are around 2.3 million oldpeople needing assistance. This number is set to risedramatically to the point when in 2030 there could beamillionmore.This is no insignificant fact for the statecoffers. Germany, as many national newspaper arti-cles are jokingly claiming, is becomingmore andmoreof a“pensioners’ republic.” According to a study by Eu-rostat, in 2030 Germanywill have the greatest numberof pensioners in Europe. In Saxony in ex-EastGermany,themedium sized townof Chemnitz (243,000), famousfor having the name of Karl-Marx-Stadt from 1953 to1990, will be the city with the oldest population in Eu-rope: almost 40% of its inhabitants will be over 65.

If wewiden the comparison to the rest of theworld,the situation in the Federal GermanRepublic does notlook much better. Only the Japanese are in a worseposition than theGermans (13.4%of its population areunder 15). These facts have brought a general changein the social geography of Germany which now hous-es 1.4 million fewer families than in 1996.

Now, these data are clearly linked to populationgrowth and are part of a series of studies and analy-ses that showGermany holding the record at the neg-ative end of the scale: only eight babies are born forevery thousand inhabitants every year. In other wordsGermany has one of the lowest birth rates anywhereon the globe.

Already last year, the Minister for Internal Affairswas describing the demographic situation inGermany.

The incredibleshrinking Germans

Germany is a without a doubt Europe’spowerhouse. But the powerhouse is getting old.It seems the only people in Germany havingchildren are foreigners, and this has manyGermans very worried.

An elderly couple looksout at the Berliner DomCathedral duringcelebrations for Berlin’s775th anniversary,October 28, 2012.

by Ubaldo Villani-Lubelli

ADAM

BERRY/G

ETTY

IMAGES

longitude #23 - 71

Germany

70 - longitude #23

Europe

If the current figures are correct 81.7million people areliving inGermany at present but in the next 50 years thepopulationwill decrease by about 12million to around70million inhabitants, or in the worst scenario to just65 million. The precise number will depend on howmany immigrants there are. In any case, there will bemore inhabitants of foreign origin, even if the highfertility rate of many groups of foreigners does notmanage to totally compensate for low fertility ratesamongGermans.The number of inhabitants Germanyof foreign origin will also grow. It is the simultaneousfall in the number of births and the ageing of the pop-ulation that is causing this decrease. Germany has abirth rate which is among the lowest in Europe: 1.36 in2009. Only the Portuguese and the Hungarians (1.32)rank below theGermans. Slightly ahead ofGermany areSpain (1.40) and Italy (1.41). France (2), Holland (1.79),Sweden and Great Britain (1.94) are doing decidedlybetter. It is Ireland that finds itself at number one forbirth rate in Europe (2.07). The European average,however, is very low: 1.6.TheUnited States is stable: 2.0.It needs to be remembered though that in Germanythis fall in the number of births is not a new phenom-enon, but one that began in the 1960s, and since 1975it has never risen above 1.5.

If to the lowbirth ratewe add greater life expectancyit is easy to understand howGermans are destined, inthe next decade, for radical change. In developed coun-tries life expectancy has been growing for about 150years by three months a year.While now men can ex-pect to live until 77.5 andwomen to 82.6, according tothe report’s forecast, by 2030 life expectancy will have

grown to 81 for men and 85.7 for women. In short,peoplewill be living longer and longer and therewill befewer and fewer births. To sum up then, the Germanpopulation will not only decline but will also becomeever older, as the Federal Office of Statistics indicates.

This data seems to confirm the arguments of ThiloSarrazin, a German economist well-known for hisbizarre and controversial arguments. In 2010 he pub-lished a book which caused a lot of discussion in Ger-many. The title by itself was very expressive: Deutsch-land schafft sich ab (Germany is self-destructing). TheGerman economist’s book was a wake-up call for Ger-man society and German politics, or maybe just a cryof fear for a society that is slowly but surely losing its tra-ditional identity and is literally de-Germanizing. Sar-razin reported a series of facts showing that Germany,despite still being today among the richest countries intheWest, is no longer in one of the top spots; in fact, ithas been overtaken by the US, Switzerland, Holland,Sweden and Great Britain (these figures refer to 2008).Germany is gradually losing competitiveness. Accord-ing to data reported by Sarrazin, inGermany therewere1.3 million births in the 1960s, 650,000 in 2009 and, atthat rate, in 90 years therewill be between 200,000 and250,000 per year. So the population of Germany is des-tined to fall to 25 million in a hundred years, to 8 mil-lion in two hundred years and to 3 million in threehundred years.To describe this relentless process, Sar-razin, very effectively refers to Jack Arnold’s famous1957 film The Incredible Shrinking Man in which themain character, because of a radioactive cloud, under-goes a process of gradual, constant and irreversible

shrinking until he finally van-ishes. It is highly unlikely thatGermanywill disappear, but it isdestined to be very differentfrom the Germany we know to-day and have known until now.There is awell-known anecdotewhich until recently was oftenretold in the German press. InMay 2004 the Turkish newspa-perHürriyet reported adialoguewhich took place at a dinner at-tended by Turkish and Germanentrepreneurs in which theTurkish-German entrepreneurVural Öger said that in 2100there will be 35millionTurks inGermany, while there will beonly around 20 million Ger-mans. And he added, accordingto a report in the Turkish news-paper: “What Sultan Suleimanthe Magnificent began in 1529with the siege ofVienna, wewillfinish todaywith the strength ofourmen and the good health ofour women.” Now, the entre-preneur insists that this wasonly meant as a joke and a wayto encourage German womentohavemorebabies, but the factremains that the indigenousGerman population is at thesame level as it was 40 years agoand within the next three gen-erations their numbers will fallto around 20million.

Leaving aside these tauntsand apocalyptical scenarios,there is no doubt that this bleakand in somewaysworrying pic-ture will also have inevitableconsequences on the Germanlabormarket. In 2040 there willbe 42 million people of working age, in 2060 only 33million. Very soon, it will be companies who are look-ing forworkers instead of the otherway round, as is thecase now. And it is not just a question of losing theworkforce. Germany, for whom innovation has always beena strong point, now risks losing vitality and creativitywith the aging of its population.Will a society of over60-year-olds manage to keep up today’s standards inthat respect?

AsHeribert Prantl rightly asked in an article in Süd-deutsche Zeitung: who in the future is going to pay forpensions? How should the German pension system

be reformed? The Minister for Labor and Social Af-fairs, Ursula von der Leyen, has pointed out thatmoreandmoreGermans are at risk of facing a futurewith aninsufficient pension.Theminister has spoken of the ex-plicit risk of poverty among pensioners. For this reasonshe has proposed a minimum fixed pension of €850,a project which is unpopular with Chancellor AngelaMerkel and with the Free Democratic Party. Germanpoliticians are urgently seeking newproposals and so-lutions to these problems.

There is also a risk that the fall in population growthwill cause conflict between the generations. An ever-

800 400 0

10

20

30

40

50

60

70

80

90

100

600400Source: Statistisches Bundesamt, Wiesbaden, 2012

800600 200 200

FEMALES 2010FEMALES 2040MALES 2010 MALES 2040

Fewer womenFewer births

In thousands

AGE

Sou

rce:

Sta

tistis

ches

Bun

des

amt,

Wie

sbad

en,2

012

20

30 million

0-19 years 25-40 years 65-80 years

19-25 years 40-65 years More than 80 years

2011 2015 2020 2025 2030

10

0

1993 1997 2001 20072005 2011

Source: Statistisches Bundesamt, Wiesbaden, 2012

20091995 1999 20031991

200

400

200

400

600

800 thousand

Immigration surplus Decrease in population Birth deficit

0

1950 1960 1970 1980 2000 2010

Source: Statistisches Bundesamt, Wiesbaden, 2012

1990

70

68

75

78

80

83 million

WITH IMMIGRATION

WITHOUT IMMIGRATION

73

EFFECTS OF IMMIGRATION ON GERMAN POPULATION SHIFT OF THE BABY BOOMERS

AGE GROUPS

POPULATION DEVELOPMENT

longitude #23 - 73

Germany

72 - longitude #23

Europe

are about 160measures aimed at encouraging the birthrate, including a generous bonus (60% of salary up toa maximum of €1,800 for 12 or 14 months after thebirth of the child) and a family allowance of €250monthly per child. All this does not seem to be enough,nor does it seem to be changing the negative demo-graphic trend.

The Berlin Government, of course, is trying tolaunch a strategy to counter a negative and decidedlyalarming trend. Last year it set up a government thinktank ondemographics at theMinistry of Internal Affairswith the intention of developing ideas and projectsand to advise the government on what it could do toimprovematters.Then, last Octoberwe had the first fo-rum to present the government’s strategy for dealingwith demographic change. The sloganwas “Jedes Alterzählt” (Every age counts). There are six areas of inter-vention: 1) reinforcing the idea of the family as com-munity, 2) working in a way which is motivated, qual-ified and healthy, improving working conditions; 3)making the old autonomous and independent; 4) sup-porting integration policies at the local level and im-proving the quality of life in rural as well as urban dis-tricts; 5) assuringwell-being and sustainable growth; 6)providing government funds to support these aims.

Behind the government’s action plan is the con-viction that the dramatic demographic trend in Ger-many can only be reversed bymeans of real synergy be-tween the state and the people, and that theymust co-operate with one another. Anyway, the governmentstill does not seem to have very clear concrete ideas on

ageing society will need increasing sums to fund itspension system at the expense of the younger genera-tion. Kerstin Bund, the young editor of the weeklynewspaper Die Zeit has entered into a debate with theminister Ursula von der Leyen. Bund has criticized theminister, complaining that her intended reformwill fallonce more on the shoulders of the new generations“We can’t have a situation inwhich all of this country’sproblems are unloaded onto the present generation of20 to 35-year-olds. The great injustice is that the well-being of the old rests on the shoulders of the young. Itcould be said that this is normal in an ageing society.But the domination of the old over the young is mere-ly that of those who do not work over those who dowork. If demographics determine democracy, sooneror later solidarity will also come into play. The gener-ational pact is founded on the idea that the youngergeneration looks after the older generation. But thosewho are startingwork today know that they can’t expectthatmuch of a pension in their old age.How canwe ex-plain to the young that they have to work harder com-pared to the previous generation but that in the futurethey will receive much less?Why should the new gen-eration be expected to sort out the debts of the pastknowingwhat little therewill be for their future?Thereis a dangerous feeling of impotence engulfingmy gen-eration and it could easily turn into anger. And angeris poison for the solidarity of our society.”

Family policy in Germany is already among themost expensive in the world. The German Federal Re-public is investing around €195 billion per year. There

how to act. It is quite likely that it will be able to bemoreprecise in 2013. On January 9 and 10, 2013, the secondforumondemography, the BerlinerDemographics Fo-rum will be held. In this forum young academics andrepresentatives of the generation of the 1980s will dis-cuss problems related to demographic change. Thethematic spectrum has three keyword concepts: gen-erations, learning and well-being. At the center of thedebate is the difficulty for young academics to build afamily due to temporary contracts. According to a re-cent study by theDeutsches Institut fürWirtschaftsfo-rum (DIW) about 40%of womenworking in academiahave no children.

The last congress of the CDU, the party of AngelaMerkel, addressed the demographic problem. In the fi-nal document of the Hannover congress which tookplace last December 4 and 5, it is recognized that abouthalf of today’s children will probably reach 100, but atthe same time there will be fewer births. The intentionof the CDU is to improve working conditions in orderto ensure competitiveness and innovation, which arethe keywords of theGerman economic and socialmod-el, even through the older generation. Older people, infact, often have superior experience and skills. It thenalmost accepted that the demographic trend is, for the

moment, unstoppable and so rather than focus on in-creasing new births it aims tomake the existing rulingclass more competitive. The challenge that the CDUwants to launch is to try to combine experiencewith in-novation so that Germany remains the country knownworldwide for its innovative ideas. All this without ne-glecting family policy. How this policy should be de-veloped and articulated, considering the costs it is al-ready incurring, remains a mystery. The position ofthe CDU seemsmore aimed at containment and scal-ing down the damage that aging could bring in theimmediate future rather than at a solution for themedium to long term.

Demographic change is, for Germany, one of thebiggest challenges in the future. However, again, theruling and political classes of the Federal Republic donot really knowhow to deal with it. It is hoped that theforthcoming political election will bring new ideas.For the time being Germany remains an economic gi-ant with a highly uncertain future.

Ubaldo Villani-Lubelli is author of numerous essays onGerman Studies and European Policy.

The Jule project assistssingle parents byhelping them to findjobs, job training,housing, and advice onchild development andday care.

Elderly Germansexercising in a Berlinpark.

SEAN

GALLUP/G

ETTY

IMAGES

COTTON

COULSON/N

ATIO

NALGEOGRAPHIC

/GETTY

IMAGES

Impresa Pizzarotti & C. S.p.A. - Headquarters: Via Anna Maria Adorni, 1 - 43121 Parma - Italy - Ph. +39 0521 2021 - Fax +39 0521 207461 - e-mail: public@pizzarotti.it - www.pizzarotti.it

BUILDING THE FUTURE FOR A HUNDRED YEARS

A national and international General Contractor involved in the construction of TUNNELS, RAILWAYS, ROADS, MOTORWAYS,

DAMS, PORTS AND UNDERGROUND RAILWAYS and also promoter for project finance and real estate.

Founded in 1910

High-speed railway line Milano-Bologna

Construction of the New Fair Complex in Milan

Construction of the Motorway Catania-Siracusa Sedrun Tunnel (Switzerland)

longitude #23 - 77

Featured briefing

76 - longitude #23

Featured briefing

Somethingstirring in Africa

79 Africa’s golden leapby lanfranco vaccari

82 Map: Sub-Saharan statistics

89 Somalia: from bullets to ballotsby carlo lo cascio

92 Beyond low wage laborby domenico lombardi

94 South Africa’s mired economyby anna bono

98 A steady performer nonethelessby vincenzo schioppa

BRUNO

BARBEY/M

AGNUM

PHOTOS

A young man rests on aboat cruising up theOgooue River in Gabon.

78 - longitude #23

Featured briefing

longitude #23 - 79

Africa

NgoziOkonjo-Iweala, Nigeria’s economy czarina,puts it this way. Imagine a continent torn bymultiplewars, she says, beset by ethnic and re-

ligiouswarfare,malnutrition, disease and illiteracy – allof it complicated by poorly drawnborders, a still potentpost-colonial stigma and the incessant meddling ofoutside powers.With a single exception, per capita in-come hovers at $400, primary school education reach-es only a fraction of the region’s vast population, and itsauthoritarian rulers ensure any revenue generated bythe rich natural resources is spent on personal, ratherthan national priorities. Prospects for pulling themul-titudes that live at, or just above, subsistence levelsseem remote, at best. This is Africa, isn’t it?

Well, yes and no. The above description applies totoday’s sub-Saharan Africa (SSA) as much as to devel-oping Asia in themid-1970s: an area that had endured200 years of decline, imperial domination and eco-nomic stagnation before entering the path that wouldtransform it into the most economically vibrant re-gion on Earth. And now, what happened in East Asiaover the last few decades seems to be starting again ina place that, just ten years ago, The Economist labeledas “the hopeless continent.” Half a century since it be-gan to free itself from colonialism, the African age ofdespots and destitution is fading into a dawn thatpromises growth to rival, if not surpass, that recordedby the Asian Tigers. Africa’s time has arrived, Okonjo-Iweala (who doubles as both Nigeria’s CoordinatingMinister for the EconomicManagementTeamand theMinister of Finance) emphatically stresses.

The rest of the world is starting to take notice, too.GDP across SSA’s 48 countries rose by an average 5%-7% per year since 2003, according to the Internation-alMonetary Fund. In the past decade, six of theworld’sten fastest-growing economies were African: Angola,

Africa’sgolden leap

Long regarded as a hopeless continent, Africa is poisedto flourish economically in the 21st century.The causes are a combination of familiar patternsin economic development as well as a dose of uniquelyAfrican ingenuity.

Bather at sunsetleaping in the ocean.Zanzibar, Tanzania.

by lanfranco vaccari

THOMAS

HOEPKER-M

AGNUM

longitude #23 - 81

Africa

80 - longitude #23

Featured briefing

Nigeria, Ethiopia, Chad, Mozambique and Rwandamanaged an annual average rise between 11.1% and7.6%, in that order. In the same time-span, ten coun-tries have grown at an average of 7%ormore, a rate suf-ficient to doubleGDP every decade.Things aremovingfast. The improvement registered inNigeria’s per capi-ta GDP between 2002 and 2008 (in constant prices)took India eight years to achieve in the 1990s, SouthKo-rea 11 years starting in the 1960s, and France 27 yearsin the 19th century. In 2012, five African countries haveoutgrown China, 21 beat India and only two (Gambiaand Swaziland) expanded slower than the FirstWorld.After decades in which it grew slower than the rest oftheworld combined (2.6% in the 1980s and 2.2% in the1990s, compared to 3.2% and 3.0%), nowAfrica is out-performing it (5.7% in the 2000s, compared to 3.6%).And an IMF forecast for 2011-2015 confirms Africa asthe fastest-growing continent, with seven countries inthe top ten: Congo, Ethiopia, Ghana, Mozambique,Nigeria, Tanzania and Zambia will expand by morethan 6% a year.

The change is so dramatic that BobGeldof has rad-ically switched his approach to Africa, from charity toinvestment. In the middle of the 1980s, the Irish rockstar organized the Live Aid concert to focus global at-tention on Ethiopia, where an autocratic government,drought and war produced a famine that impactedhorribly on 18 million children. Almost 30 years later,at a time when the government in Addis Ababa con-sistently succeeds in providing far more calories to 34million children (and this doesn’t make headlines inWestern news outlets), he is the founder of a $200mAfrica-focused private-equity fund. “This could be theAfrican century,” he recently told Time magazine.

