Electrification in Africa is a global development failure

I had blogged here arguing that the availability of adequate and good-quality power is the biggest constraint to Africa’s sustained economic growth. 

The graphic below is a powerful illustration of one of the biggest failures of global development efforts.

The number of people in Africa without access to electricity remains at 600 million, unchanged from 15 years ago. Among those without electricity globally, the share of Africans has risen from a third in 2010 to 80% in 2024. 

Africa’s electrification problem seems to be excessively concentrated in its hinterland areas, in the region sandwiched between the North and the South. 

In this context, it’s also useful to see the contrasting fortunes of South Asia and Sub-Saharan Africa in electrification. 

Africa has had a very low baseline of electrification. For example, SSA reached South Asia’s 1995 level of electrification only by 2020, despite its percapita GDP in 2020 being 2.34 times more than that of South Asia in 1995. East Asia and Latin America had a much higher baseline of electrification than even South Asia. This questions an oft-repeated argument that Africa will be able to afford high electrification rates only if its incomes rise enough to sustain a viable market. 

I’m inclined that a very big reason for the gap is the governance of the electricity supply. Through a series of reforms, South Asia, especially India, managed to restructure the sector, regulate it more effectively, improve operational efficiencies of state utilities, and gradually bring in consumer payment discipline. The industrial, commercial, and other higher consumption subscribers were able to ensure that the discoms could become viable entities even after subsidising the vast majority of residential consumers. All this, in turn, derisked the sector and opened the door for private investments in generation. 

The take-off point for electrification in India was the Electricity Act 2003, one of the least appreciated among India’s economic reforms. Today, almost all incremental generation capacity addition from all sources comes from the private sector, and it owns more than half the total installed capacity, from virtually zero at the turn of the millennium. Domestic promoters and capital, intermediated mostly by regular banks, have been the major financiers. 

Africa too must go through these reforms if it’s to derisk its electricity sector and make it viable enough for private investments into generation. In most African countries today, it appears futile to rely on private financing in any meaningful manner to meet power generation requirements. I had blogged here, highlighting the challenges with attracting private investments into power generation in Africa. Till then, public financing may have to do the heavy lifting on electrification in Africa. 

In the spectrum between public and private goods, electricity is an interesting outlier. While it’s a private good insofar as people pay for access, power itself has several positive externalities in human resource development and economic growth. In fact, reliable three-phase electricity is one of the most essential preconditions for economic growth. Public production and provisioning of electricity may, therefore, be an unavoidable necessity in Africa for the foreseeable future. 

In this context, South Africa’s recent success with reforming its electricity sector and reviving Eskom after numerous scandals and rolling power cuts for several years offers an encouraging sign. 

In the latest global endeavour to electrify Africa, the World Bank and the African Development Bank have launched a $90 billion scheme to bring electricity to 300 million people in Sub-Saharan Africa by 2030. About 30 countries have already signed ‘energy compacts’ under the Mission 300 initiative. 

A cursory reading of the Mission 300 plan reveals a mix of objectives thrown in under the broad umbrella of electrification - promotion of renewable energy, decentralised and distributed generation, supply through mini and micro-grids, private participation, complex financial instruments, partnerships between DFIs and philanthropic foundations, microentrepreneurs, etc. In simple terms, the objective of electrification is being pursued through private participation, foreign funding, and renewable energy generation. There are several problems with this approach.

For a start, it’s the classic “everything bagel” development, where multiple laudable objectives are being sought to be achieved in the guise of electrifying Africa. Each of these objectives is challenging by itself, and bundling them only makes the objective of electrification in Africa manifold and daunting. 

The involvement of several partners in the coalition, while laudable, also risks diffusing accountability and responsibilities. Given the scale of the problem, the role of philanthropies and impact investors is marginal. Even meaningful private investments will be difficult to realise in most countries, especially in the early stages. Given the requirements, small renewable energy units and mini grids are marginal compared to thermal generation and grid supply. As the long history of infrastructure financing in low-income countries shows, complex financial instruments will struggle to make any headway. 

Importantly, the opportunity cost of coal (and rivers) rich Africa foregoing thermal (and hydel) power and relying on intermittent solar or wind power is considerable. Besides, given the commercial risks involved, the total cost of renewable power generation by the private sector (including the cost of capital and storage) is likely to far exceed pithead thermal and hydel generation that’s possible in many African countries. In the first stage, it may be useful to prioritise projects with a demand mix that primarily serves industrial and other bulk consumers. The Mission 300 should prioritise all such projects.

