Francis Fukuyama writes:  As 2016 begins, an historic contest is underway over competing development models – that is, strategies to promote economic growth – between China, on the one hand, and the US and other Western countries on the other.

Most Westerners are aware that growth has slowed substantially in China, from over 10% per year in recent decades to below 7% today (and possibly lower). The country’s leaders are seeking to accelerate the shift from an export-oriented, environmentally damaging growth model based on heavy manufacturing to one based on domestic consumption and services.

President Xi Jinping’s One Belt component consists of rail links from western China through Central Asia and thence to Europe, the Middle East, and South Asia. The strangely named One Road component consists of ports and facilities to increase seaborne traffic from East Asia and connect these countries to the One Belt, giving them a way to move their goods overland, rather than across two oceans, as they currently do.

The China-led Asian Infrastructure Investment Bank (AIIB), which the US earlier this year refused to join, is designed, in part, to finance One Belt, One Road. But the project’s investment requirements will dwarf the resources of the proposed new institution.

Indeed, One Belt, One Road represents a striking departure in Chinese policy. For the first time, China is seeking to export its development model to other countries. One belt’s purpose is to develop industrial capacity and consumer demand in countries outside of China. Rather than extracting raw materials, China is seeking to shift its heavy industry to less developed countries, making them richer and encouraging demand for Chinese products.

China’s development model is different from the one currently fashionable in the West. It is based on massive state-led investments in infrastructure – roads, ports, electricity, railways, and airports – that facilitate industrial development. American economists abjure this build-it-and-they-will-come path, owing to concerns about corruption and self-dealing when the state is so heavily involved. In recent years, by contrast, US and European development strategy has focused on large investments in public health, women’s empowerment, support for global civil society, and anti-corruption measures.

China’s infrastructure-based strategy has worked remarkably well in China itself, and was an important component of the strategies pursued by other East Asian countries, from Japan to South Korea to Singapore.

The big question for the future of global politics is straightforward: Whose model will prevail? If One Belt, One Road meets Chinese planners’ expectations, the whole of Eurasia, from Indonesia to Poland will be transformed in the coming generation.

There are important reasons to question whether One Belt, One Road will succeed. Infrastructure-led growth has worked well in China up to now because the Chinese government could control the political environment. This will not be the case abroad, where instability, conflict, and corruption will interfere with Chinese plans.

Indeed, China has already found itself confronting angry stakeholders, nationalistic legislators, and fickle friends in places like Ecuador and Venezuela, where it already has massive investments. The strategy of massive infrastructure development may have reached a limit inside China, and it may not work in foreign countries, but it is still critical to global growth.

The US used to build massive dams and road networks back in the 1950s and 1960s, until such projects fell out of fashion. Today, the US has relatively little to offer developing countries in this regard. President Barack Obama’s Power Africa initiative is a good one, but it has been slow to get off the ground; efforts to build the Fort Liberté port in Haiti have been a fiasco.

The US should have become a founding member of the AIIB; it could yet join and move China toward greater compliance with international environmental, safety, and labor standards.

Liqun Jin writes:  The recent historic launch of the Asian Infrastructure Investment Bank has been highly anticipated – and rightly so. With the start of operations, the AIIB joined the family of multilateral financial institutions in supporting broad-based economic and social development in Asia. Sound and sustainable infrastructure investment will lead to better development outcomes, improve the lives and livelihoods of Asia’s citizens, and generate positive spillover effects in other parts of the world.

The role and importance of Asia in the international arena have increased, yet the region faces severe infrastructure gaps and thorny bottlenecks. Asia’s infrastructure investment needs have grown exponentially, and the AIIB’s resources, quite simply, will increase the pool of multilateral resources available to help meet them.

The AIIB’s founding members have a clear management vision: We will set a clear and high bar for organizational performance and governance, by upholding openness, transparency, accountability, and independence as its core institutional principles.

In drafting the AIIB’s Articles of Agreement and policy framework, we have worked with a diverse group of international experts to draw lessons from the existing multilateral institutions and from successful private-sector companies. We have held extensive rounds of technical discussions with our shareholders to ensure that the Bank reflects its owners’ goals and aspirations in both its lending activities and internal operations.

AIIB’s unique ownership and shareholding structures reflect the institution’s regional character and provide members with a greater voice in policy direction and decision-making.