Afro-optimismpushedRenaissanceCapital, a Russ-ian investment bank operating in high-opportunityemergingmarkets, to publish late last year a book,TheFastest Billion: The Story Behind Africa’s Economic Rev-olution, that tells the tale of a most unexpected trans-formation. The main point raised by Charles Robert-son, its Global Chief Economist, is that in the currentcycle of development Africawill be the biggest winner.Of all the potential fast-growth regions in theworld, hesays, Africa has the best resources, the best demo-graphics, the best finances, and above all the besttrends. By 2050, the continent’s GDPwill increase fromthe present $2 trillion to $29 trillion (in 2012 dollars)andwill be larger than today’s combined output of theUS and the eurozone.

The takeoff has been helped by a variety of accel-erators, none of them crucial by itself but all of themdecisive to build themomentum.Themost obvious isthat since 1990 Africa has moved from pure authori-tarian rule to something approaching democracy. Ac-cording to Freedom House, the US-based think tank,twenty-something years ago only four countries in SSAcould be rated as completely free: in 2009, there werenine. The number of countries judged as partially freegrew from 18 to 24 and those lingering under more orless repressive regimedropped from30 to 20. Except forSomalia, the Democratic Republic of Congo (DRC)and Equatorial Guinea, all of the present-day autocra-cies are vulnerable to democratization.This process ismost likelywhenper capita income reaches $6,000, thelevel at which themiddle classes demand – andusuallyget it – stronger political representation. According tothe RenaissanceCapital forecast, well before 2050mostof the continent will cross the $10,000 per capita GDPthreshold, above which no democracy has ever died.Right nowonlyGabon, Botswana,Mauritius andEqua-torial Guinea (there is always an exception to the rule)have reached it, and South Africa is expected into theclub by the end of this year.

Many African governments have used foreign debtforgiveness programs to put public finances on a soundfooting. In 1996, the IMFand theWorld BankdevelopedtheHighly Indebted Poor Countries (HIPC) program inorder “to ensure no poor country would face a debtburden it cannot manage.” Initially open to 36 coun-tries, all but five fromAfrica, it required showing“a trackrecord of reform and sound policies” as a prerequisiteto access the debt-forgiving deals. Since then, 24African countries have completed the procedure at atotal cost of $74 billion, somewhat less expensive thanGreece’s recent default. This has enabled SSA govern-ments to slash its public debt ratio from70%of GDP in2000 to 32% in 2009, while household debt has re-mained at levels closer to 0%-10%of GDP acrossmuchof the continent.The vastmajority of African countrieswould meet the Maastricht requirements with ease.

Most African countries have learned from theirpost-independencemistakes and seen positive reformexamples not just in Asia, but all around themselves,from Mauritius to Botswana and Cape Verde, fromGhana to Rwanda. By gradually reducing the obstaclesto business, the private sector has been able to thriveand aspirations have grown. The consequences havebeen spectacular: a quintupling of exports, record in-flows of foreign direct investment and a doubling of percapita GDP. First and foremost, governments havebeen able to deliver the essentials of strong primary ed-ucation andwider access to secondary education.Theyhave come a longway from the situation described byMartin Meredith in The State of Africa: A History ofFifty Years of Independence, published in 2006. WhentheDRCwon independence in 1960, therewere just 30graduates, no doctors, no secondary school teachersandno armyofficers. Kenya did not have its first Africanlawyer until 1956. InNorthern Rhodesia (nowZambia),only 35 Africans had pursued higher education by1959, and inNyasaland (nowMalawi) the figurewas 28.

Primary school enrollment was already 96% in2005. Secondary education has expanded dramatical-ly, from just 13% in 1975 to 39% (on a far larger popu-lation base) by 2005: Nigeria has jumped from 7% to32%, Kenya from 13% to 48%, and rich countries likeMauritius have an 88%enrollment. In themiddle of lastdecade, SSA rates were equivalent toTurkey andMex-ico in 1975, countries that became significant parts ofthe global economy 15 years later, once these studentshad entered the workforce. Ghana and Kenya are instronger positions than China in 1990; and Botswana,South Africa andMauritius are already ahead of China,Indonesia and India today. Renaissance Capital proj-ects that public spending on education over the nexttwo generations will expand from $93 billion to $1,384billion, with the greatest impact on secondary school,where enrollment should top 50% at the end of thisdecade, and be close to 100% by 2050. Surging demo-graphics will mean primary school teacher numbersshould rise from four million to ten million.

Better governments have provided legal frame-works, access to themarkets, fairer taxation levels, in-frastructure for energy and transport, and social poli-cies that ease business. The showcase is Rwanda, acountry that the 2010 World Bank’s Doing Businesssurvey put at the top of the “most improved reformerlist.” In Kigali you can start a new business in threedays, with the completion of just two procedures. Thisled to 6,000 new companies being registered in 2011,about equal to the number of the five previous years.But these achievements are an Africa-wide phenome-non.TheWorld Economic Forum’s 2012-13 report sawNigeria jump 12 places, with Ghana and Zambia alsorising 11 places. To start a business in Mauritius takes6 days, like in theUS; in Ethiopia it takes 9 days, well be-

low the 15 days needed in Germany. The average of 32countries is still 33 days. Nigeria requires 34, still downfrom 44 in 2004). Kenya, South Africa and Sierra Leonehave more or less halved their numbers at 33, 19 and12, respectively. Mozambique has slashed the time by90%, to 13 days. Angolawas at 119 in 2004, now is at 68.By comparison, a BRIC member like Brazil still re-quires four months. Moreover, in many countries(Nigeria, Kenya, Zambia,Mozambique and theDRC toname a few), the requirement for paid-in capital hasbeen cut to zero, as recommended by theWorld Bank;in lower-income countries, any such measure mayrepresent a hefty sum as a percentage of income percapita, and therefore a deterrence to establishing aformal business. Some countries still have to catch up,Guinea being the extreme example: there, in 2004, theminimumwas a prohibitively high 41,405%of per capi-ta income, and the cost of setting up a business was232% of per capita income. Notwithstanding reform,today’s figures are still high, at 407% (99% lower, any-way) and 118%. But again, China is at 100% and Indiais at 150%.

Higher commodity prices after the 1980-2000 bearmarket have certainly been an additional kicker. SSAaccounted for 1%of global oil production in 1965, with316,000 barrels per day bringing in $1 billion of revenue(in 2011 dollars). This surged to 7% by 2010 and in2011 production was at 5.8 million barrels per day,equivalent to all of China’s import needs. On a conti-nental scale, oil revenues in SSA averaged approxi-mately $34 billion per year in the 1990s; they morethan tripled to $124 billion by 2005 and have sincedoubled again. Volume is expected to increase up to$300 billion by 2019, evenwith no change in oil prices.

A teacher conducts alesson in a makeshiftclassroom at a reliefcenter for flood victimsat St. Boniface primaryschool in Idah, Nigeria,October 3, 2012.

Sishen iron ore mine inSouth Africa. Stackersand stacker-reclaimerson the blending beds.

GRAEMEWILLIA

MS

AFOLABISOTUNDE/REUTERS

POPULATION OF 15-24 YEAR-OLDS BY REGION, 2000-2050

INFLATION, % YOY, AVERAGE

Sources:UN;IMF;Reserve

BankofIndia;Renaissance

Capital;Bloom

berg;Renaissance

Capitalestimates;BP;EIA;Time,decem

ber2012

SSA World

1980 19921986 1998 2004 2010

20

30

10

50%

40

CHINA’S TRADE WITH AFRICA ROLLING 12 MONTH DATA

Weak democracy

Strong autocracy

Strong democracy

Weak autocracy

Jan2000

Aug2001

Mar2003

Oct2004

May2006

Dec2007

Jul2009

Feb2011

AFRICAN OIL PRODUCTION (in mbpd)

THE POPULATION OF AFRICA IN 2010

10%

N.A.

-4

0

4

7

GDP OF AFRICA IN 2012 ($BN)

DEMOCRACY, POPULATION, GDP

REAL GDP GROWTH, 2011

MAURITANIA

LIBERIA

IVORYCOAST

GHANA TOGO

BENIN

BURKINA FASOGUINEA

MALINIGER

CHADSUDAN

ERITREA

SOMALIA

COMOROS

ETHIOPIA

KENYA

UGANDA

TANZANIA

RWANDA

BURUNDI

MADAGASCAR

MOZAMBIQUEZIMBABWE

SOUTH AFRICA

NAMIBIA

BOTSWANA

ANGOLA

DEMOCRATICREPUBLICOF CONGO

ZAMBIA

NIGERIA

CENTRAL AFRICANREPUBLIC

CAMEROON

SOUTHSUDAN

SSA GOVERNMENT BUDGET AND DEBT

China 12-month exports to AfricaChina 12-month imports from AfricaAfrica’s trade balance with China

40

0

Egypt + Tunisia Algeria Libya Other SSA (incl. Chad, Sudan) Nigeria Angola

80

120 billion $

1965 1977 1989 2001

1998 2002 2006 2010

2013 2025

8,000

4,000

12,000

Each box represents 1 million people andcolors reflect political labels Sub-Saharan Africa has

the second fastestgrowing regional economyin the world, after Asia.But huge challengesremain, even in countriesthat are experiencingboom times.

Each box represents $1bn of GDPand colors reflect political labels

2000 20102005 2015 2020 2025 2030 2035 2040 2045 2050

200

300

100

400 million

Eastern Europe Eastern Asia

Northern AfricaSouth Asia

SE Asia

SSA

2000 20032001 2002 2004 2005 2006 2007 2008 2009 2010 2011

0

2

-2

-4

4% of GDP

SSA Budget Balance SSA Government Debt

North Africa SA SSA

60

80

100% of GDP

40

20

EQUATORIAL GUINEA

SAO TOME AND PRINCIPECONGO

GABON

SIERRA LEONE

GUINEABISSAU

GAMBIA

SENEGALDJIBOUTI

SWAZILAND

LESOTHO

1210 16 18148642086420

6420

GDP GROWTH 2000-2011

Africa Others

Over 2000-11, 10 Africancountries achieved at leasta 7% annual average GDPgrowth rate, sufficient todouble an economy’s sizeevery 10 years

Eq. Guinea

Turkmenistan

Qatar

Azerbaijan

Myanmar

China

Angola

Sierra Leone

Afghanistan

Nigeria

KazakhstanIndia

Uganda

Laos

Belarus

Vietnam

Mongolia

Maldives

Uzbekistan

Tanzania

DR Timor-Leste

Bhutan

Ethiopia

Tajikistan

Cambodia

Armenia

Rwanda

Chad

Mozambique

EXPORT OUT OF AFRICA

400,000

600,000

200,000

800,000 million $

82 - longitude #23

Featured briefing

Sub-Saharan statistics

longitude #23 - 83

Africa

longitude #23 - 85

Africa

84 - longitude #23

Featured briefing

nent for decades to come.Take Sierra Leone. In 2012 ithas registered a 21% GDP rise (translating in a percapita increase from $486 to $621) on the back of newTonkolili iron ore project. The operation will generateover $3.5 billion in government royalties and over $10billion in direct tax benefits over the next 30 years,making this by far the most significant contributor toSierra Leonean GDP. Moreover, the transport corridorassociated withmoving up to 20million tons per yearof iron ore to the coast directly employs over 8,000Sierra Leone nationals. New iron-ore projects are pur-sued inwestern and central Africa and could add near-ly 600 million tons of output by 2022. Down in thesouth,Mozambique is on course to be one of the largestcoking coal exporters by 2020.

As odd as it may sound, commodities have notbeen the biggest growth driver in Africa. Even placeswithout mineral wealth are achieving great gains. Oildoes not explain the doubling of GDP in Ethiopia,Rwanda, Tanzania and Uganda in the past decade. Inthese countries, as well as in energy producers, thebenefits come from better governance, stronger pub-lic finances (aided by large-scale debt relief), a bur-geoning private sector – and, most of all, services.Based on 11 countries that account for 78% of conti-nental GDP, over 2002-2009 services represent 53% ofthe growth, with agriculture next at 16% andmining at14%.Within services, wholesale and retail trade, tele-coms and transport account for around half of thegrowth.This fits with the hefty 60%upward revision inGhana’s GDP in 2011, after taking into account previ-ously unrecorded areas such as telecoms.

The communications revolution has been the bigstory. In the last seven years, 500million SIMcards havebeen sold, mobile penetration rates exceed 40% evenin countries where the per capita GDP is below $2,000(the continental average is between 60% and 65%) andinternet users have expanded 31-fold since 2000. As Jo-han Snyman and Alex Kazbegi write in The Fastest Bil-lion, “the cellphone has not just improved communi-cation – it has created it.” And, in the process, it has en-couraged change in every economic transaction, trans-forming the way payments aremade. Africans used tosend or receive money in an informal way, throughbus drivers, travelling relatives and money brokers.This was not only costly (intermediaries charged ashigh as 20%commissions) but also unsafe.That’swhereM-Pesa comes in. Launched in 2007 by Safaricom,Kenya’s leading telecommunications company,M-Pesais a mobile phone banking system that allows peopleto deposit, withdraw and transfer cash (pesa meansmoney in Swahili). All you need is to register your iden-tity andphonenumberwith anM-Pesa agent (there aremore than 23,000 around Kenya alone); money canbe deposited into and withdrawn from the account infront of the agent, using themobile phone as identifi-

cation. It has taken East Africa by storm: about 70% ofKenyans, Ugandans and Tanzanians use it. An unex-pected consequence has been a considerable reductionin crime, because people don’t carry substantialamounts of cash anymore.

Safaricom is not a licensed banking operator (itcharges a fee for each transfer, as if is were a text mes-sage), but banks too have undergone a huge overhaul,often in unconventional ways. In Kenya, again, Equi-ty Bank developed low-cost, no-frills branches, rollingthem out in high-density and rural areas, resorting tomobile branches to tacklemore remote regions. Basedon a dual model (trusting local individuals as worthydebtors and making use of technology to reach morecustomers and drive down costs), the strategy hasworked: in Kenya, the percentage of bankedpopulationrose from26% in 2006 to 41% in 2009. On the other sideof the continent, inTogo, Ecobank has become a glob-al retail bank operating in 30 SSA countries, with sub-sidiaries in London and Dubai. Founded in 1985 withan initial capital of $32million raised from 1,500 indi-viduals and institutions fromWest Africa, it has $18.5billion in assets, $13.1 billion in deposits, 1,137 branch-es and 23,500 employees.

Robust growth in the economy and soundpublic fi-nances have helped draw in record levels of foreign pri-vate-sector capital. From 1971 to 1992, annual foreigndirect investments never exceeded 1.1% of GDP; since2001, they never fell below 2% of GDP. The greatestimpact has often come from energy- and mining-re-lated investment: it has reached an extraordinary 86%of LiberianGDP in 2003 and 90%of Equatorial GuineanGDP in 1996. Since 2000, several African countries (An-gola, Cape Verde, Chad, Congo, the DRC, EquatorialGuinea, Gambia, Guinea, Liberia,Madagascar,Mozam-bique,Niger, Seychelles andZambia) have seen FDI ex-ceed 10%of GDP for at least two years. To put this intoperspective, and according toUNCTADdata, China hasnever received FDI worth more than 6% of GDP, Pak-istan’s best achievement was two years at 4%, India’speakwas 3%andBangladesh has never seen FDI above1%. An Ernst &Young survey on African attractivenessreports that inflows rose 27% in 2011 to $80 billionand projects them to $150 billion by 2015.

When countries start to attract FDI, usually their ex-ports rise. In Africa’s case this has been explosive, re-sulting in a growth of more than 50% in its share ofglobal exports, from 2% in 1998 to 3.3% in 2011 (oneyear of exports now brings in more revenue than fiveyear of exports in the 1990s). Over 1996-99, exports av-eraged $150 billion per year. From the early 2000s on,the total keptmultiplying: $200 billion in 2003, $400 bil-lion in 2006 and $700 billion in 2011. Booming exportsallow a consequent boom in imports of investmentand consumption goods. They rose from $160 billionin the late 1990s to nearly $700 billion now. A continent

that used to run a trade deficit with the rest of theworld now has a surplus. It extends even to China, for$27 billion, as Chinese imports from Africa have risenfrom$2billion in 1999 to $107 billion in the year to June2012. Overall, SSA’s budget balance turned positive in2004 and showed a surplus for five years.The global cri-sis brought it back to a sizeable deficit in 2009 (5%-6%of GDP), but it has narrowed since.

Stronger balances of payments have helpedmost ofthe continent move away from the growth-destroyinguncertainty of currency weakness and very high infla-tion, towards a confidence-inducing environment oflow inflation and higher investment. Back in the 1980s,only six SSA countries had single-digit inflation (oth-er 12were in the French franc zone, and thus effectivelyimportingmonetary policy from abroad), by the 2000sthere were 30. Inflation has remained low and stablewith the exception of 2008, when commodity pricesspiked ahead of the global economic crisis. Local cur-rency debt markets already extend out to 30 years inKenya. Last September, the tradable dollar debts ofGhana, Nigeria and Namibia were offering yields of4%-5%, and South Africa below 3%, out to 2021. Suchlow interest rates reflect international investors’ trustin the credit-worthiness of African governments, ahuge shift in just one decade. In an even more sur-prising achievement, SSA local pension funds are sig-nificant players in local debt and equitymarkets.With

Now, as each year a major new discovery is heralded,all of Africa has 132 billion barrels of proved oil re-serves and 519 trillion cubic feet of proved natural gasreserves, 10% and 8% respectively of total world re-serves. After onshore and offshore discoveries, EastAfrica, fromUganda toMozambique, has become theplace of the “new petro-powers,” an area believed toholdmore than 100 trillion cubic feet of natural gas re-sources. Africa is one of the few areaswhere large poolsof conventional oil can be found and explored at rela-tively low cost: discoveries totalingmore than one bil-lion barrels have both development and operatingcosts of about $10 per barrel. In Ghana, the Jubileeoffshore field, with a size of 700-1,000 million barrels,has been developed at a price tag of $3.5 billion. In theGulf ofMexico, discoveries of 200million barrels havecost $2.5 billion to develop. Brazil’s deep-water planswill prove far more expensive.