The quantum of funds required means that the major share of financing must come from national governments and traditional bilateral and multilateral DFIs through grants and concessional loans. Unless this fundamental constraint is relaxed, the rest are only distractions in the serious endeavour of significantly increasing electrification in Africa.

Weekend reading links

1. India might need to look for a Tom Barrack equivalent to open informal doors with Donald Trump. Barrack, a private equity magnate and long-time confidant of Trump, has swung the rapprochement between Erdogan and Trump. People like Barrack, Steve Witkoff, Joshua Kushner etc., seem to have an outsized influence in engaging with the Trump administration. 

2. In the meantime, Pakistan is throwing a series of goodies at Trump to entice deeper engagement with it. The latest is a proposal to construct a port at Pasni for $1.2 billion with Pakistani federal government and US-backed development finance, linked to a new railway to transport critical minerals from the country's interior. Pasni is just 100 miles from Iran and 70 miles from the Pakistani city of Gwadar, which has a China-backed port.

3. John Burn-Murdoch points to peak social media.

Time spent on social media peaked in 2022 and has since gone into steady decline, according to an analysis of the online habits of 250,000 adults in more than 50 countries carried out for the FT by the digital audience insights company GWI. And this is not just the unwinding of a bump in screen time during pandemic lockdowns — usage has traced a smooth curve up and down over the past decade-plus. Across the developed world, adults aged 16 and older spent an average of two hours and 20 minutes per day on social platforms at the end of 2024, down by almost 10 per cent since 2022. Notably, the decline is most pronounced among the erstwhile heaviest users — teens and 20-somethings... The shares of people who report using social platforms to stay in touch with their friends, express themselves or meet new people have fallen by more than a quarter since 2014. Meanwhile, reflexively opening the apps to fill up spare time has risen, reflecting a broader pernicious shift from mindful to mindless browsing.

The trend appears not to be the case with North America where it's still rising.

4. Hyper-charged technology diffusion!

Fixed-line telephony, the very cornerstone of 20th-century communication, took a staggering 25 years to reach 1 million users in the United States. Pagers took a decade, and the mobile phone slightly less. The internet, a seismic shift in itself, took about five years, and Facebook less than a year. But the most breathtaking leap came with ChatGPT — the world’s current favourite generative AI tool. It took a mere five days to cross the one million user threshold globally.

5. Palantir could be the makings of the 'mother of all bubbles'! (HT: Adam Tooze)

Once more for the record … Palantir is not some world-bestriding titan of reactionary capitalism that merits inclusion alongside the true giants of big tech. Palantir is a medium-sized business, enormously pleased with itself if it generates as much as $1 billion in revenue per quarter, 55 percent of which comes from modestly sized government contracts.

6. Fascinating profile of Bari Weiss, the former NYT journalist who quit in protest at lack of freedom to express there and founder The Free Press as an independent media outlet. Paramount has announced her appointment as the new editor in chief of the CBS News and acquisition of her startup The Free Press for $150 million.

6. Ruchir Sharma describes the US economy, and especially the equity markets, as one giant bet on AI.

The hundreds of billions of dollars companies are investing in AI now account for an astonishing 40 per cent share of US GDP growth this year... AI companies have accounted for 80 per cent of the gains in US stocks so far in 2025. That is helping to fund and drive US growth, as the AI-driven stock market draws in money from all over the world, and feeds a boom in consumer spending by the rich. Since the wealthiest 10 per cent of the population own 85 per cent of US stocks, they enjoy the largest wealth effect when they go up. Little wonder then that the latest data shows America’s consumer economy rests largely on spending by the wealthy. The top 10 per cent of earners account for half of consumer spending, the highest share on record since the data begins. 

No nation has seen an immigration boom-bust cycle near the scale of the one roiling America. Net immigration nearly quadrupled after 2020 to peak at well over 3mn in 2023, but the backlash led by President Donald Trump sent that figure into freefall. This year only around 400,000 net new arrivals are expected, and that could be the trend in the coming years. This labour force squeeze alone will reduce America’s growth potential by more than a fifth, Goldman Sachs analysis suggests.

This is an interesting snippet about the US equity markets. 

Foreigners poured a record $290bn into US stocks in the second quarter and now own about 30 per cent of the market — the highest share in post-second world war history. Europeans and Canadians have been boycotting American goods but continue buying US stocks in bulk — especially the tech giants. In a way, then, America has become one big bet on AI. Outside of the AI plays, even European stock markets have been outperforming the US this decade, and now that gap is starting to spread. So far in 2025, every major sector from utilities and industrials to healthcare and banks has fared better in the rest of the world than in the US.