AIIB’s specialized geographic and sectoral mandate will enable it to offer niche skills, focused expertise, and concentrated market knowledge, and its organizational structure, staffing flexibility, and efficient decision-making processes will position it to respond with agility to client demand and emerging needs.

AIIB will leverage and mobilize public and private financing, including from institutional investors, and help clients to enhance project “bankability” by promoting transparency, efficiency, and adherence to accepted standards – including environmental and social standards – thereby reducing risk.

AIIB’s reputation and credibility will depend on the caliber of its staff. Our operations will be lean, clean, and green. That means keeping a check on bureaucracy and maintaining a relatively flat organizational structure; managing costs and using modern technology effectively; and avoiding duplication and overlap of functions. The AIIB will build its professional staff gradually, supplementing in-house expertise with specialized consultant skills. Staff positions will be carefully defined to avoid both underemployment and future redundancies.

The AIIB subscribes to the principles of sustainable development in the identification, preparation, and implementation of projects. The management of environmental and social risks and impacts is central to successful development outcomes. We will support our clients in managing these risks appropriately through knowledge, experience, and resources.

Developing energy alternatives an entrepreneurial opportunity, but financing remains elusive.

The need for more innovation in energy was one of the strongest points of agreement at the Paris talks. Some have suggested that the most important news to come out of the conference was not the final accord, signed with great fanfare by the governments of 195 countries, but the commitments made by governments and wealthy individuals to research and develop technologies that can help the climate.  Energy innovation is a concept that has become almost universally popular — among all from the most traditional of oil companies to the most radical of environmental groups.  For all the rising enthusiasm, though, investing in innovation remains a hazardous and uncertain business in energy, as in other industries.  

industry executives predict that in ten years’ time photovoltaic (PV) solar could be competitive without subsidy even in cold and grey northern Europe, through continued improvements in the existing technologies.

The Nigerian economy has in recent times been battered on all sides. Its major source of income, crude, has lost almost 100 per cent of its value in a little over a year and is not seen to improve soon. The country’s economy has been downgraded by many rating agencies and some have gone as far as removing it from their watch list entirely.

The naira, the official currency of Nigeria, has not been spared the bashing. It has become one of the worst performing currencies on the African continent while the nation’s external reserves meant to be a buffer in stormy times has neared the red alert stage.

These are some of the major challenges the President Muhammadu Buhari-led government has been confronted with since it took the reins of power on May 29, 2015.

Efforts so far put in place by the government have not proved useful in pulling back the economy from the brinks as well as saving the naira from a free fall.

Although the discussions the IMF boss had with President Buhari, the Senate leadership and other stakeholders during the visit appeared harmless on the surface as reported in the media, there was palpable apprehension among stakeholders, many of which are still trying to unravel the real intent of the visit.  Impact of Lagarde Visit on Nigeria

Weaker-than-expected market conditions may keep the Federal Reserve from raising rates as much as predicted in 2016 as company earnings and the global economy will remain strained.

Tumbling commodity prices and economic sluggishness may continue to limit profit growth.  Flat to modest gains for U.S. equities ahead as slow U.S. expansion won’t be enough to shake the headwinds from global economic turmoil and the fall in energy prices.

Crude oil’s plunge has fueled a flight from risky assets around the world amid mounting concern that China’s policy interventions won’t revitalize growth. At the same time, the Fed is tightening monetary policy. Two weeks into 2016, the Standard & Poor’s 500 Index has dropped 8 percent, falling for a third straight week to the lowest close since August. The index is off to its worst annual start on record.  Will the Fed keep to its suggestion that interest rates will slowly rise?

In December, Fed Chair Janet Yellen and her colleagues on the Federal Open Market Committee elected to raise the benchmark federal funds rate from near zero, where it had been held since December 2008. The median committee member projected the central bank would raise interest rates four times in 2016, according to materials released following the meeting.

Divergence

Jeffrey Gundlach, founder and chief executive officer of DoubleLine Capital, told Barron’s the Fed may be forced to ease again after lifting rates one more time, given the uncertainty in the economy. Investors shouldn’t ignore the divergence between junk bonds and the S&P 500 Index, which is pointing to a bear market, he said.

The U.S. economy will probably grow by 2 percent this year, Gabelli said, powered chiefly by a stronger consumer. Stock and energy prices will look stronger heading into 2017.

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