There ismuchmore than oil, though. In 2000, PaulCollier, the director of the Centre for the Study ofAfrican Economies at the University of Oxford, foundthat Africa had 20%of the discovered sub-soil resourcesper squaremile that OECD countries had.Themissing80% is now being discovered. Its huge mineral en-dowment has been estimated to contain around 30%of the planet’s mineral resources, with 40% of totalgold, 90%of platinumgroupmetals and 60%of cobalt.Africa also hosts a significant proportion of world’schrome, diamonds, uranium and bauxite resources.More recently a newwave of investment has begun inbulk commodities, such as iron ore and coal. Devel-opment of these resources often involves the con-struction of new railway lines, new port facilities andpower infrastructure, which is set to benefit the conti-

Sending moneythrough a pioneeringmobile phone servicecalled M-Pesa inKenya’s capital,Nairobi.

A view of the centralbusiness district inLuanda, Angola.

TONY

KARUMBA/A

FP/G

ETTY

IMAGES

STEPHANEDESAKUTIN

/AFP/G

ETTYIM

AGES

longitude #23 - 87

Africa

86 - longitude #23

Featured briefing

Demography is themost obvious of all multipliers.And the numbers projected by Renaissance Capitalresearchers are astonishing. Everything frommedicalbills to internal consumption is bound to go throughthe ceiling. SSA expected healthcare spendingwill rise16-fold by 2050, from$123 billion to $1,944 billion in to-day’smoney.The nurseswill become an army, swellingfrom 1million to 11 million, and medical doctors willgrow 22-fold, from 0.2million (aWorld Bank estimate)to 4.4 million. Nigerian steel consumption will risefrom1.6million tons today to 115million tons by 2050.Motor vehicle sales will jump to 8million by 2020 andreach 14million by 2030, higher than theUS today; Chi-na, the dream market for the automotive sector in2010, will be overtakenwithin a couple of generations.Road and rail transportationwill triple, while the num-ber of passenger in the airline industry will more thandouble every decade from around 100million today to1.7 billion by 2050 (onNovember 29, 2012, SteliosHaji-Ioannou, the founder of Easyjet, launched Fastjet, apan-African low-cost company operating at the mo-ment in Tanzania, and waiting to expand into Kenya,Ghana and Angola).

A biblical exodus will move hundreds of millionspeople into cities, oftenmega-cities. According toUN-Habitat estimates, the African urban population willtriple to 1.23 billion. This may result in higher risks offood insecurity, unless RichardTiffen andXavier Irz areright. In a 2006 paper, they argued that the process ofurbanization is often accompanied by an evolution ofthe farming system, from labor-intensive smallholderpractices towards large-scale and capital-intensivemethods. Besides such a structural transformation,Africa can count on the world’s most important re-maining tract of untilled arable land, the Guinea Sa-vannah. It’s similar to the Cerrado, the subtropical areathat propelled Brazil to becoming an agricultural su-perpower, and encompasses 600 million hectares ofland across parts of 27 countries, and two-thirds suit-able for agriculture, according to a recentWorld Bankstudy. To understand the scope for expansion, con-sider that the FAO estimates the additional land re-quired to feed a larger and richer world in 2050 at only71 million hectares.

Of course, things may go wrong – in a number ofways.Urbanization canplace pressure on groundwatersources, as seen in Mexico City. Logistics also face anenormous strain. According to a Nigerian study, a cityof 4 million residents has food requirements of about3,000 tons per day, the equivalent of two three-tontrucks entering the city every threeminutes.TheAfricangrowth story will not be uniform and some countrieswill lag. This is no news: in Asia, Singapore’s growthhas so outpacedMyanmar’s that its per capitaGDP is 58times higher today. The exploding workforcemay be ablessing, provided that Africa will be able to give them

a job; according to anAugust re-port byMcKinsey, a global con-sulting firm, 122millionAfricanswill enter the marketplace by2020, but at the current rate just54million to 72million jobswillbe created.

Corruption is widespreadand will not disappear. Rwan-da’s efforts in fighting graft areworking and show that anAfrican country can do it.Yet inTransparency International sur-veys Africa has already been asurprise with 14 countries thatare less corrupt than per capitaGDP implies they should be,and only 7 that are more cor-rupt than is normal at their in-come levels. Again, data fromthe Center for Systemic Peace,an American think tank, showthat countries with a +7 score(i.e. still strong democracy) have an average corruptionfigure at 2.9, the same as China and Belarus (and nineother countries) whose average democracy rating is anautocratic -7. In other words, the per capita wealthlevel is a better determinant of the corruption scorethan democracy. It is no surprise, then, that the Africancountries scoring best in the Transparency Interna-tional survey are Botswana, Cape Verde, Mauritius,Namibia, South Africa andTunisia (between 32nd and73rd place): it’s a roll call of Africa’s richest countries. Ashappens around the world, oil-producer countriestend to be more corrupt than their wealth levels sug-gest they should be, as it is the case of EquatorialGuinea, Angola andGabon. But Nigeria, Kenya, Ugan-da, Ethiopia and Tanzania, to name a few, have cor-ruption scores in line with what their per capita GDPfigure implies.Rwanda is the honorable exception,placing 49th despite a very low per capita GDP. AsAfrican countries get richer, it’s reasonable to thinkthat they will succeed in reducing corruption.

And finally the ghosts of war are haunting the con-tinent. The DCR has become a never-ending night-mare, one of the bloodiest conflicts sinceWorldWar II,withmore than five million deaths. Somalia is a failedstate, where al-Shabaab, an Islamist group linked to al-Qaeda, has extended its reach to Kenya and Uganda.The fallout from Libya’s regime collapse helped fuel aresurgentTuareg separatist rebellion that contributedto a jihadist coup in the northern half of Mali, wheresharia law has been imposed. Vast stretches of thesparsely populated Sahel serve as staging areas for Is-lamic extremists, including al-Qaeda.Messianic gangssuch as JosephKony’s Lord’s Resistance Army, once the

bane of northernUganda, are now active in the CentralAfrican Republic and parts of the DRC. Rebels in theNigerian Delta and Boko Haram, another Islamistgroup, in the north of the country, are running a bloodyinsurgency. In Ethiopia, the Ogaden region is stillrestive. Tensions between Sudan and the newly inde-pendent state of South Sudan fuel further instability.

All these crises notwithstanding, Africa’s share of di-rect conflict deaths has been fallingmore quickly thanother regions, particularly Central and South Americaand the Middle East, according to the Geneva Decla-ration onArmedConflict andDevelopment data. In thelast decade, only the DRC, Sudan and Somalia wereamong the top-10 most deadly countries. Only 5 ofthe 48 SSA countries show up in the top 30, and in 2 ofthem (South Africa and Uganda) the cause is highhomicide rate, not civil violence. By comparison, suchwell-worn tourist destinations as the Bahamas and Ja-maica rank above most of Africa. And, to go back toNgozi Okonjo-Iweala’s historical comparison, 30 yearsafter the start of wealth accumulation, Asia still strug-gles withMaoist insurgencies in India and Nepal, civ-il conflict in Pakistan and Myanmar, tensions in theSouth China Sea and abject poverty in parts of almostall its nations. But nobody doubts that Asia has been asuccess story.Whether Africa can duplicate it remainsto be seen. Nonetheless, it’s a bet an entire continentseems ready to take.

assets of nearly $260 billion in 2012, they are set togrow at least to $7 trillion by 2050.Many African coun-tries have already done more to encourage privatepension provisions than most of Asia.

Africa’s economic rebound coincided with a mod-erate slowdown in population growth, due to improv-ing healthcare and family planning, and resulted in anincrease in per capita income (at purchasing powerparity) to $2,189 in the 2000s, up 62% compared to$1,325 a decade earlier. The birth rate is down to 2.5 inthe 2000s, compared to 2.7 in the 1990s and 2.9 in the1980s, while almost everymetric in theUNHumanDe-velopment Index is on an upward trend. Over a five-year period ending in 2010, 16 out of 20 African coun-tries saw sharp improvements in children mortalityrates, according toWorld Bank data. Life expectancy isin strong recovery, after bottoming out shortly after2000. HIV infections andmalaria cases are down overa quarter from their peak. Access to water and im-proved sanitation is on a rising track everywhere (ittouches almost half of rural Nigeria’s population, upfrom 30% in 1990).

All of this is in line withwhat happenswhen coun-tries get richer. During the initial two generations thereis a population explosion.Then the birth rate falls andthe average population gets older, which is exactlywhat East Asia is now experiencing. Africa’s populationis expected to double by 2050 to 2 billion.Unlike in EastAsia, where the number of 15- to 24-year-oldswill dropmore than a quarter by 2020, across SSA that numberwill rise by 15% to 20% for the next three decades. Forlabor-intensive industries such as textiles, or export-oriented services, Africa will look ever more attractiveas a location for new factories. Already, Chinese cloth-ing and shoe companies are looking at Ethiopia as analternative to expensive domestic production (the highsupply of young workers has been themain factor be-hind lowChinese inflation in recent decades, asmuchas its sharp decline has recently prompted 10% to 25%wage increases).

Promotional image forFastjet.

A government soldierwalks in a military basein Goma, DRC,December 3, 2012.

FASTJE

T

GORAN

TOMASEVIC

/REUTERS

lanfranco vaccari has covered Africa for the Italian daily IlCorriere della Sera

88 - longitude #23

Featured briefing

longitude #23 - 89

Africa

For20 years Somalia was acase apart, even amongfailed states – those coun-

tries unable to exercise author-ity over their territory and pro-vide the most basic services totheir people. Since the fall ofSiad Barre’s regime in 1991, So-malia has been ranked as one ofthe world’s poorest, most vio-lent countries, plagued by famine, warlords and pi-rates.The situation had beenworsening year after yearand nobody could envisage an end to the Somalis’tragic suffering. Somalia’s accommodation of al-Qae-da linkedmilitants aswell as the ongoing piracy off hercoast, which affected vital international shipping lanes,have become serious concerns formanyWestern coun-tries. Indeed, over the years Somalia has become aproblem not just for Somalis, but also for the entireworld.

Despite the growing pessimismofmany observers,things have started to change in Somalia. Last summersaw a remarkable series of events that have suddenlybrought an inspiring ray of light to the country after twodecades of darkness.The first change to emergewas theadoption of a provisional constitution in August, whichlaid the foundation of a federal democratic state. It wasfollowed by the first session of a newparliament – cho-sen by a National Constituent Assembly itself selectedby a broad range of transitional elders – and finally onSeptember 10 a new president was elected, HassanSheikhMohamud, amoderate political activist and anacademic representative of Somali civil society.

These changes, to the surprise ofmany, took placepeacefully and in an orderly manner in just a fewweeks. They marked the successful completion of thetransitional period putting in place new Somali insti-tutions as foreseen by the roadmap agreed last year bya cross-section of local and international actors. Theappointment of Hassan Sheikh Mohamud was con-

sidered the first fair poll in Somalia in four decades. Hisunexpected victory gave new hope to Somalis and re-lieved the international community which, throughthe UN, was rather effective in the final track of thetransition. Above all, Hassan Sheikh Mohamud’s se-lection proved that Somali civil society was still activeand determined to grasp the opportunity offered byhistory.

The political developments cameon the back of thesignificant territorial advances made by AMISOMtroops and Somalia’s security forces.TodayMogadishu,a city of many battles, is slowly shaking off its reputa-tion as being themost dangerous city in theworld. Forthe first time inmany years people are rebuilding theirproperties and businesses in town. Its residents areenjoying a long forgotten level of stability, receivingservices from the local government. Confidence is in-creasing and members of the diaspora are returning,many of them young and full of energy.

The appointment of new, more legitimate Somaliauthoritieswas a big blow to al-Shabaab, one of Africa’smost fearsome militant Islamist groups, which hadthe control of large areas in Somalia and blockedmanyinternational agencies from bringing food to faminevictims and social services to the population. For years,the corruption and misbehavior of the previous tran-sitional governmentwere probably among the biggestrecruiting tools of the jihadist group.

In fact,many disaffected Somalis passively or evenactively supported al-Shabaab partly because of the

Somalia:from bulletsto ballots

For decades synonymous with “failed state,” Somalia hasfinally turned a corner. A new and fairly electedgovernment is being aided by the internationalcommunity to guide the Somali people out of the chaosin which they have been languishing.

A soldier looks out thewindow of a helicopterbearing the AfricanUnion Missionin Somalia (AMISOM)force.

by carlo lo cascio

REUTERS

longitude #23 - 91

Africa

90 - longitude #23

Featured briefing

poor alternative. Now that support could disappearas a large part of the population stand behind the newleadership; PresidentHassan Sheikh and the new gov-ernment pose a serious threat to al-Shabaab which,thoughweakened by AMISOM’s offensive, can still car-ry out lethal terrorist attacks. In addition to that, thenew president will have to continue to marginalizethewarlords inMogadishu and other areas where theyare trying to regain political space, thereby posing anadditional security threat.

Besides the appointment of the newpresident, an-other good step in the right directionwas the recent for-mation of a newGovernment headed by PrimeMinis-ter Abdi Farah Shirdon, an economistwith a reputationfor academic and business ability. Overwhelminglyendorsed by the parliament, the new cabinet markeda break both in size and composition from its prede-cessor. It consists of only 10members and there are twowomen. One of them, FauziaYusuf Haji Adan, was ap-pointedMinister of Foreign Affairs and Deputy PrimeMinister. For the first time in Somalia awomanhas heldsuch a senior position and for this reason MinisterHaji Adan described her inclusion as “historic” forboth the country and Somali women in particular.

Although there are reasons for optimism (consid-ering the condition Somalia was in only a year ago)there is clearly much to do. Somalia still faces manydaunting challenges and the gains made are still frag-ile. Strengthening safety and security; establishing afederal system; buildingmodern governance; fighting

corruption; revamping theeconomy so that more Somaliscan have a stake in their coun-try’s future: these are the chal-lenges that the newgovernmentwill face soon.

The appointment of the newpolitical leadership, while agreat step forward, is the begin-ning of a difficult path towardsstability. So far, the success ofthe transition has beenmainly aSomali achievement and theconsolidation of peacewill be aSomali challenge too. Transi-tions often result in partial so-lutions. Ending a transition isalways like stepping into an un-known land. Reconstructionwill therefore require a farsight-ed vision and a commitment towork for the benefit of the So-mali people. The internationalcommunity –whose strong sup-port was crucial in shaping thecourse of events last summer –

has to assist the newpresident in implementing the pri-orities outlined in his “six-pillar policy,” in order to se-cure progress in the areas of stability, economic re-covery, peace-building, service delivery, internationalrelations and national unity.

Needless to say, international assistance will becrucial to achieving these targets. The UN and the EUwill continue to play a fundamental role in Somalia aswell as the neighboring countries and the AfricanUnion, whose constructive involvement was essentialin outlining anAfrican solution to anAfrican crisis.Thishas been a major achievement in peace-building andeven a turning point for the AfricanUnion’s posture inAfrican crises. This should be the starting point of anequally effective role in peace-consolidation, espe-cially as far as security in Somalia is concerned.

Cohesion and determination will be key to suc-cess just as they were during the final stages of thetransition. At the same time the current strategy shouldbe reviewed in order to adjust it to the new circum-stances on the ground. In doing so, the internationalcommunity should also take in consideration the So-malis’ desire to recover their “lost” sovereignty and toown their government and its policies after sufferingthrough a lack of effective governance for over 20 years.Combined efforts from both sides would be thereforenecessary to drive this difficult process of “state re-building.” Hence, why not to think of a possible jointventure with the new Somali leadership in a spirit ofmutual accountability to make it happen?

Italy will pursue its longstanding commitment toSomalia and its loyal support to the ongoing politicalprocess. The International Contact Group meeting inRome last Julywas an importantmilestone in strength-ening international support behind Somalia on theeve of the final stage of transition. Italy has stronglybacked theUN, the AfricanUnion and IGAD in their at-tempts to help Somalis bring greater stability to theircountry. In this framework, the recent mission toMo-gadishu of the ItalianMinister of Foreign Affairs GiulioTerzi was the very first official visit of a EU ForeignMinister after the endof the transition.Themissionhada highly symbolic value and delivered a strongmessageof confidence and friendship to the Somali people andtheir new leadership. As agreed with those authori-ties, Italy will continue its current engagement in thesecurity and defense sectors, will also support the jus-tice sector in the post-transitional phase andwill workto revive the Italian language and culture among thenew generation.

During times of insecurity and violence, the qual-ity of leadership is critically important.This is especiallytrue today in Somaliawhere the nature and pace of po-litical events have rapidly accelerated the need for a vi-sionary leadership able to tackle complex issues andlead Somalia towards the path of stability and lastingpeace. As other partners, Italywill continue to help and

assist but, ultimately, Somalia’s future will rest on thechoices of its people and the actions of its leaders. It isonly through more effective leadership that Somaliacould once again have the sort of accountable andrepresentative institutions needed to respond to the as-pirations of the Somali people.

While a lot has been achieved in a fewmonths, thenew leaders have to ensure that this fragile and hard-won momentum is not lost and to show their deter-mination and commitment to deliver sustainableprogress. No room for revenge will be tolerated, andany attempt to spoil the chance of a better future for thecountry should be severely sanctioned. As Somalia en-ters a new phase, its people continue to demandgreater change and a better life. After two decades theydeserve and need nothing less. Once again, Italy willstand by their side.

Somalis congregateand pray tocommemorate theblast that killed 14medical studentsduring a graduationceremony in 2009 atthe Shamo Hotel inMogadishu,December 3, 2012.