7. China seeks to expand its influence in South Asia.

FT research shows Chinese officials have held at least seven high-profile meetings with Bangladeshi politicians in the 14 months since the interim government of Muhammad Yunus, a former social finance entrepreneur, took office. This compares with eight meetings in the last five-year term of Bangladesh’s long-standing autocrat, Sheikh Hasina. Beijing officials, meanwhile, have held 22 high-profile meetings this year with counterparts from Pakistan — on track to match last year’s 30. Among the smaller countries surrounding India, Beijing has conducted at least six high-profile meetings with Nepali officials this year and at least five in Sri Lanka.

8. French sovereign bond yields shoot up following the collapse of another government. 

The yield on the benchmark 10-year French OAT is now trading above its Italian counterpart (BTP) — a once unthinkable inversion. This financial penalty places the Eurozone’s second-largest economy behind a market sometimes characterised in the past as one of the bloc’s “peripheral” economies. This is more than a metric of fiscal imbalance; it is a loss of confidence in the French political system’s ability to govern decisively. Meanwhile, the sovereign spread between the 10-year French OAT and the benchmark German Bund has widened dramatically, pushing it to more 0.85 percentage points... The widening spread between French and German bonds threatens the ECB’s ability to ensure its single monetary policy is transmitted well across the bloc. When dispersion in yields increases, it risks the type of market fragmentation and stress that could become a systemic threat... The bond markets are losing patience with political paralysis.

9. OpenAI has signed up for 20GW for computing capacity.

OpenAI has signed about $1tn in deals this year for computing power to run its artificial intelligence models, commitments that dwarf its revenue and raise questions about how it can fund them. Monday’s deal with chipmaker AMD follows similar agreements with Nvidia, Oracle and CoreWeave, as OpenAI races to find the computing power it thinks it will need to run services such as ChatGPT. The deals would give OpenAI access to more than 20 gigawatts of computing capacity, roughly equivalent to the power from 20 nuclear reactors, over the next decade. Each 1GW of AI computing capacity costs about $50bn to deploy in today’s prices, according to estimates by OpenAI executives, making the total cost about $1tn... OpenAI is burning through cash on infrastructure, chips and talent, with nowhere near the capital required to fund these grand plans. The deals also involve circular arrangements between the world’s most valuable start-up and its partners, as well as complex financing terms that have in most cases yet to be agreed...

OpenAI’s deals with Nvidia and AMD could cost up to $500bn and $300bn respectively, according to Financial Times calculations, although both include incentives that could also help OpenAI pay for the chips it buys. Oracle’s deal will cost OpenAI another $300bn, while data centre group CoreWeave has disclosed computing deals with OpenAI worth more than $22bn. OpenAI also launched an initiative with SoftBank, Oracle and others in January known as Stargate that pledged to invest up to $500bn in US infrastructure for OpenAI. It is not clear how the Nvidia and AMD deal will fit into the Stargate plans. The ChatGPT maker has not disclosed whether it will buy chips directly or through its cloud computing partners, and is expected to lease some Nvidia chips.

This is an intriguing financing arrangement

AMD will give OpenAI warrants entitling it to buy up to 10 per cent of the company for just a cent a share, depending on their project hitting certain targets, including some linked to AMD’s share price. AMD shares were worth nearly $204 when markets closed on Monday. If they keep rising, OpenAI could sell its stock to fund its spending on AMD’s chips.

10. Leo Lewis points to Japan's demographic problem of labour shortages, which he describes as 'enshortification'!

Take carpenters — essential in a country where a great deal of construction uses wood. Their numbers have more than halved since 2020, while more than 43 per cent of those still working are over 65. Many projects, large and small, are being delayed. A shortage of bus drivers has caused operators in Tokyo to cut over 200 services. The military cannot get close to its recruitment targets. The Foreign Ministry revealed earlier this year that it cannot hire enough Japanese chefs for its embassies. In some parts of the countryside, home deliveries of certain goods are undertaken by scooter riders in their mid-80s. There are genuine concerns across industry that companies are going to run into trouble because Japan no longer has enough tax accountants.  

11. Ahead of the meeting between US and Chinese Presidents in Seoul later this month, China announces sweeping export controls on rare earths and related technologies, where China controls 70% of mining, 90% of separation and processing, and 93% of magnet manufacturing. 