Students of SIMADUniversity attend theirgraduation ceremony,along with over 600other students, inMogadishu, Somalia,November 29, 2012.

carlo lo cascio is the Coordinator for EU-sub-Saharan Africanrelations in theDirectorateGeneral forGlobal Affairs at the ItalianMinistry of Foreign Affairs. He was Italian ambassador toMozambique from 2008 to 2012.

OMAR

FARUK

/REUTERS

FEIS

ALOMAR

/REUTERS

longitude #23 - 93

Africa

92 - longitude #23

Featured briefing

According to the International Mon-etary Fund, growth in sub-SaharanAfrica (SSA) has beenmostly strong,

considering the state of theworld economy.For 2012-13, output should increase by aminimum of 5% on an annual basis, a ratesimilar to that of 2010-11, though this rosyregional picture does blur some nationalvariations.While inmost of the low-incomecountries expansion is steady, in middle-income nations like South Africa, growth isslowing, and Europe is to blame. For thesemiddle-income economies, market confi-dence reflects global developments. Fur-thermore, the countries’ main producersare closely linked to Europeanmarkets.Themore fragile outlook in South Africa shouldnot, however, deeply affect SSA, because, asthe IMF points out, South Africa is not typ-ically the export market for many SSA ex-porters.

During the past six months the worldeconomy hasweakened. Even in advancedeconomies, recovery has slowed down,compounded by uncertainty in Europe andeven in the US. In such a context, the IMFassures, SSA has managed to keep growthon a relatively strong footing. On account ofglobal disruptions to the supply chaincaused by weather events, the IMF reportsthat there have been price increases inter-nationally for foodstuffs. The short-termforecast for products such as maize, soy-

by domenico lombardi

Beyond low-wage labor

bean, wheat and rice have deterioratedworldwide, though not as drastically as in2007-08. However, hikes in food prices arestill moderate if previous drops in price aretaken into account.The IMF is also quick tonote that, unlike in 2007-08, this time, highenergy prices are not a contributing fac-tor. Thus, generally speaking, futures mar-kets see prices decreasing somewhat in theshort term and returning to pre-shock lev-els before 2014.

There are nevertheless significantdownside risks in the outlook for the glob-al economy, as noted in the Fund’s ownWorld Economic Outlook. The way SSAcould be affected has been illustrated by theIMF in two hypothetical scenarios. In thefirst, if eurozone policies for stabilizing thecurrent crisis were to fail, sovereign andbank stress in the eurozonewould rise.Thiscould lead to a drop in euro-area outputalong the lines of 1.5% compared to nextyear’s baseline, and could lead to evenharsher consequences in the peripheraleconomies. Output worldwide could dropby almost 2 points. Not in SSA, though, theFund forecasts, where the decline in outputwould amount to “only” 1% to 1.2% for theregion.What this might mean for the vari-ous SSA economies is a different story, as ef-fects would be worse in those countrieswith tightest trade links to Europe. Also,country-specific trends in aid flows and re-mittances could determine which nationswould be hardest hit.

In the IMF’s second scenario, for theextended period 2013-16, both advancedand emerging economies would witness aslower growth. In the advanced economiestherewould bemounting pressure tomakefiscal adjustments in order tomaintain debtsustainability, which would have seriousconsequences for growth in developing andemerging countries, and for commodityprices in general. More specifically, thiswould mean a decline in global output ofabout 2.25 percentage points below base-line for 2014 and 5.5 percentage points be-low by 2016. Still, the Fund estimates thatthe impact on SSAwould be only about a 1percentage point decrease annually overthe 2013-16 period.

According to the IMF’s aforementioned

tributed significantly to the doubling ofBurkina Faso’s real per capita GDP.

In Kenya, on the other hand, the IMFtouts the service sector as the strongest fac-tor in GDP growth and foreign exchangerevenues. Kenya is unique among low-in-come economies for its companies that ex-port high-value-added services, for exam-ple, product development, insurance, ac-counting, and business process outsourc-ing services. Kenya is also competitive inthe fields of transportation, communica-tion, and financial services, due to the highnumber of qualified professionals engagedin the intra-East African Community (EAC)service trade. In turn, an increase in tradeopenness in the EAChas led to increases inair and shipping freight. Nairobi today is aprimary hub for Eastern andCentral Africa,andMombasa boasts the fifth largest han-

dling capacity of all the ports in Africa.Moreandmore, Kenya has focused on services inthe fields of communication and technol-ogy as well, with these areas already ac-counting formore than 10%of total serviceexports and almost 20% of total foreign di-rect investment flows.

More central to the spectrum delineat-ed by Burkina Faso’s agricultural develop-ment, on the one hand, andKenya’s serviceindustry on the other, is Namibia. The IMFreports that Namibia has diversified awayfrom the mining industry by establishingexport processing zones, industrial parks,and small and medium-sized enterprisedevelopment programs. In 2006,manufac-turing contributions to total exportsreached one-fifth of total exports.

What the IMF conveys through theseexamples is that across SSA structural trans-

formation is underway.Whether it will con-tinue into the future is the matter at hand.Obstacles are many, from power outagesto infrastructural shortcomings to corrup-tion andmore.

Power cuts are far more costly in SSAthan in many developing Asian countries.In SSA, transportation infrastructure, roaddensity and logistical performance areweak, generating higher export costs thanelsewhere. And as far as corruption, on av-erage, SSA is ranked worse than other re-gions. Theway inwhich SSAwill face theseissues will also determine how sustainablecurrent growth trends will prove to be.

Grim near-term globaleconomic forecasts presentchallenges for the burgeoningeconomies of Africa.Nevertheless, the growth thatmany of them have beenexperiencing will likelycontinue, and a broad range ofpossibilities lies ahead.

Ethiopia’s Omo Valleyon May 22, 2012. TheGibe III dam, set to becompleted by 2013, willboost development,give access to powerfor many Ethiopianscurrently living withoutit, and generaterevenue from theexport of electricity tothe region.

sensitivity analysis, such a shock to globalgrowth would contribute to non-negligi-ble output losses in SSA, but would not befelt drastically by the region overall. In fact,region-wide, the prospects for growth ap-pear stable for the next few years, at least asstable as they can be, given the currentglobal uncertainty and the risks that thatentails. It is true that uncertainty has in-tensified since themiddle of the year or soas a result of poor policy responses on bothsides of the Atlantic, and it is also true thatthese developments, or lack thereof, couldslow growth in SSA by about 1 percentagepoint; but, bad as this would be, it is stillbetter than in the case of the 2009 globaleconomic crisis.

If IMF growth projections are encour-aging, it is because they base themselvesboth on supply-side factors, including nat-ural resources sectors, and on the struc-tural factors at play. An IMF analysis of SSAeconomies for the period 1995 to 2010 re-vealed that most had witnessed some lev-el of structural shift, if not necessarily con-sistent region-wide. In Asia, structuraltransformation came about through low-wage manufacturing. This may not workfor SSA, at least not formuch of it. There aresome SSA economies that do have the re-sources and skilled labor to follow the Asianexample, yet those that do not will have tofind other pathways to structural transfor-mation, such as the service and/or agricul-tural sectors.

Although agriculture still employs thelargest number of workers across much ofSSA, the IMF points out that productivitygrowth in this sector has been hampered,particularly in low-income countries, bypoor irrigation, shortages in fertilizer, andinfrastructure constraints. Region-wide infact, average labor productivity in the sec-tor has been sluggish for the last 30 years.The IMF cautions, however, that regionalstatistics can conceal broad national vari-ations. Burkina Faso is a case in point. Dur-ing the period 1995-2009, the country sawan average growth rate of 4% for agricul-tural production, thanks to increases inproductivity, as well as in the sheer amountof land worked. During the shorter periodfrom 1995-2006, the cotton sector con-

JENNY

VAUGHAN/A

FP/G

ETTYIM

AGES

Domenico Lombardi is President of the OxfordInstitute for Economic Policy and a Senior Fellow atthe Brookings Institution.

longitude #23 - 95

Africa

94 - longitude #23

Featured briefing

On August 16, 2012 a series of violent incidentsbetween security forces andmineworkers strik-ing at aplatinummineownedbyLonmin, in the

Marikana area, resulted in 34 deaths. It was the mostlethal use of force by police against civilians since theend of apartheid in 1994, all the more shocking be-cause itwasdiscovered that somevictimshadbeen shotin the back and far from police lines. South Africanmedia dubbed the shootings the“Marikanamassacre”and compared it to the Sharpeville massacre of 1960when, after a day of demonstrations, the police of theapartheid regime opened fire on the crowd, killing 69people at the township of Sharpeville, in theTransvaal.

Strikers were asking for higher wages. Competi-tion between two mineworkers unions, the govern-ment-backed NUM (National Union of Mineworkers)and the AMCU (Association ofMineworkers and Con-struction Union), the breakaway faction of NUMformed in 1998, raised tension. Irresponsibly, theAMCU made the Lonmin workers believe that theycould get a wage increase from 4,000 rand amonth to12,500 rand (about $1,470).

It was a rather unrealistic claim. Yet at the GoldFields mine near Johannesburg and in other mines,workers echoed the Lonmin strikers’ demands. Com-panies replied with the offer of some wage increasesandwith the threat of a court order declaring strikes il-legal, which would give the mining companies thepower to fire strikers. After weeks of wildcat strikes,Lonmin agreed to a wage increase of between 11%and 22%. Meanwhile unrest had infected all the min-ing industry and had spread to other sectors. Morethan 100,000workers put their tools down fromAugustto October 2012, making 2012 the most protest-filledyear since the end of apartheid. Transport workersended a three-week strike demandingmore than 10%annual increases. At Durban-based Toyota, produc-tion stopped for four days before the employer offereda 5.4% pay raise.

Even if most strikers have returned to work, thereasons for social unrest remain. The majority ofmineworkers live in poverty,many of them are unableto provide the basic necessities for their families. Theyoften live in company housing, lacking either water orelectricity. Inmanymining communities housing con-sists of makeshift shanties built by the workers them-selves with scraps of metal and wood.Moreover, min-ers often face unsafe working conditions and are notgiven proper safety equipment. In 2011 alone, over120 deaths occurred in the mining industry.

Widespread discontent affects other social cate-gories as well. In townships simmering tensions oftenresult in protests, violence and looting. People com-plain about lack of basic services such as clean waterand electricity, about streets ravaged by potholes andpiles of rubbish left to collect everywhere.Many SouthAfricans believed that the fight against apartheidwouldimprove living conditions, but after 18 years nothinghas changed.

Yet South Africa has the continent’s biggest econo-my and is regarded as the locomotive pulling Africa’seconomy. It is theworld’s largest producer of platinum,chromium andmanganese, and it is one of the world’slargest producers of diamond, gold andotherminerals.Itsmining industry is theworld’s fifth largest in termsofGrossDomestic Product value. In 2010 it becamemem-ber of the BRIC nations – known thereafter as BRICS –joining Brazil, Russia, India and China as a leadingemerging economy, fast-growing andwith a significantinfluence on regional and global affairs. South Africa’srole in the international context received an importantconfirmation on July 15, 2012 with the election ofNkosazanaDlamini-Zuma, formerwife of SouthAfrica’sPresident Jacob Zuma, three-time minister, and chair-person of the African Union Commission, which is theSecretariat of theUnion entrustedwith executive func-tions.Dlamini-Zuma, the firstwoman to hold that postand lead the organization, including its predecessor,the Organization of Africa Unity, beat out incumbentJeanPing, fromGabon, after a six-monthbattle for lead-ership which highlighted the division between Africa’sAnglophone and Francophone countries.

South Africa’smired economy

Since the end of apartheid, South Africa has struggledagainst a host of problems to bring some semblance ofequality. For years corruption and disease eroded thesocial fabric. Now the economic crisis has made mattersworse.What once was seen as the driving economicforce, is now floundering.

Miners at the LonminPlatinum Mine nearRustenburg, SouthAfrica, sing and danceas they welcome theircolleagues followingtheir release,September 6, 2012.

by anna bono

AP

PHOTO/T

HEMBA

HADEBE

If compared with those of other African countries,South Africa’s economic performance is not bad at all.In neighboring Zimbabwe, for instance, the unem-ployment rate is between 70% and 95%while in SouthAfrica it is “only” 25.5%. But in May 2009, as the worldfinancial crashwhich started in 2008 came tobe felt, thecountry’s economy went into recession, following asharp slowdown in themining andmanufacturing sec-tors. Only the construction industry remained strong asit was bolstered by a huge program of government in-vestment in order to host the 2010 footballWorld Cup.Since then, economic indicators have turned negativeand are not expected to improve over the short term. In2011mining production, which contributes up to 50%of the country’s foreign exchange earnings, providedaround500,000 jobs andbetween5%and8%ofGDPdi-rectly (up to 20% indirectly), dropped by 13% and in2012 strikes have worsened the situation just as on in-ternational markets platinum prices fell by 21.9% andbasemetals by 6.7%. ByAugust 2012mining output hadfallen by 3.3%,with a considerable decline – 15.3% low-er – in the production of platinum-group metals. Ex-ports have consequently contracted at a rate of 1.5% ayear in the first quarter of 2012 andof 6.3%a year in thesecondquarter. In September SouthAfrica’s tradedeficitwidened to 13.8 billion rand (about $1.6 billion).Weaktrade data addpressure on the current account that hasrecorded its largest deficit in nearly four years: 6.4% ofthe GDP in the second quarter of 2012. Meanwhilegrowth in the rest of the economy, excluding the pri-

mary sector (mining and agriculture,) slowed from3.8%in the first quarter of 2012 to 1.6% in the second quar-ter. In September Gill Marcus, the Governor of the Re-serve Bank, cut the nation’s growth forecast to 2.6%from2.7%andFinanceMinister PravinGordhandid thesame at the end of October when he presented themid-term budget to parliament. And during the lastyear GDP expanded 3.1%, far worse than the 7% rateforeseen early in 2011.

The CPI inflation rate also rose to 5.5% in Octoberfrom 5% in August, but it is expected to remain withinthe target range of between 4% and 6%, even if indus-trial unrest in the mining sector suggests a worseningof prospects for the third and the forth quarters of 2012.Core inflation, with the exclusion of food, petrol andelectricity prices, has been forecast to peak at 4.9%.

According to UNCTAD (United Nations Confer-ence onTrade andDevelopment), another threat to theSouth Africa’s economy comes from the dramatic de-cline in foreign direct investment flows, which plum-meted by 43.6% in the past year: the largest reductionamong all developing economies, in sharp contrast tothe rest of Africa, which has recorded a 5% growth inforeign investment. Investor confidence was alreadyfragile in the past years due to domestic concerns andpolicy uncertainty. Strikes have seriously damagedSouth Africa’s image as an investment destination.South Africa attracted $3 billion in the first half of lastyear and only $1.7 billion in the first half of 2012.

The economic crisis heightens the frustration and

longitude #23 - 97

Africa

96 - longitude #23

Featured briefing

anger of thosewho believe that the end of apartheid in1994 has not improved living and working conditionsenough and that the AfricanNational Congress (ANC),the governing political party of Nelson Mandela, hasnot kept its promises of development, social justice anddemocracy.

In fact, poverty levels have declined since 1994.But an estimated 15 million South Africans, out of al-most 52million, are living below the poverty line evenif the GDP per capita (in PPP terms) is $11,100 (almosttwice as much as in 1994). More than one third of allworkers earn less than $120 amonth and half theworkforce earns less than $300. Besides, since the end ofapartheid the rate of unemployment has increased.During the recession of 2008-2009 alone, amillion jobswere lost and South Africa is one of the countries thathave not yet reached their pre-crisis employment peak.In 2009 President Zuma had pledged that the ANC,his party, would create four million jobs by the end of2014, but he has not fulfilled his aim so far. After the re-cent extension in coverage of social grants, the SouthAfrican Social Security Agency is now providing socialgrants to over 15 million beneficiaries (nearly 30% ofthe population) –more than in any other African coun-try – and it aims to cover all the identified wards by2014. But social grants help to limit the depth of pover-ty experienced, they cannot eradicate it.

As for other African countries, young people andwomen are the weakest social categories; 70% of theunemployed are under 35 years of age,more than 60%are women. The most affected by unemployment arethe women living in rural areas, especially the formerBantustan areas. The traditional exclusion of women

from property and land stillhampers their legal access toagricultural land. The govern-ment has committed to transfer30% of farmland to black SouthAfricans by 2014, but less than7%has been handed over so farandmuch of this land is not be-ing farmed productively be-cause the government has failedto support farmers with inputs,facilities and infrastructures.

Moreover, inequality haswidened: the gap between thehaves and have-nots continuesto grow, making South Africaone of, if not the most unequalcountry in the world. Its Ginicoefficient – a measure of in-equality among values of a fre-quency distribution used to cal-culate countries’ inequality ofincome andwealth – is 73while

in 2000 it was 57.8, where 100 represents absolute in-come inequality (by comparison, in Brazil, anotherBRICSmember, the Gini coefficient is 53.9). The SouthAfrican government argues that the Gini coefficient isa controversial measure, that it is untrue and scientif-ically wrong that the gap between the rich and thepoor had widened since 1994, and that it has beennarrowing instead, though it is still too big. It says thatgreat strides have beenmade and it urges people to bepatient. But it is paying for its demagogy in the electoralcampaigns. “A better life for all” was the slogan of theANC when it came into power in 1994. Many peoplethink that it has failed its mission.

To the gap betweenwhites and blacks – the averageannual income of white South Africans is still six timesmore than that of blacks – must be added a wideningincome gap among black people. And the way manyblack people get rich is not uplifting. Many ANC lead-ers have become major investors in finance, mining,telecommunications, armaments, agriculture and oth-er industries. They use their political position in ANCand in the state apparatus to make lucrative dealswhereby they becomemillionaires. Critics of ANC saythat the party and its newly wealthy leaders have losttouch with ordinary South Africans. And it seems thatnobody can resist the temptation to showoff hiswealthin the most showy way. Like other African leaders,President Zuma is no exception. The last scandal isthe news that, deep in recession, he is spending $28million of public money to revamp his rural home-stead at Nkandla, in Kwa-Zulu-Natal Province. Thecompound’s overhaul includes a helipad, fencing, bul-letproof glass, two AstroTurf soccer fields for security

guards, an elevator between underground bunkersand the main house. Tens of millions more have beenspent on roads in the area.

This is happening in a country with a life ex-pectancy at birth of only 52.8 years (while sub-SaharanAfrica’s rate is 54 years) andwith one of the highestma-ternal mortality ratios in the world: 410 deaths per100,000 live births.

A recentUNICEF report has also revealed thatmorethan half of South Africa’s children live in poverty; 1.7million children live in shacks, with noproper bedding,cooking and washing facilities; 1.5 million have noflushing lavatories; 1.4 million rely on often dirtystreams for drinking water. Four in 10 children live inhouseholds where no one is employed, 330,000 arecurrently infectedwithHIV and 40%die of AIDS everyyear. The under five mortality rate is 62 per 1,000.

HIV is one of the major threats indeed. Accordingto UNAIDS, more people are living with HIV/AIDS inSouth Africa than in any other country: over five mil-lion, about 11% of the total population, 17.18% of thepopulation between 15 and 49, with a prevalence rateof 4.5% formales and 13.6% for women between 15 to24. Andmany sick people die: AIDS killed 310,000 peo-ple in 2009 and 280,000 in 2010. The disease has had asevere social and economic impact since it grew toepidemic proportions during Mandela’s presidencyand South Africa’s first “non racial” government (1994-1999). Denial first, then confusion and an anti-scien-tific approach – denying that HIV causes AIDS –marked both Mandela and Thabo Mbeki’s responseto the pandemic. Mbeki’s government sponsored un-orthodox treatments such as virodene, developed at theUniversity of Pretoria; it did not distribute antiretrovi-ral drugs through the public health system and for atime even stopped AZT trials. Somany years were lostbefore free antiretroviral drugs were available.

In 2005, before becoming President, Jacob Zumahimself, while chargedwith the rape of a daughter of aclose family friend, stated in court that he hadnot useda condom when having sex with her – according tohim, consensually – despite knowing that she was HIVpositive. As if that were not enough, Zuma explainedthat he had taken a shower afterwards to“cut the risk ofcontracting HIV.” On the other hand, when his formerwife Nkosazana Dlamini-Zuma, who is a doctor, wasMinister of Health in the cabinet of PresidentMandela(1994-1999), she supported the anti-AIDS drug viro-dene, regardless of the fraudulent credentials of OlgaVisser, the medical technician leading the team of re-searchers at the Pretoria hospital, and of the advice oftheMedicinesControl Council that the drug, consistinglargely of an industrial solvent,wasmore likely to be theagent killing patients with AIDS than the disease itself.Tomake things worse, in 1999 it was revealed that sev-eral businessmen with close ties to Thabo Mbeki – by

then president – had invested heavily in the virodenecompanies. In 2007new reportswere spread alleging in-vestments from sources close to government.

Theway theHIV/AIDSpandemic has beenhandledis typical, a set of factors well known in Africa: corrup-tion,misrule,misuse of public funds, lack of skills andof professional knowledge, and also the deep influ-ence of traditional beliefs and practices such aswitch-craft. With the addition of tribalism, those factors ac-count for the fragility of a country whose protractedeconomic expansion has not turned into stable devel-opment and whose social problems remained largelyunresolved when the global financial crisis hit. Thecrisis has only highlighted the failings of South Africaand worsened their consequences. As a result, thecountry’s economic and social situation has come to ahead.The next general election in 2014will determineif and how the political system will be affected. It willbe the fourth quinquennial election held since the endof the apartheid era in 1994. So far the ANC has held amajority of the seats in the National Assembly.

On November 8, eight opposition parties tabled amotion of no confidence in President Zuma in theNa-tional Assembly, on the grounds that “under his lead-ership the justice system has been politicized andweakened, corruption has spiraled out of control, un-employment continues to increase, the economy isweakening and the right of access to quality educationhas been violated.” Briefing the media, leaders of theeight opposition parties said that their decision topresent the no-confidence motion was trigged by theMarikana tragedy, but also by the “appallingNkandla-gate scandal” and by the government’s failure to delivertextbooks to school children in Limpopo and the East-ernCape.Themotion is a symbolicmove andPresidentZuma’s position is secure since the ANC controls 66%of the seats in the National Assembly.

Children who have lostparents to AIDS in theAlexandra township inthe north ofJohannesburg enjoy abowl of piping hot cornmeal porridge thanksto a local womanpopularly known asMama Portia, May 17,2012.

Delegates make handgestures calling for achange of leadership atthe start of the 53rd

National Conference ofthe ruling ANC ofPresident Jacob Zumain Bloemfontein,December 16, 2012.

MIK

EHUTCHIN

GS

/REUTERS

ALEXANDER

JOE/A

FP/G

ETTYIM

AGES

anna bono is professor of African history at the Università diTorino.

longitude #23 - 99

Africa

98 - longitude #23

Featured briefing

Africa, everybody seems to agree, is the next bigthing. It is not just a question ofGDPgrowth (de-spite a sluggish global trend, it is quite impres-

sive that six out of ten of the fastest-growing economiesare located in sub-Saharan Africa). Rather, it is thecombination of several factors, such as the availabili-ty of commodities in a commodity-avid world cou-pled with a youth-rich demographic factor (64% ofAfrica’s population is under the age of 24), a middleclass that is growing not just in number, but also in itspurchasing power and skills, plus a newly-found,mostwelcome, self-confidence. These factors are coupledwith a clearer reflection and judgment on the reasonsfor Africa’s relative under-development, and themeansto fight it.

In a new dynamic African landscape, South Africa,the “Rainbow Nation” is still, and will remain, the ref-erence country. Nigeria’s economy could possibly over-take that of South Africa in future years. Other AfricanNations show interesting patterns of development. Butthe key point is that South Africa, fromall perspectives,will continue to be the benchmark. It has an advancedexperience in the continent, and is eager and able tolead it.

South Africa has the wealthiest non-energy com-modity reserves in the world. It is the largest produc-er of platinum,manganese, chrome, vanadium, and thethird largest producer of gold. It has a well-developedinfrastructure, set to be further boosted by a very am-bitious, recently announced development program.The South African financial system has an impressive

record of achievements. According to theGlobal Com-petitive Index, it ranks first for the regulation of secu-rities exchanges, second for the soundness of its banksand second for the availability of financial services.The Johannesburg Stock Exchange is one of the top 20in the world (it boasts a larger capitalization than theMoscow Exchange, and it is incomparably bigger thanthe Nigerian Stock Exchange).

The debt toGDP ratio seemsquitemanageable.Themanufacturing sector is diverse and rather sophisti-cated, ranging from automotive to ACT to pharma-ceutical industries. The fact that South Africa was re-cently awarded 70%of the futuristic SKA (Square Kilo-meter Array) project, the most advanced radio tele-scope ever conceived, is further acknowledgement ofits scientific and technological advancements.

Above all, South Africa is a remarkable democracy:it has one of the most advanced written constitutionsin the world, a solid and independent judiciary sys-tem, a stunningly free and aggressive press, and a vi-brant civil society, with many active NGOs and citizeninitiatives.

As a “middle global power” or a large regional pow-er, South Africa has achieved a great deal in a relative-ly short period of time. Banned as it was bymost of theinternational community during its dark apartheidyears, it has, since 1994, developed quite an ambitiousagenda, focused not solely on Africa, though Africansolidarity is a constant reference.

South Africa has by far the largest diplomatic net-work of all the African countries (125 missions world-wide – and 46 of these are in Africa). An active and lead-ingmember of the SADC and amember of the UN Se-curity Council for two consecutive terms, Pretoria hasshown remarkable capabilities in terms of mediation,peace-building and post-conflict reconstruction.

The country is the newest member of the BRICSgroup; it is part of the G-20, closely associated to theOECD, and a partner in the Heiligendamm process. It

A steady performernonetheless

Even if current economic indicators would seem tosuggest otherwise, South Africa serves as driver for acontinent that is on the verge of soaring. Thecountry is a natural hub, both commercially anddiplomatically, from which to establish a network ofrelations.

Cars pass under a giantadvertising billboardpicturing a manblowing a vuvuzela inPolokwane, SouthAfrica. “Ayoba” is auniquely South Africanslang word expressingdelight, excitement,agreement andapproval. It is also usedas a greeting.

GIA

NLUIG

IGUERCIA

/AFP/G

ETTY

IMAGES

by vincenzo schioppa

longitude #23 - 101

Africa

100 - longitude #23

Featured briefing

has a sizeable and active army, with more than 2,500military personnel deployed in peace-support mis-sions aswell asmilitary assistance operations in Africa.It has proved to be a reliable organizer of large inter-national events, such as the World Soccer Champi-onship in 2010 and the COP 17 Summit on ClimateChange in 2011. The BRICS Summit, which SouthAfrica will host in the first part of 2013, will be its nextinternational showcase, together with the 2013 AfricaCup of Nation.

Another recent and highly significant achievementand accolade for Pretoria came when it obtained theChairpersonship of the African Union Commissionthrough the election ofNkosazanaDlamini Zuma, a re-spected andappreciated formerMinister for ForeignAf-fairs and Home Affairs (it is worth noting that she hasbeen recently awarded the“RenaissanceWomanof theYear” Award by Florence’s Palazzo Strozzi Foundation).

Despite all this, 18 years after the end of apartheid,the country and the AfricanNational Congress –whichleads it, gaining a staggering 61%of the vote, andwhichcelebrates its centenary this year – both face somevery serious challenges.

The promises made to the finally liberated blackpeople and the social covenant with themare yet to befully honored.Though it is true, andmust be said, thatall too often the international media and observerstend to forget the enormous imbalance that charac-terized andunderpinned the birth of democratic SouthAfrica, forgetting, too, the truly remarkable achieve-ments obtained against seemingly insurmountableodds since 1994: universal access to electricity andwater, a widespread welfare system, the dramatic re-duction of the number of people living in extremepoverty. Even the fight against HIV and AIDS seems tohave yielded some results, with a significant decrease

in the transmission of HIV frommother tochild.

Even more remarkable has been thesmooth transition of power and the spirit ofreconciliation that informed and still in-forms the new South Africa – one of thehighest merits of President Nelson Man-dela.

Today, political leaders and the rulingelites have to handle three major chal-lenges: unemployment, education and in-equality.

Unemployment is reaching alarminglevels, with the young population being themost affected. South Africa’s economy hasshown an average growth of 3.6% over thepast ten years. A remarkable pace, but thecountry needsmore to face the almost en-demic unemployment rates, worsened bythe influx of a large number of illegal mi-

grants.Education is also amajor – if not the major – prob-

lem.While universal access to primary education hasbeen granted, an enormous amount of work remainsto be done, mainly in the field of professional educa-tion and training.

Inequality is still incredibly high, and even if pover-ty has been drastically reduced, there is no doubt thatthe legacy of apartheid still haunts South Africa. Analarming phenomenon is that the gap is no longeronly between whites and blacks, but also, and dis-turbingly so, among groups of the black population.

The sad episode of the killing of striking miners inmid-August at the platinum mine of Marikana was asign of a very deep social malaise. Even in a tradition-ally violent mining sector, the event brought to theforemuchmore than amerely ill-managed problemofpublic order.The interests of black producers and busi-ness people, the growing public sector or public sectorrelated workers, the rural or semi-urban dwellers, themining and industry workers, the marginal and theexcluded: their interests are far from being conver-gent, and theANC ideological umbrella is finding it verydifficult to combine these and put them together. Norcan it be ignored that 41% of the 51 million SouthAfricans are below the age of 18.The“born free” do nothave any direct memory of the inhuman apartheidregime, and they expect the ANC to bemore than a lib-eration movement.

In the second half of December, close to 3,000 ANCdelegateswill convene inMangaung (Bloemfontein) forthe National Conference of the Party and will vote todecide on its leadership, possibly granting a secondPresidential mandate to Jacob Zuma, current ANCleader, and President of the Republic. The Presidentcounts on a large popular support, even though chal-

lengers could arise. The ANC ischaracterized by a hugely widespectrumof different “souls,” asis normal for such a deeplyrooted party. President Zumahas shown, up till now, that hehas a remarkable array of abili-ties in keeping them together.Nor is he afraid of what he oncedefined, with the sense of hu-mor often attributed to him, as“the robust South African poli-tics.”

In any case, whoever willcome out the winner at Man-gaung, he or she will have toface difficult times ahead.

Europe, and Italy in particu-lar, should on every occasionreaffirm their willingness toshare the efforts of South Africain the development of the na-tion. A real partnership, a peer exchange and interac-tion, having human development as a focus, are key.

Europe remains South Africa’s first trade and in-vestment partner (with 28%of the total trade, its sharealone adds up to the same amount as the next threebiggest partners combined: China 12%, theUS 8%andJapan 8%). More than two-thirds of the FDI stock inSouth Africa is from the EU.

The position of Italy vis-à-vis of South Africa is stillwell under potential. Italy is an ideal partner for SouthAfrica, and vice versa. Our economies are comple-mentary, and there are an enormous array of partner-ship opportunities. This is even more true when oneconsiders, on one hand, the presence in South Africaof a dynamic, wealthy, well-integrated and highly re-spected Italian community (more than 35,000 pass-ports) and, on the other, the close rapport the Italianshave with the black people, since the struggle againstapartheid. One example for all: the city of Reggio Emil-ia, where Oliver Tambo spent significant time duringhis exile, was the only city in the world to be invited tothe inauguration of Nelson Mandela as South Africa’sfirst democratic president in 1994 – a true sign of the ac-knowledgement of Reggio Emilia’s and Italy’s merits.

Moreover, South Africa should not be considered asmerely a single market, but rather as a hub, a gatewaytomuch larger African and non-Africanmarkets. Pro-ducing together, for selling in and out the country:that is the recipe for creating economic and socialprofit for both Italy and South Africa.

Italian businesses are not foreign to co-productionin South Africa: many good companies are alreadypresent. One thinks of names like Ferrero,Maccaferri,Duferco, and also the highly sophisticated and tech-

nologically advanced champions like SouthernWindShipyard, where maxi sailing yachts are built for themost discerning and demanding world buyers.

But, of course, this is not enough.Quite luckily, Italyhas begun to realize and reconsider what huge oppor-tunities lie in local partnerships and investments, es-pecially in the viewof its presence beingwelcomedanddesiredby the SouthAfricanGovernment andbusiness,interested in our tradition of industrial know-how, par-ticularly in small andmedium-sized enterprises, and inour capacities of sharing values and knowledge. Con-findustria – the Italian Business Federation – recentlyconducted an accurate study mission in South Africa,and this has led to the organization, with the embassyand the ItalianMinistry of ForeignAffairs, togetherwithother relevantministries andprivate subjects, of an im-portant Business Forum to be held in 2013.

In the meantime, over the course of the last sixmonths, trade between the two countries has risen by27%. A quite encouraging sign. A renewed reciprocalpolitical attention over the last year has been the basisfor a very intense exchange of visits, in both direc-tions, including the visit by South Africa’s Deputy Pres-ident to Italy’s PrimeMinister last October.

In aword, the dynamismbetween the two countrieshas been rekindled. It is now up to us: institutions,business people, civil societies and individuals in bothSouth Africa and Italy to keep up thismomentum andto strengthen what is to be considered, in the recipro-cal interest, a wide ranging and strategic partnershipbetween friends.

The South Africancontingent of UNpeacekeepers erect arazor wire barrieraround the Gomaairport in the DRC,November 26, 2012.

School children get onthe Gautrain, Africa’sfirst high-speed railline, in the Sandtonsuburb ofJohannesburg.

STEPHANEDESAKUTIN

/AFP/G

ETTY

IMAGES

JAMES

AKENA

/REUTERS

vincenzo schioppa is Ambassador of Italy to South Africa.

104 - longitude #23

SouthAmerica

longitude #23 - 105

Brazil

If this is indeed the best andthe worst of times, to echoCharles Dickens in A Tale of

Two Cities, there would be astrong argument that Brazil hasbeen living in the best of times,given the world’s perception ofthe recent evolution of theBrazilian economy. However,Brazil is a study in contrast, an emerging country fullof aspirations and with hundreds of efficient compa-nies that can compete internationally, it neverthelessmaintains the characteristics of a poor country, inwhichmillions have little chance of upward socialmo-bility. In the past it was known as Belindia, a combi-nation of a small part of the population, as big and asrich as Belgium, and the rest, as numerous and as pooras India. It is the rare country with a balanced budget(across the board, from themunicipalities to the Fed-eral government), but projected growth for 2012 is apaltry 1.5%. It has a surgingmiddle class but one of theworst income disparities in the world. Young peoplehave one of the most precious commodities, hope fora better future, but most of them will wind up in me-nial low-paying jobs because of a deficient education-al system. Brazil was always known locally as the coun-try of the future, an inside joke among Brazilians re-ferring to the fact that the futurewould never come, thekind of self-defeating attitude common to Latin coun-tries.Yet it seems the future has indeed arrived, and thatthis could be the century in which Brazil jumps froma third-world country to a global powerhouse, turninginto a model for many countries with shared aspira-tions.However,many obstacles remain, andherewe tryto investigate the changes in the Brazilian economyduring the last 12 years, with the goal of assessing thepossibility that Brazil can overcome these obstaclesto really become the country of the present.

The beginning of the 21st centurymarked a transi-tion period for the Brazilian economy. The previous

decade was one of themost turbulent in the country’shistory, first with hyperinflation looming and thenwith the beginning of reforms that took the economyfroman inflationary cliff to a period of low inflation, lowgrowth andmany policies that reshaped the economyand prepared it for the future. The year 2000 was thefirst full year in which the Brazilian economy experi-enced a floating currency, because in January 1999,after months of billions of dollars fleeing the country,the government of Fernando Henrique Cardoso wasforced to allow the Brazilian currency, the real, to float.Themain problem that the Brazilian economy faced inthe beginning of the 21st century was the surging pub-lic debt, both internal and external. The floating cur-rency was supposed to take care of external imbal-ances, but high interest rates (over 40% a year in realterms during a period in the late 1990s) and budgetdeficits made the trajectory of the internal debt un-sustainable. Addingmisery to this situationwas the ex-pectation of economic agents who considered the sta-bility of the economy a fragile one, with many struc-tural problems that could see it descending into chaos.