Under the new rules, foreign companies will need Beijing’s approval to export magnets that contain even trace amounts of Chinese-sourced rare earth materials, or that were produced using the country’s extraction methods, refining or magnet-making technology. The restrictions announced on Thursday by China’s commerce ministry will for the first time create a Chinese version of the US foreign direct product rule, a measure Washington has used to block semiconductor-related exports to China from third countries. The rules give Beijing more leverage to exert control over the global rare-earth supply chain. Rare earth minerals and magnets are critical to technologies from smartphones to electric vehicles and fighter jets.

It has drawn a predictably strong reaction from President Trump, who has now threatened to cancel the meeting and raise massive tariffs on China. He has announced the imposition of 100% tariffs on all products from China and export controls on critical software. 

It's hard not to come away with the feeling that China has made a significant miscalculation with this decision. After having won Round One, it now risks squandering those early gains. 

12. Declining birth rates (18 million births in 2016 to 9 million in 2023) and a preference for inshoring (Nestle has won approval for a factory in Suzhou in eastern China to make and sell a similar product) have led to the shutdown of a Nestle factory producing formula for Chinese newborn babies and employing 540 workers in Askeaton, a small town in the Irish county of Limerick with a population of 1100. 

13. William Buiter on the rise and rise of gold.

Of the total 216,265 tonnes of above-ground stock of gold at the end of 2024, jewellery accounted for 97,149 tonnes (45 per cent). I believe that much of this “consumer demand” — indeed most of it — is in fact investment demand. Only gold coins and bars (including exchange traded funds) are counted as investment demand. At the end of 2024, this accounted for 22 per cent of the total stock. Central bank holdings were 17 per cent. Gold’s use in technology accounts for part of the 15 per cent of the global stock, classified as “other”... The flow supply of new gold in 2024 was 4,975 tonnes... Gold, extracted underground at material cost, was turned into gold bars and then put back underground at additional cost. Globally, gold reserves (ore deposits that can be economically extracted) are estimated at 54,770 tonnes and gold resources (ore deposits where the profitable extraction is more doubtful) at 132,110 tonnes. The only gold production strategy that makes socio-economic sense is to leave it all in the ground... At the end of 2024, gold holdings accounted for 20 per cent of central bank reserves, more than euro reserves (around 16 per cent). Gold’s price surge since would have pushed its relative share higher.

14. John Burn-Murdoch questions the narrative of the great graduate unemployment crunch, where new graduate entrants to the labour market are being squeezed by the rise of AI among other trends. 

The dissonance between politics and public opinion

John Burn-Murdoch has an excellent op-ed that compares the views of politicians and voters in Western countries on economic and sociocultural issues. He cites the work of political economist Laurenz Guenther, who draws attention to a remarkable convergence on the former and divergence on the latter. 

Guenther’s analysis shows that voters and mainstream politicians have long been broadly aligned on economic issues like tax and spend or public ownership. But on sociocultural issues such as immigration and criminal justice there is a yawning gulf. Western publics have long desired greater emphasis on order, control and cultural integration. Their politicians have tilted in the opposite direction, favouring more inclusive and permissive approaches. The result is the opening up of a wide “representation gap” — a space on the political map with large numbers of voters but few mainstream politicians or parties — into which the populist right is now rapidly expanding as cultural issues rise in salience.

Aside from Denmark, he finds a sharp divergence between the views of politicians and voters on sociocultural issues. 

Burn-Murdoch also writes that 

My analysis of decades of data on public perceptions and immigration levels shows that concern consistently tracks irregular migration and failed integration, not people coming to work and study. But Guenther’s research corroborates the consistent finding that the public does not want large flows of arrivals without visas, or a growing share of the population unable to speak the language (both of which have happened). A similar pattern is clear with crime, where rates of arrest and prosecution have fallen in several countries and lower-level disorder is on the rise. Sustained failure to curb these trends under governments of both the centre left and centre right has signalled to the public that the political class either doesn’t see this as a problem or is incapable of addressing it.

In another article, Burn-Murdoch has shown how “populist parties on the right combine rightwing positions on social issues with left-wing positions on economics”. 

In a third article, he points to declining fertility levels among progressives as a possible explanation for the world becoming more socio-culturally conservative.