This is a story of how the Brazilian economy shift-ed from a chaotic situation in the early years of the 21st

century to a stalwart of the BRICS.We focus on twoma-jor reforms and a change in the international scenario:the introduction of the Fiscal Responsibility Law (Lei deResponsabilidade Fiscal, or LRF) by the government ofFernando Henrique Cardoso; The Bolsa Família pro-gram that lifted a multitude of families from absolutepoverty and which was greatly expanded throughout

Brazil: a taleof two countries

Once the quintessence of economic disparity and fiscalirresponsibility, Brazil is now showing other nations howto get their economies in order. But many of itsproblems remain and risk undermining the nation’shard-earned progress.

General view of theParaisopolis favela,the second biggest, inSão Paulo, Brazil,July 26, 2012.

by Rodrigo Zeidan and Michele Bagella

YASUYOSHICHIB

A/A

FP/G

ETTYIM

AGES

longitude #23 - 107

Brazil

106 - longitude #23

SouthAmerica

the government of Lula da Silva; and the impact of ex-ternal capital investmentwith regard to the stability ofthe Brazilian economy, especially from China. Thesethree features are not the only reasons that the Brazil-ian economy has taken off in recent years, but withoutany of the three Brazil’s pathwould bemuchmore dif-ficult.

Brazil is currently a paragon of fiscal austerity. Netpublic debt as a percentage of GDP is a meager 35%,and has been declining since 2002 (with the exceptionof a bump in 2009 due to a fiscal stimulus following thefinancial crisis). The country shifted froma confidencecrisis in 2000-2002 to one of a few countries that can ex-perimentwith active industrial policieswithout calls forausterity. Recently, the government has spurred aplethora of policies to promote industrial activity, fromtax breaks for auto manufacturers and the textile sec-tor to public-private partnerships for infrastructureprojects in the PAC (program for accelerated growth)program.

However, the situation was very different in thelast years of Cardoso’s government. Public deficit wasover 7% of GDP in 1998 and 4% in 1999, and with highinterest rates (over 20% per year during the 1997-2003period) and an explosion in the public debt was ex-pected. The resulting confidence crisis was com-pounded by external and internal factors, such as Ar-gentina’s default and energy rationing in 2001. Brazil’seconomy was on shaky ground during most of Car-doso’s second term (from 1999-2002), and it was dur-ing this period that the LRFwas enacted. It was, along-side inflation targeting, the cornerstone of Cardoso’s

austerity package to maintainmarket confidence that the “in-flation demon” was dead onceand for all.

Even though the lawwas en-acted in a chaotic macroeco-nomic environment it survivedsuccessive governments and isnow themain pillar of the pub-lic budget, with the countryrunning a budget surplus of 3%of GDP (but a nominal deficitwhen interest payments of thedebt are taken into account). Infact, it is so relevant that it worksnot only to curtail federal pub-lic spending but acts as a mon-itoring device for municipalgovernments. It works like this:because Brazil has somethinglike 5,500 municipal govern-ments and most survive bytransfers from the federal gov-ernment, such transfers are al-

lowed only in the case that municipalities can provethat they complywith the LRF to the Court of Audit. Inthis sense the law transformed the relationship be-tween municipalities, states and the federal govern-ment; all three are now responsible for fiscal disci-pline and all are subject to similar rules. To put intopractice this very simple idea, in theory, it took a ma-jor political upheaval; previously states and somemu-nicipalities were able to issue bonds and borrow fromstate banks and capitalmarkets in general.The LRFwasthe end result of a political shift that had governmentsscrambling to balance budgets. One of the main op-ponents of the law was a former president, ItamarFranco, who was then Governor of the state of MinasGerais; Franco announced a default of the state’s pub-lic debtmonths before the enactment of the law. In theend, governments abided by it and nowmust follow abalanced budget throughout the election cycle.

There is a paradox in the Brazilian fiscal responsi-bility law – it was based partly on theMaastrichtTreaty,the same one that has been rendered almost useless bymany European nations recently. By following a lawsimilar to the European treaty, the Brazilian govern-ment was able to balance its budget, bring debt as apercentage of GDP down, and build enough credibili-ty to curtail the growth of public debt. The paradox liesin the fact that Brazil, the country where politicianshave a history of abuse of power and inefficiency, wasable to take the necessary steps to make sure that thelaw gained traction, while the Maastricht Treaty waslargely ignored bymanyEuropean countries during thelast two decades.

Most analysts had thought that Brazil would havebeen one of the last countries in the world, given itstroubled history, to have a culture of budget surpluses.Yet this culture is now pervasive in the federal govern-ment, while municipal and state politicians usuallyfollow a similar pattern in the four year political cycle:the first year is one of austerity for the purpose of cashaccumulation, followed by a balanced second year,while in the third and fourth years spending is in-creased to build political capital.

The flip side of the increased period of fiscal disci-pline is that recent Brazilian governments have had lit-tle incentives to promote a fiscal reform thatwould dealwith a tax system that is archaic at its best and mad-dening at its worst. Moreover, there were squanderedopportunities to increase public investment in infra-structure projects, with a focus on the hiring of newpublic employees instead (public employee wages in-creased 50% in real terms during the 2003-2009 peri-od). Fiscal discipline is easywhen the business cycle isfavorable but quite difficult during a recession, as Eu-ropean countries have been experiencing. In a reces-sion the LRF should prevent an increase in publicspending and make it harder for the country to getout of it. However, in Brazil the public budget has beenrunning on a 3%-4% surplus, and during the financialcrisis the government was able to launch a stimulus

programwithout running into the barriers imposed bythe LRF.

Going back 20 years ago, the idea that the Braziliangovernments would be able to run successive budgetsurpluses, even during an once-in-a-generation glob-al crisis, would have probably discredited any analyst.But now the LRF is entrenched in the political sce-nario and is a cornerstone for how all spheres of gov-ernment are run.

Negative income tax is a common concept in eco-nomics textbooks, but is rarely realized, given its po-litically controversial nature. The experience of in-come transfer in Brazil is of a transformative nature,given the impact of the program at improving incomeinequality in a countrywith one of theworst indicatorsin the world.

Conditional cash transfer was not a new idea, evenin Brazil, by the time that Bolsa Família was launchedin January 2004. Similar programs began in the mid-1990s; the best knownwas the Bolsa Escola, launchedin 1995 by CristovamBuarque. However, it was the ex-pansion of the program, and the unification of differ-ent initiatives in a coherent framework that made theBolsa Família so successful during the two govern-ments of Lula. At the end of 2011 the program helped13.7 million families, by supplementing their incomean average of $50 amonth.Themain benefit of the pro-

Workers checkcurrency sheets in theCasa da Moeda doBrazil (Brazilian Mint)in Rio de Janeiro,August 23, 2012.

Workers put thefinishing touches to theArena Castelao venuefor the FIFA 2014 WorldCup in Fortaleza, Brazil.

SHAUN

BOTTERILL/G

ETTY

IMAGES

SERGIO

MORAES

/REUTERS

2001 2003 2005 2007 2009

BRAZILIAN EXPORTS OF RAW MATERIALSTO CHINA AND THE REST OF THE WORLD

BRAZILIAN NET PUBLIC DEBTAS % OF GDP 1997‐2012

40

60

20

80% of total exports

10

-10

20

0

30

40%

AMAPÁRORAIMA

AMAZONAS

ACRE

GDP PER CAPITA

0 - 5.900

6.000 - 11.900

12.000 - 21.900

22.000 - 31.900

32.000- 40.900

Figures used Brazilianreals (2 real ≈ $1)

RONDÔNIA

MATO GROSSO

PARA

TOCANTINS

GOIAS

MATO GROSSODO SUL

PARANA

SAO PAULO

RIO GRANDEDO SUL

PIAUÍ

MARANHÃO

60%5030 4020100

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Sou

rces

:Bra

zilia

nC

entr

alB

ank,

2012

;Bra

zilI

nstit

ute

ofG

eogr

aphy

and

Sta

tistic

s

BRAZILIAN EXTERNAL INDICATORS AS % OF GDP

TIMELINE OF BRAZILIAN GROWTH

100.000

450,479

669,526

733,559

1,383,445

1,562,409

2,449,024

DISTRITO FEDERAL2,570,160

3,035,122

3,118,360

3,483,985

6,003,788

SANTA CATARINA6,248,436

6,574,789

7,581,051

CEARÁ

CEARÁ

8,452,381

10,693,929

10,444,526

BAHIABAHIA

14,016,906

RIO DE JANEIRO15,989,929

MINAS GERAIS

19,597,330

41,626,199

10.000.000

POPULATION, 2010

1.000.000

Total foreign debt

18.1

4.8

-6.8

31.5

1.5

-6.0

42.9

2.6

-0.5

26.5

5.3

-4.0

12.9 14.4

-2.4

International Reserves Current Account Transactions

Rest of the world China

1974

2000 2001 2002 2003 2004 2005 2006

1982 1987 1998 20101st oil crisis Volcker shock Sovereign Debt Crisis - default Asian Crisis Financial Crisis

• FiscalResponsibility Law

• First full yearof inflation targeting

• US$1 is R$1.95by the end of theyear

• Energy Crisis• Argentina defaults• US$1 reaches R$3.00• External and internal

debt increase sharply• Recession

and inflation

• Lula is elected• Confidence Crisis• US$1 reaches R$3.99• Inflation off target

• 1st year of Lula as president• Macroeconomic

policies maintained• Growth is 1% and

average interest rateis 25%

• Beginning of Boomyears

• Ortodox marco-economic policies

• Trade surplus atUS$34 billion

• Mensalão corruptioncrisis

• Record US$45 billiontrade surplusExpansion of FomeZero and BolsaFamilia programs

2007 2008 2009 2010 2011

• Record 62 IPOs• GDP growth

reaches 6%• Investment boom in

many industries• Record credit

expansion

• Brazil receivesinvestment gradestatus

• Financial crisis hitsthe economy in the2nd semester, but notthe finanacial sector

• Investment ratedeclines sharply

• Economy starts torebound in the 2nd

semester

• Economy takes off• GDP Growth reaches

7.5%• PACII (stimulus

package) is launched• Some capital controls

to stop appreciationof the real

• Dilma is elected

• First year of Dilma’sgovernment

• Full employment• Economy starts to

decelerate, but FDIreaches US$66 billion

2012

• Low growth indeveloped countriescoupled with lowinvestment anddeceleration in creditexpansion resultsin low growth

• Interest ratesreach a historicallow of 7.25% a year

• Major oil reservesdiscovered

• Lula is reelected• GDP growth is

4% with lowinflation

3,512,672

ESPIRITOSANTO

3,120,494ALAGOAS

8,796,448PERNAMBUCO

3,766,528PARAIBA

3,168,027RIO GRANDE DO NORTE

2,068,017SERGIPE

longitude #23 - 109

Brazil

108 - longitude #23

SouthAmerica

ChartingBrazilian growth

longitude #23 - 111

Brazil

110 - longitude #23

SouthAmerica

gram is invisible: the transferred amount to each fam-ily is small, but it provides a stable stream of incomethat helps lift families from extreme poverty. Themaincriticisms of the program are that it is too expensive,creates a disincentive for individuals to look for formalemployment and there is some level of corruption em-bedded in the system. Bolsa Família costs less than 1%of GDP – thus it is not an expensive program. Becauseamounts transferred are small the disincentive toworkis marginal – it exists, but it does not exert a strong in-fluence in themacroeconomic dynamics of the econ-omy. Corruption is also not a big problem so far, asmost cases are anecdotal and there is no evidence ofwidespread corruption.

There are many social programs in Brazil, but theadvantages of the Bolsa Família rest on its capillarityand its ability to reach the poorest families in the coun-try. It helped bring income inequality down sharply inBrazil (the Gini coefficient, an indicator of income in-equality, came down from 0.596 in 2001 to 0.519 in2012, according to FundaçãoGetúlioVargas) – but it isstill one of the worst income inequalities in the world.Of course, as the country progresses, the Bolsa Famíliashould be phased out; but it will be difficult to termi-nate a program that generates copious amounts of po-litical capital.There is little doubt that the Bolsa Famíliahad amajor impact in poverty reduction, especially inrural areas in Brazil. The challenge for the futurewill beto balance the economic efficiency of the program inthe changing dynamics of the economy.

Many doubts existed with respect to the govern-ment’s capacity to pay its external debts during thetransition period fromCardoso to Lula. “Shares surgedthat year, 2003, as Lula curbed the budget deficit and

kept up payments on government’s overseas debt, in-stead of defaulting as some investors had predicted,”according to Bloomberg new service. The need for for-eign capital to finance the current account deficit wasso pressing that in 2001 Fernando Henrique Cardosomade a famous prediction about the prospects of theBrazilian economy: “Export or Die.” In retrospect thissentence summarized themain dilemmaof the Brazil-ian economy: although it had a huge potential internalmarket, recurrent currency crises hadmade the econ-omy vulnerable and always scrambling for access to ex-ternal capital.

Things changed dramatically in the 2003-2007 pe-riod, when the country abruptly shifted from an ex-ternal debt position to a credit one. Two main capitalinflowmovements explain this shift: carry trade and asudden spike in trade surplus. A huge differential be-tween the interest rate in Brazil and the rest of theworld brought tens of billions of dollars in short-termcapital; but,more importantly, Brazilian exports soareddue to global demand and the depreciated exchangerate. In the year 2000 Brazil experienced a trade deficitof $700million. In 2003, the first year of Lula’s govern-ment, trade surpluswas, by contrast, $25 billion, reach-ing $44 billion in 2005 and $46.5 billion in 2006. At thesame time the capital account reached a 89 billionsurplus in 2007, both by external inflows from carrytrade and FDI.

One of the main impacts of this capital surge isthat Brazil turned into a net external creditor in 2007.Aftermany decades of living in the shadow of the IMFand other international lending institutions, the coun-try was finally able to experience external account re-lief, and in turn was able to ride the financial crisis ina much better position than many other countries.Unlike earlier currency crises (in 1987 external debtwasan astounding 43%of GDP), debt was 12% of GDP, butthe country had accumulated over 14% of GDP as in-ternational reserves. Even though this reserve cushion(which is now even higher) can help Brazil hide futurecurrency crises around the world, there are still manyexternal imbalances in the Brazilian economy. One isthe increasing reliance on rawmaterial exports, whilemore importantly there is a structural current accountdeficit that is increasing over time.While capital out-flows from services (including dividends, royalties etc.)were $25 billion in 2000, it reached $85 billion in 2011,resulting in a need to generate trade surpluses andcapital account inflows to balance it.

Ultimately Brazil exported, and did not die; thehuge inflows of capital helped the country curb infla-tion through the appreciation of the real (which fellfrom 3.99 real to the US dollar in 2002 to 1.54 real in2008 and a little over 2 real in 2012), but challenges re-main.The country is still dependent on capital inflowsto curb amounting current account deficit, thus need-

ing to maintain inefficiently high international re-serves.

Among many changes in the Brazilian economyduring the last decade we chose to focus on the rele-vance of the fiscal responsibility law, the Bolsa Famíliaand trade surpluses, three main components of theBrazilian surge from a poor country to a middle-in-comeone. Brazil has emerged, not to developed status,but certainly away from its early developing roots.Transitioning from amiddle-income country to a ful-ly developed one brings many other challenges, how-ever, from microeconomic reforms (a recent study byFundação Dom Cabral concluded that inefficient in-frastructure represents 5% of companies’ revenue na-tionwide) tomacroeconomic ones (a broad tax reformis one of the keys to the countries’ future competitive-ness). Even though it is not reasonable to predict sub-stantial changes in the short term to the chronic Brazil-ian bottlenecks (education, poor infrastructure, lowproductivity, even lower levels of R&D, high crimerates, and crony capitalism), in the last few years somepolicies have been enacted to start tackling these issueswith the purpose of ensuring long run growth andprosperity. Notwithstanding the income inequality

that is still pervasive throughout the country, there areimportant signals that the country is improving the lifeof most Brazilians: wages are increasing across theboard; and for the first time in decades there are ma-jor greenfield investments inmany sectors, fromman-ufacturing to agricultural firms.The next few years aregoing to be particularly important: if the positive trendscontinue and the improvement of social mobility so-lidifies weak institutions, theywill strengthen the longtermprospects of the economy. Further improvementsmay happen if pushed by industry and not only by thetraditional commodities sector. In these troubled timesaround the world young Brazilians enjoy a rare com-modity: hope – that they will do better than their par-ents and that they have a shot at the upward socialmo-bility denied to countless generations of poor Brazilianfamilies.

A Brazilian policemanfrom the ActionBattalion (BAC)searches for drugs ina favela in Rio deJaneiro, October 16,2012.

Maria Nilza, 36, motherof four, shows her“Bolsa Familia” socialplan card in Serra Azul,Minas Gerais.

VANDERLEIALMEID

A/A

FP/G

ETTY

IMAGES

CHRIS

TOPHESIM

ON/A

FP/G

ETTY

IMAGES

Rodrigo Zeidan works at the Fundação Dom Cabral andNottinghamUniversity Business School China.

michele bagella is a professor of economics at the University ofRome Tor Vergata.

114 - longitude #23

Industry

longitude #23 - 115

Steel

Storm of Steel was Ernest Jünger’smemoir of his ex-periences as a German soldier and officer on theWestern Front during theWorldWar I. Now anew

stormof steel, is being fought over the future of the steelindustry. Fortunately, it’s just an economic war, not abloody one. But it does have its victims. First amongthem, Europe.

France, especially the Lorraine region, was histor-ically the heart of the European steel industry and oneof the main causes of the German-French rivalry thatresulted in Jünger’swar.More recently FrenchPresidentFrançois Hollande had led a metaphorical defense oftheMarne by threatening the steel giant ArcelorMittalwith nationalization, in an effort to force it to agree toinvesting €180 million over five years in one of itsthree largest French factories and avoiding the elimi-nation of about 600 jobs. After a tense, two-monthstandoff, PrimeMinister Jean-Marc Ayrault announcedthat while ArcelorMittal had agreed“unconditionally”to keep all 2,700 employees at its site in Florange, twoidled blast furnaces – at which 600 of those peopleworked – would be shut down until European steeldemand improved.Workers were to be redeployed toother areas of the plant, and there would be no layoffs.ArcelorMittal, which employs about 20,000 people inFrance, had sought to close the two blast furnaces per-manently while continuing to operate a part of the fa-cility that processes steel for the car industry. But thisidea caused the mobilization of the recently electedleftist government. Concerned about an unemploy-ment rate hovering above 10%, Minister of IndustrialRenewal ArnaudMontebourg accused LakshmiMittal,the Indian billionaire who serves as the company’schairman and CEO, of “failing to respect France.”Mit-tal – who had built ArcelorMittal from the 2006 merg-er of his Mittal Steel with Arcelor, promising to help

modernize the European steel sector – said that Arcelor,the Florange plant’s previous owner, had already sched-uled to close it.

Italy is experiencing a storm of steel, too, at ILVA ofTaranto, the largest steel plant in Europe, where morethan 30% of Italy’s raw steel, about 8% of Europeansteel, is produced. The government estimates thatstopping production would cost the Italian economymore than $10 billion a year, 0.5% to 1% of ItalianGDP. Steel and its chain of production accounts forabout 4%of Italy’s GDP. At risk are 12,000 jobs inTaran-to, a regionwhere the jobless rate is 13.8%, and 20,000jobs nationwide. The factory was opened by the stateduring Italy’s postwar boom with the aim of creatingjobs in the poorer agricultural south, thereby narrow-ing the economic gap with the rich industrializednorth. It was eventually privatized in 1995. But on July26, 2012 a judge ordered sections of the plant closedand the steel from it impounded, arguing that it had vi-olated environmental laws and was raising serioushealth concerns in the area. In June 2011, a teamof epi-demiologists began examining the health records of320,000 people in theTaranto area to assess the impactof plant fumes over the previous decade. According tothe Wall Street Journal, the researchers found that thecancer rate for ILVA’sworkersweremuchhigher the restcity’s population.They also found that 638 children hadbeen hospitalized from 1998 to 2010 due to respirato-ry diseases attributed to plant fumes, that 17 childrenhad developedmalignant tumors, and that the plant’sfumes had caused 386 deaths from 1998 to 2010. Thegovernment responded by passing an emergency de-cree that would allow it to continue operating while itimproves safety conditions, but magistrates said thatthe new law violated the constitution by allowing theexecutive branch to circumvent the judiciary, and

Storm of steel

Once the foundation of European and American industry,the world’s biggest steel producers are now Asian.

In many ways the evolution of the steel industry reflectswhat’s to come in other sectors.

Jewometaal StainlessProcessing is situatedin the port ofRotterdam.Approximately 250,000tons of stainless steelscrap are processedhere every year, makingthis operation one ofthe largest individuallocations for stainlesssteel scrap in theworld.

by maurizio stefanini

HOLLANDSEHOOGTE

longitude #23 - 117

Steel

116 - longitude #23

Industry

seized semi-finishedmaterial and steel. Moreover, onNovember 26, 2012, prosecutors arrested Emilio Riva,chairman of the group that owns ILVA, and six othersincluding his son Fabio, on suspicion of bribing officialsto cover up a health and environmental scandal, andon November 27 workers rallied in Taranto in order todefend their jobs. “The economic impact of closingthis plant would not only be costly, it would impover-ish national industry,” EnvironmentMinister CorradoClini said. “Risking industrial production in the steelsectormeans creating a domino effect in economic andsocial terms.” The danger is an industrial crisis affect-ing companies ranging from auto maker Fiat to pro-ducers of specializedmachine parts. AntonioGozzi, thehead of Italy’s steel industry association Federacciai,said permanent closurewould force companies to buysteel fromabroad, costing the rest of Italian industry upto €5 billion and sending a number of companies tothewall. For this, some newspapers hint at a plot in fa-vor of foreign interests, and report that Brazilian com-panies are already eying ILVA.

On November 28, the storm of steel turned literalwhen a violent lightning storm hit the plant, bringingdown a chimney stack and damaging awarehouse andlighthouse at the factory’s docks. On December 10prosecutors issued a European arrest warrant for FabioRiva. Bruno Ferrante, the president of ILVA, told theNew York Times that the Riva Group, which owns the

plant, has been spending from$325 million to $400 million ayear to upgrade the plant sinceit bought it in 1995 and thatcancer rates had been falling re-cently, although it acknowl-edged that there was more tobe done. According tomany an-alysts, the endof ILVA could givea fatal blow to the steel industryin the European Union, wheresupply exceeds demandby 30%.The future of Italy’s largeststainless steel factory, AcciaiSpeciali Terni, also hangs in thebalance as it is up for sale. TheEU’s second-largest steel pro-ducer after Germany risks be-coming a steel importer.

Then, on December 11 in-vestigating magistrate, PatriziaTodisco, confirmed the order ofthe tribunal of Taranto for theseizure of 1.7 million metrictons of finished and semi-fin-ished steel products. ILVA an-nounced that 1,400workerswillstay on and work less, and that

they have to shut down the plants in Novi Ligure, Gen-ova Racconigi, Salerno, Thessaloniki’s Hellenic Steel,Tunis’ Tunisacier and many plants in France.

Nor is Jünger’s Germany immune to the storm ofsteel. OnDecember 10, 2012ThyssenKrupp reported anet loss of €4.7 billion mainly due to the Steel Ameri-cas business in Brazil and theUS, and for the first timein its historywill not pay a dividend. “Weneedmore ef-ficiency, transparency and honesty at all levels,” CEOHeinrich Hiesinger admitted. “The disaster with SteelAmericas shows that our leadership culture has failedin many areas of the company.” Germany's biggeststeelmaker invested about€12 billion in its Steel Amer-icas plants in the hope of gaining a foothold in theAmericanmarket. Instead it left the company in severefinancial distress and it has sold assets including stain-less steel maker Inoxum, valued atmore than €10 bil-lion, to fill the hole. Once Steel Americas is sold, onlyabout 30%of group revenuewill come from steel, rais-ing the importance of its businessesmaking car parts,factories and elevators.

The Russian company Mechel announced on No-vember 23 that it was temporarily shutting down pro-duction at its steelmills In Romania andUkraine on ac-count of the higher rawmaterial prices and the lowde-mand of finite metallurgy products.

There was also a storm of steel between the USand China at theWorld Trade Organization, which on

October 18, 2012 barred Chinafrom imposing duties on cer-tain US steel exports, sidingwith US President Barack Oba-ma in a dispute with Beijingover “grain-oriented electricalsteel.”Used in the cores of high-efficiency transformers, electricmotors and generators, thisspecial steel, whose volume oftrade with China was in therange of $250 million, is madeby AK Steel Corp of Ohio andATI Allegheny Ludlumof Penn-sylvania. Both Ohio and Penn-sylvania were battlegroundstates in the presidential elec-tions, soObamawas able to de-fend himself against accusa-tions by his Republican oppo-nent Mitt Romney that he wassoft on China. The US filed thesteel case with theWTO in Sep-tember 2010, after China hadaccusedUS exporters of dump-ing on the Chinese market andlevied punitive duties of 19.5%on steel imports.

But the main storm of steel concerns Chinesedumping and its clash with India’s Lakshmi Mittal.Both China and India have an ancient history of steel-making.The earliest knownproductions of steel are be-lieved to date back 4,000 years in Anatolia. Steel wasproduced in East Africa 3,400 years ago, and 2,400years ago in the Iberian Peninsula. But already theChinese of the Warring States (403 – 221 BC) hadquench-hardened steel, and later during the Han Dy-nasty (202 BC – 220 AD) steel was created by meltingwrought iron togetherwith cast iron. Steelmaking in In-dia probably originated 2,500 years ago in Sri Lanka,where they used a unique wind furnace driven by themonsoon winds, capable of producing high-carbonsteel.Wootz steel was produced in India by about 300BC, and King Porus presented a steel sword to Alexan-der the Great in 326 BC. From India the Chinese im-ported the productionmethods of creatingWootz steel,which later arrived in the Middle East and was calledDamascus steel by the Europeans. Europe itself be-gan to develop more efficient methods of productionin the 16th century, but themodern era in steelmakingbegan with the introduction of Henry Bessemer’sBessemer process in 1858, the raw material for whichwas pig iron.

Already in the late 18th and early 19th centuries theinvention of new technologies gave rise to the FirstIndustrial Revolution, based principally on textiles.

With the Bessemer process, a Second Industrial Revo-lution started, based on steelmaking for the productionof the new steam engine that drove collective trans-portation, such as railways and steamboats, and for themilitary industries. In the second half of the 19th cen-tury Germany overtook the United Kingdom as themain industrial power in the world. The US also rosethanks to the Andrew Carnegie’s great innovation of acheap and efficient mass production of steel rails forrailroad lines.With the 20th century, the developmentof Fordism, which was merely the application ofCarnegie’s system to automobile production, gave riseto a Third Industrial Revolution based on the internalcombustion engine that allowed for individual trans-port. The US, in its turn, overtook Germany; but evenin the new automobile economy, iron production re-mained fundamental.

After falling behind the industrializedWest, Chinaand India, thanks to their cheap manpower, regainedprimacy in the ancient art of steelmaking. And al-though steelmaking lost importance in the global con-text of theworld economy, froma quantitative point ofview global steel production grew enormously in the20thcentury: from amere 28million tons at the begin-ning of the century to 781million tons by the end of it.And the first decade of the 21st century sufficed toabout double it: 1,351.3 million tons of crude steelproduction in 2007; 1,326.5 in 2008; 1,219.7 in 2009;

A helmet with striker’sstickers is pictured atthe ArcelorMittalFlorange plant, ineastern France, onDecember 10, 2012.

The ILVA steel plant inTaranto, Italy, onNovember 27, 2012.

DONATO

FASANO/A

FP/G

ETTY

IMAGES

AFP

PHOTO

/JE

AN-C

HRIS

TOPHEVERHAEGEN

longitude #23 - 119

Steel

118 - longitude #23

Industry

all over the world. So todayArcelorMittal is the world’slargest steel producer, control-ling 10% of total steel produc-tion.

Born on June 15, 1950 in Ra-jasthan, India, Lakshmi Mittalis himself a cult figure in theglobal steel industry. He camefrom a poor family of 20 whichlived on bare concrete floors,slept on rope beds and cookedon an open fire in a house builtby his grandfather. But hisgrandfather worked for Tarac-hand Ghanshyam Das, one ofthe leading firms in pre-inde-pendence India, belonging toMittal’s Marwari Agrawal com-munity, who were traditionallytraders. And trading scrapmet-al in the Indian port of Karachiwas the start of theMittal’s Em-pire. His father moved toKolkata, and with a few com-panions bought out a ram-shackle steel rolling mill. They

began to produce steel for constructionneeds. After theexit of the first plant, the enterprise Ispat, “iron,” cre-ated two more plants. But in the end, troubled by theIndian bureaucracy they decided to go to Indonesia.

At 25 Lakshmi Mittal become a director of this In-donesian plant, which specialized in the production ofiron wire products. His was to be the first to use re-duced iron as initial stock, making the process dra-matically cheaper. And the supply came fromTrinidad.Then there wereMexico, Canada, Germany and Kaza-khstan. In 1976 the father and three sons had createdthe Mittal Steel Company. From Indonesia andTrinidad, hewent on buying up a network of steel pro-ducers in former communist countries includingKaza-khstan, Romania andUkraine. Later in 2004 he pushedinto theUSwith the $4.5 billion purchase of Cleveland’sInternational Steel Group, and in 2006 merged MittalSteel Company with Arcelor. The year of the creationof the big world steel conglomerate was also whenForbes listed him as the third wealthiest person in theworld after Bill Gates and Warren Buffet, and thewealthiest man in Britain where he is resident. He hassince dropped to 6th place in 2011 and to 21st in 2012.The loss of $10.4 billion in one year demonstrates howthe storm of steel hit him too.

Mittal’s strategy was the old one of consolidating afragmented industry by putting production into fewerhands in order to make it easier to adjust output andcushion the cyclical downturns that have always played

1,413.6 in 2010; 1490.1 in 2011. But the geographicaldisplacement of the production is demonstrated bythe figures of USmanpower: In 1980, there weremorethan 500,000 US steelworkers; by 2000, the number ofAmerican steelworkers fell to 224,000. The economicboom in China and India has caused a massive in-crease in the demand for steel in recent years. Between2000 and 2005, world steel demand increased by 6%. In2008 and 2009, just after steel began trading as a com-modity on the London Metal Exchange, output fell inthemajority of steel producing countries as a result ofthe global recession, but in 2010 it started to rise again.

A look at national productions gives an indicationof the geographical shift. From United Kingdom, theleadership in the world production of steel passed toGermany in 1874, then to the US in 1901, and then toChina in the 1970s. In 2011 683.3million tons of crudesteel was produced inChina; 107.6 in Japan; 86.2 in theUS; 72.2 in India; 68.7 in Russia; 68.5 in South Korea;44.3 in Germany; 35.3 inUkraine; 35.2 in Brazil; 34.1 inTurkey; 28.7 in Italy. France was 15thwith 15.8; the UK18thwith 9.8. But if the biggest steel producing countryis currently China, which accounted for 44.3%ofworldsteel production in 2010, the prominence of Chinesesteel firms such as Shanghai Baosteel Group Corpora-tion and Shagang Group now have to face Indian ty-coons such as Ratan Tata head of Tata Steel or Laksh-mi Mittal of ArcelorMittal, which took advantage oftheWestern steelmaking decline to buy up steel plants

havoc with steelmakers. “Indian” ArcelorMittal, withheadquarters in Luxembourg, produced more than athird of its worldwide crude steel in Europe last year,and nearly 100,000 of the company’s 260,000 employ-ees work in Europe. According to the World Steel As-sociation, ArcelorMittal produced 97.2millions of tonsof iron, versus 44.4 of ChineseHenei Group,more dou-bling the second. In third place is the Chinese Baosteelwith 43.3; fourth the South Korean Posco, 39.1; fifth theChineseWuhanGroup, 37.7; sixth the JapaneseNipponSteel, 33.4; seventh the Chinese Shagang, 31.9; eighththe Chinese Shougang, 30; ninth the Japanese JFE,29.9; tenth theChinese Ansteel, 29.2.Tata Steel, the sec-ond Indian-led conglomerate, is 12th, with 23.8. Unit-ed States Steel, heir of Carnegie and firstWestern con-glomerate, is 13th, with 22. Brazilian Gerdau, 14thwith20.5, is the first Latin American conglomerate. Ger-manThyssenKrupp, the first European conglomerate,is 16th, 17.9. Italy’s Riva Group was 21st with 16.1.

The fact that Europe is in crisis and India and Chi-na also are slowing, could be responsible for this down-turn cycle. But sales are down 10% from a year earlierand income downmore than 50%.Meanwhile the costof the industry’s raw material, iron ore, rose even assteel prices slumped.Mittal stated that“clearly, this per-formance is not acceptable at all.” The problem is in-expensive Chinese steel, heavily subsidized by its gov-ernment. The hope is that the North American shalegas boom will require more and more steel pipes andtherewill also be increased demand fromheavy equip-mentmakers like Caterpillar. Since themills in the USare doing better than those in Europe, theremight alsobe the opportunity to relocate from Europe to NorthAmerica. All the ingredients are there for a perfectstorm of steel.

The Wuhan steelfactory in China’sHubei province.

XU

XIA

OLIN

/LAIF

maurizio stefanini, journalist and essayist, is the author ofa research paper on emerging economies for Nomisma.

A worker at theThyssenKruppsteelworks in Duisburg,Germany.

SEAN

GALLUP/G

ETTY

IMAGES

Yourmonthly connectionto international news and viewsGo to Longitude for iPad

GMPAdvertising

Subscribehereinfo@longitude.it

Yearly 11 issue Longitude subscription packagesavailable at the reduced price of €100

Available in the Newstand for iPad at €3.99 per issue

Now on iPad

Longitude,because the Earthdoesn’t stand still.

Warming bloopers

longitude #23 - 123

Warming bloopers

cross the bridge. Very intense negotiationslie ahead of us.What we need now is moreambition andmore speed.” By ensuring theextension of theKyoto Protocol for a furthereight years, the Doha deal preserves the vi-tal framework of international law and re-tains hard-won rules on accounting foremissions and trading between countries.However, themost important step forwardto reach a global deal is represented by theremoval of the distinction between “devel-oped” and“developing” countries requiringall countries to make commitments com-mensuratewith their level of development.At this stage, China and the United Stateswill be the clear focus of the next round ofclimate change negotiations. The world’stwo top emitters of GHGhold the responsi-bility to attain a new global agreement onclimate change that, for the first time, willbind both countries to cut their emissions.

The Kyoto Protocol, which was negoti-ated in 1997 and took effect in 2005, setbinding targets for 37 industrialized coun-tries and the European community for re-ducing GHG emissions by an average of5% against 1990 levels between 2008 and2012. Kyoto did not, however, call for bind-ing commitments from developing coun-trieswhichwere only needed to report theiremissions. Therefore, greater responsibili-ty for reducing GHG emissions was put onindustrialized countries and China, whichwas still classed as a developing countrywhen the Kyoto Protocol was drafted, hadno legally binding obligations to cut itsemissions. Due to this lack of symmetry inactions and commitments, among otherreasons, the US refused to ratify it.

According to theUS, which remains thegreatest polluter inword history, one of themajor impediments of the Kyoto Protocolwas the uncompromising position of somedeveloping countries, above all China, to re-fuse to commit to any binding internationalcarbon emissions reduction targets im-posed by the international community. In2007 China became the world’s largestemitter of greenhouse gases. However,notwithstanding the fact that the Chinese

After a 36-hour final session ma-rathon, the Doha COP 18 ClimateChange Conference ended with a

deal that creates a bridge from the old cli-mate regime to a new one, but leaves its fu-ture shape, ambition and structure still to bedetermined.

The 195 nations involved in the two-week conference in Doha, which ironicallyis the country with the world’s highest percapita carbon emission, decided to workon a new global agreement on climatechange that would, unlike the Kyoto Proto-col, require cuts in greenhouse gas (GHG)emissions fromboth developed and devel-oping countries, and come into force from2020. Connie Hedegaard, the EU climateCommissioner said: “In Doha, we havecrossed the bridge from the old climateregime to the new system.We are now ourway to the 2015 global deal. It was not aneasy and comfortable ride. It was not a veryfast ride either. But we have managed to

economy increased by an impressive av-erage rate of 9% annually in the last decade,Chinese emissions per capita are still faraway from being even close to those of theUSor Europe.Moreover, having still around170million people living under the pover-ty line of $1.25 a day, according to the UNstandard, China is classified as a develop-ing country. Therefore, the position of theChinese government, supported by a largenumber of developing countries andemerging economies was clear: anthro-pogenic climate changewasmainly causedby the massive emissions of CO2 and oth-er greenhouse gases that originated fromdeveloped countries since the IndustrialRevolution. As a consequence, developedcountries should be responsible for theircumulative emissions (starting from theirhigh per-capita emissions) and take thelead in reducing GHG, in addition to pro-viding financial support and transferringtechnologies to developing countries.

The fundamental principle on whichChina establishes and defends its positionwas the one of “commonbut differentiatedresponsibility.” This was the core rule. Theprinciple of commonbut differentiated re-sponsibility was enunciated as Principle 7of the Rio Declaration at the first Rio EarthSummit in 1992, stating that “states shallcooperate in a spirit of global partnership toconserve, protect and restore the healthand integrity of the Earth’s ecosystem. Inview of the different contributions to glob-al environmental degradation, states havecommon but differentiated responsibili-ties. The developed countries acknowledgethe responsibility that they bear in the in-ternational pursuit of sustainable develop-ment in view of the pressures their soci-eties place on the global environment andof the technologies and financial resourcesthey command.”

The last time anegotiating deadlinewasproposed was during the CopenhagenSummit in 2009, but it turned out in the endto be a massive let down, and one of thereasons for the failure was the inability toachieve the binding agreement it promised

Waitingfor the giants to join

by carlo clini

Incremental progress wasmade at the most recentclimate change conference. Anew regime with more rationalclassifications has beenestablished. But will the USand China, the two biggestpolluters, ratify the agreement?

carlo clini is an Associate Fellow of The Institutefor Environmental Security.

due to the outdated binary division be-tweendeveloped anddeveloping countries.The new treaty is supposed to be signed in2015 at a conference in Paris, and comeinto effect in 2020.

According toCommissionerHedegaard,the Doha Climate Conference was a suc-cess. Progress was slow and frustrating, shesaid, but the main goal was to prepare theground for the big 2015 talks. “Althoughfrustration is a renewable source, it does notreduce emissions.To overcome frustration,

one must remain intensely focused on thefinal goal that all parties have signed up aglobal climate deal by 2015. Doha took thefirst steps.”

The question now becomes whetherany agreement will be ratified by the vari-ous nations involved, above all China andthe US.

122 - longitude #23

Sources: Carbon Dioxide Information Analysis Center, Environmental Sciences Division,Oak ridge Laboratory, Tennessee, United States and World Bank and UN population data, WB 2012

1992 1996 2000 20062004 20081994 1998 20021990

2

4

6

8 k China United States Euro Area

0

1992 1996 2000 20062004 2010

Sources: Carbon Dioxide Information Analysis Center, Environmental Sciences Division,Oak ridge Laboratory, Tennessee, United States and World Bank and UN population data, WB 2012

20081994 1998 20021990

5

10

15

20

25

0

China United States Euro Area

Outlined the clear path to negotiatingeven stronger action in 2015 includingactions by all key countries

Finalized key guidelines on how allcountries will monitor and report theiremissions and track progress towardstheir emissions reduction commitments

Reaffirmed the need to continueinvesting in efforts to supportdeveloping countries in deployingclean energy, and supporting vulnerablecountries in strengthening theirresilience to climate change

Finalized the second round of targetsfor a number of developed countriesunder the Kyoto Protocol

01

02

03

04

DOHA 2012 CLIMATE CHANGECONFERENCE KEY POINTS

CO2 EMISSIONS, TOTAL (MTCO2) OF EU, US AND CHINA FROM 1990 TO 2009

CO2 EMISSIONS PER CAPITA OF EU, US AND CHINA FROM 1990 TO 2009

longitude #23 - 125

Chosen words

124 - longitude #23

Chosen words

by maurizio stefanini

SOS Europe

Written by a Europhile British politician thebook is an apologia for a “variable-sweep”Europe. Robert Owen was British ForeignSecretary from 1977 to 1979, the youngestperson in over 40 years to hold the post. In1981 he was one of the “Gang of Four” wholeft a Labour Party, which had became tooleftist, to found the Social Democratic Par-ty (SDP). Then in August 1992 he succeed-ed Lord Carrington as the EU co-chairmanof theConference for the FormerYugoslavia,alongwithCyrusVance, the formerUS Sec-retary of State as the UN co-chairman, andhe was the co-author of the Vance-OwenPeace Plan.Member of theHouse of Lords,hewas the first politician to call for a“no-flyzone” over Libya. Most of all, he is a strongsupporter of Britain’s membership in theEuropeanUnion, thoughhe opposesmanyof themore dramatic proposals for integra-tion. As chairman of New Europe, he wasthe co-leader of the “no to the euro” cam-paign with Business for Sterling, whichceasedwhen theUKGovernment declaredin 2005 that euro membership was off theagenda. This book outlines a blueprint forrestructuring the EU to allow for thosecountries that wish to be part of amore in-tegrated eurozone to be facilitated whilethose who may only want to belong to asingle market community are enabled todo so. In his analysis, a stronger union couldbe possible if the voters in each countrycan, over time, decide what level of in-volvement each individual country shouldhave.

The Munk Debates are a bian-nual series of debates held inToronto, Canada, onmajor and

particularly controversial issues. OnMay 25, 2012 theMunkDebates askedthewhether theEuropean experimentof continental federal institutions andshared values could meet the chal-lenges of the debt crisis that are asmuch political as economic, or if theEuropean experiment had failed.Theanti-EU team had two powerfulpolemists, ScottishhistorianNiall Fer-guson and bestselling author JosefJoffe, who facedEUparliament leaderof theGreensDaniel Cohn-Bendit andformer EU commissioner Lord PeterMandelson. The pre-debate resultswas that 44%of the public agreed thatEurope was a failure, 38% disagreedand 18%were undecided. But the de-bate had a strong pro-European im-pact on the undecided. After the de-bate 45% felt the European experi-mentwas a failure and 55% felt it wasit was not a failure.

This year the EU received the No-bel Peace Prize, but more and morepopulist leaders and bestselling au-thors seem hostile to the bureaucrat-ic heaviness they accuse of destroyingdemocracy.To say nothing of the sin-gle currency system, which seemspowerless in front of the crisis. Butthe electoral results demonstrate thatwhen European citizens see them-selves on the brink of a precipice,most of thembalk at taking the“deci-sive step.” Alas, European integrationis an ancient dream. Aside from theRoman Empire, George Washingtonhimself wrote to Marquis de LaFayette: “Oneday, on themodel of theUnited States of America, a UnitedStates of Europe will come into be-ing.” At St. Helena, Napoleon Bona-parte stated: “Europe thus dividedinto nationalities freely formed andfree internally, peace between stateswould have become easier: the Unit-ed States of Europe would become apossibility.” In the 19th century the

United States of Europe were the po-litical objective of GiuseppeMazzini,Victor Hugo, Carlo Cattaneo,Giuseppe Garibaldi, and John StuartMill. EvenWinstonChurchill in his fa-mous 1946 speech at theUniversity ofZürich concluded that“wemust builda kind of United States of Europe. Inthis way only will hundreds of mil-lions of toilers be able to regain thesimple joys and hopes which makelife worth living.”

After the two world wars, the olddreams turned into a reality whichensured most of the continent 67years of peace, made it safe fordemocracy and with the creation ofthe single market enabled manydecades of economic prosperity. Nordo most Euroskeptics deny these re-sults. President of the Czech Repub-lic Václav Klaus and former memberof the Executive Board of theDeutscheBundesbankThilo Sarrazin,both authors of recent Euroskepticbestsellers, argue that the introduc-tion of the euro was a mistake, andthat it would be better to go back tothe pre-euro situation, with the co-operation of European states in a freetrade area. On the other hand, themore vibrant defenders of the Euro-pean dream are having doubts.

EuropeRestructured?by David OwenPoliticos Publishing2012

“Attack is the best means of defense!” Eu-rope is being blamed for amultifaceted cri-sis which is economic, demographic, eco-logical, political and institutional at thesame time. “It is the EU that got us into theeuro crisis. It is the EU that triggered the re-cession through austerity. It is the EU that isresponsible for the excesses of globaliza-tion. And it also theEU that has finally alien-ated the people from politics.” For DanielCohn-Bendit and Guy Verhofstadt “all ofthis is absurd!” Born in France in 1933,Cohn-Bendit was a student leader duringthe unrest of May 1968 in France. Later hebecame a leader of both German andFrench Greens and today is the leader ofthe Green Group in the European Parlia-ment. PrimeMinister of Belgium from1999to 2008, Verhofstadt is the leader of theGroup of the Alliance of Liberals and De-mocrats for Europe (ALDE) and founder ofthe inter-parliamentarian federalist Spinel-li Group. Jean Quatremer is a French jour-nalist, expert in European affairs for theFrench daily Libération. In order to “awak-en” everyEuropean citizen, this bookwas is-sued simultaneously in French, English,German, Italian, Spanish and Dutch. Themessage is that it is not the EU, but its“member states who bear full responsibili-ty for today’s debacle.”

Debout l’Europe!Manifeste pourune révolutionpostnationale enEurope, suivi d’unentretien avec JeanQuatremerby Daniel Cohn-Bendit, GuyVerhofstadt andJean QuatremerAndré Versaille2012

The creation of the single currency“spawned a flurry of conspiracy theories,seeing the euro as a plot by central bankers,technocrats at the European Commission”or “Germans seeking to preserve unfair ad-vantages for their powerful export-driveneconomy and thus to achieve some sinisternew mastery over Europe.” Indeed, “themajor theme of this book is that the questfor European monetary coordination andthen for union was a response to genuine(and still-existing) problems of currencyinstability and misalignment at the inter-national level.” Harold James asked cur-rent ECBPresidentMarioDraghi and JaimeCaruana,whowas theGovernor of theBankof Spain and is now General Manager ofthe Bank for International Settlements, towrite the foreword. He wants to explorewhether Europe’s financial crisis can beblamed on the euro. Since the 1960s, Euro-peans had been looking for a way to ad-dress two conundrums simultaneously: thedollar’s privileged position in the interna-tional monetary system, and Germany’spersistent current account surpluses in Eu-rope.The eurowas therefore created undera politically independent central bank tomeet the primary goal of price stability. Butwhile the monetary side of the union wasclearly conceived, other prerequisites ofstability as well as fiscal rules and Europe-wide banking supervision and regulationwere beyond the reach of technocratic cen-tral bankers. This was the cause of crisisdecades later. Moreover, there was a con-stant friction between politicians and tech-nocrats that shaped the euro.

Makingthe EuropeanMonetary Unionby Harold James,Mario Draghi andJaime CaruanaBelknap Press ofHarvard UniversityPress2012

The road to democracy You say you wanta revolution

The making of amoney

Europe à la carte

This book was written in both French andItalian, and published simultaneously inboth languages. “The situation is grave butnot serious, as demonstrated by the largenumber of the last resort summits,” is a fa-vorite joke of Mario Monti’s. The authorsbelieve Europeans share a common histo-ry and destiny, and that the Europeans willbe successful in consolidating the euro andthe EuropeanUnion. “In order to shape thisdestiny, we need to open theway to a dem-ocratic debate. Somewill say that today thepriority is not the reinforcing of democracyin Europe, but an exit from the crisis.Webe-lieve, on the contrary that democracy rep-resents not only a value in itself, but also thecondition for an enduring political work.For others, in order to fill thedemocratic gapit will be enough to strengthen the nation-al parliaments: but withdrawing into na-tional logic, in so far as it feeds the diver-gences, is for us a danger.” In sum, Europewill be democratic, or it will be not. MarioMonti’s ideas have also recently comeout inabookof interviews and speeches,Le parolee i fatti, published by Rizzoli.

La democraziain Europa.Guardare lontanoby Sylvie Goulardand Mario MontiRizzoli2012

De la démocratieen Europe.Voir plus loinby Sylvie Goulardand Mario MontiFlammarion2012

longitude #23 - 127

Numbers

126 - longitude #23

Numbers

by federico bini

Move overGutenberg

As for e-book reading preferences, thereare differences between men andwomen.

One of the limitations of the sector is thefragmentation of formats (linked to dif-ferent devices).

One country is lagging behind in under-standing the phenomenon and exploit-ing its enormous potential: Italy

Behind the delays, there are elementstypical of Italy’s inability to grow: absurdtax regulation and large concentrationsof publishing groups.

In addition to the economic aspects, thereis a profound cultural change under way.The transmission of ideas has found a newvehicle. And tens of thousands of indie au-thors can now publish and distribute theirwork directly to the network.

Another curious phenomenon that hasemerged in the US is the polarization ofthe purchases. The e-book seems to actmainly on the area of “power buyers,” i.e.purchasers of four ormore book amonth.

The traditional publishing world went intooverdrive in fear of a progressive disap-pearance of the printed book in favor of e-books. In reality, e-books are profoundlychanging reading habits, not always to thedetriment of the printed books.

Meanwhile, in August a dramatic pass al-ready occurred in Britain.

The phenomenon has now reached globalproportions.

Year in which the market value of e-bookswill exceed that of traditional books(estimate):

PricewaterhouseCoopers 2016

E-books sold on Amazon.co.ukfor every 100 hardcopy books:

Amazon 114

The e-book can be read on various instru-ments. For themost part, these are specifi-cally e-readers (Kindle, Kobo), but there isalso an increasing the use of generic de-vices, such as tablets (iPad, Galaxy) orsmartphones.

Percentage of e-book readers who readon tablets and smartphones:

25%One year ago:

CNN 13%

Other formats:

Planet eBook 5%

Among smartphone users:

Nielsen 50/50

Digital titles availablein May 2012:

31,615

Germans:

Bowker 10%Market share of the e-bookin the US:

10%In value:

$1.97 billion

Value of the book market (traditional+ e-book) in the US:

$19.7 billion

Australians who bought at leastone e-book last year: 19%Americans:

16%English:

17%

Percentage of e-book readerswho read every day:

Book Industry Study Group 51%

Percentage of e-book readersconsidered “power buyers”: 35%Percentage of the readers of traditionalbooks that are “power buyers”:

22%Percentage of e-books that are purchasedby “power buyers”:

60%

Percentage of Americans who saythey read more since they startedreading e-books: 30% Ratio of women to men among users

of e-readers:

61/39Among tablet users:

43/57

Percentage of readers who preferePub format:

50%

Mobi format(for Amazon’s Kindle): 36%

PDF:9%

In value:

€12.6 millionPercentage of Italianswho buy e-books:

1.1%Read e-books:

2.3%

Market share of the e-booksin Italy at the end of 2011:

0.9%E-books on Smashwords, the leadingonline site for independent authors:

170,000E-books distributed on the mainsales channels online:

Smashwords.com 125,000

Percentage who say they buy more booksthan ever, both digital and traditional:

Book Industry Study Group 50%

VAT on e-books:

21%

Freedom of expression, overcoming edi-torial limitations, economic opportunity,and the global market: these are the pil-lars upon which the success of the e-bookrests. But to really understand the scopeof the revolution, imagine uploading thefile of your unpublished book now in yourcomputer.

The phenomenon, still in its infancy, pres-ents some odd statistics.

Percentage of malee-book readers: 65%Percentage of maletraditional book readers:

48.3%Percentage of Italian publishing housesbased in Lombardy:

21.0%Percentage of e-book publishing housesbased in Lombardy:

36.1%

Approximate amount of time it takesfor your e-book to go on sale worldwide(in hours!):

6

VAT on paper books:

4%Percentage of e-books publishedin the top fivepublishing houses: 47.3%

federico binihaswritten three books on numbers,including Presi per il caso (Taking the Rear View).

The printed word may haveseen better days, but the worditself is thriving in a newdimension – the electronicdimension. More andmorepeople are catering to theirreading needs with e-readers.

It’s a cultural and economic revolution,a business with extraordinary possibil-ities, and a new business model. The

e-book, or the digital edition of a hard-copy book, is a phenomenon that has ex-ploded in recent years and is destined toforever change the publishing industry inthe near future. The United States is theleader of the change.

Innovation starts with people.Our Group invests 11% of its revenues in Research and Development and we strongly believe in a culture of innovation.

We are dedicated to the training and enhancement of our employees, as we believe that their work is our most important asset. For eight years the

moving in the right direction: 19,000 people took part across 11 countriesworldwide; 6,480 new projects and thousands of patent applicationsregistered.

We know that we will always be rewarded by investing in innovative ideas.