I find that the assumption that birth rates are falling across society in general is not really true. From the US to Europe and beyond, people who identify as conservative are having almost as many children as they were decades ago. The decline is overwhelmingly among those on the progressive left, in effect nudging each successive generation’s politics further to the right than they would otherwise have been… A growing left-right birth rate gap will slow that liberalising conveyor belt, and could result in societies and politicians that are less liberal and less concerned with the environment than would otherwise be the case.

The dissonance between the political parties and their voters on socio-cultural issues is surprising, given the importance politicians tend to attach to public opinion surveys. It begs the question as to why parties are unable to recalibrate their positions to reflect the views of their electorate. Also, what explains the dissonance being confined to socio-cultural issues and not to economic issues?

An important reason for the failure to incorporate public perceptions, as I have blogged here and here, is that the leadership of mainstream political parties have become captives of certain interests. This is especially true of the centre-left or social democratic parties, whose leadership largely consists of the beneficiaries of the capitalist economic system. Their social and cultural proclivities are towards the liberal positions on immigration, diversity, minority rights, etc. Sample this description of the Democratic Party leadership in the US.

Since 1980, among all Democratic candidates for president and vice-president of the US, Tim Walz, Kamala Harris’s running mate, was the first not to have a law degree. During the same period, none of the four Republican presidents had a legal background: the first, Ronald Reagan, was an actor and the other three were businessmen. In the US, lawyers are rivalled only by politicians as the most hated professional group. Is it any wonder, then, that the lawyers’ party was overwhelmed? That a platform entirely conceived by lawyers, centred on the defence of democratic procedures and respect for minority rights, whose main argument consisted in the lawsuits against the Republican candidate, was swept away by the recriminations of Trump supporters: inflation, illegal immigration, class contempt? 

It’s not unsurprising then that in the aggregate, left-wing parties tend to fare better with elites than with the masses on both sides of the Atlantic. 

Burn-Murdoch points to the idea that class has been replaced by education as the new defining cleavage in politics. 

In their book Polarized by Degrees, political scientists Matt Grossman and David Hopkins set out how the realignment of the political divide from class to education has formed strong new alliances that are likely to survive changes in political personnel. While arts and entertainment elites have long leaned leftward, academia has veered further to the left of the general population over recent decades. Conservatives have become a rare breed in journalism, and corporate bosses are increasingly aligned with the left.

While the occupational base of Republican Presidents and candidates may have been more diverse, their economic class base is narrower and has several common features with their Democratic Party counterparts. The traditional left-wing mass electoral base of factory and service industry workers, and the right-wing mass base of primary sector and hinterland residents, are characterised by their lower levels of education, especially compared to the political leadership of both Parties in the US. This explains the comparable levels of dissonance between them and their respective electoral bases on socio-cultural issues. The class dominance has come in the way of their remaining connected with the social views of their electorate.

However, as Rana Faroohar writes, there’s an important, unmistakable emerging political reality arising from the deepening of the class-based dissonance. It’s called populism, of either variants. 

Whatever the outcome, it’s clear that future elections are going to be won or lost on who can convince working people that they will fight for them. For example, the issue of healthcare affordability — surveys show premiums will probably rise by 10 per cent or more next year — is driving the launch of “TrumpRx”, a federal website through which Americans will be able to purchase discounted drugs (ironically taking a page from Obamacare). The affordability crisis is also behind the rent freezes and municipally owned groceries suggested by (Zohran) Mamdani.

The alignment on economic issues is more intriguing, especially given the clearly widening inequality and rising relative deprivation in the US. Besides, there are clear faultlines along education levels between political leadership in both Parties and their respective electorates. 

I’m inclined to argue that while the dissonance between political leadership and electorate will be less likely (at least for now) on broad principles like support for the capitalist system with a social welfare net (as captured in the survey mentioned above), it’s likely to be more pronounced on issues like business concentration and anti-trust actions, or tax cuts and welfare squeezing, or deregulation and quality of job creation.

Infrastructure project delivery and state capability

An important misplaced belief that has become entrenched in infrastructure project delivery is that of substituting public system capabilities with outsourced project management consultants (PMCs) and independent engineers (IEs). 

In India, commentators misleadingly attribute the successes of NHAI or DMRC or the few other successful projects to private participation in general and particularly the adoption of private sector management practices and outsourcing of services to consultants. They overlook the critical importance of the role played by the engineers, planners, and bureaucrats in these organisations, the processes followed, and the autonomy enjoyed by these project entities. 

Echoing these important requirements, Alon Levy at Pedestrian Observations has a very good post on infrastructure project delivery practices, where he makes the distinction between the models of modern management theories-based delivery (followed in US and UK) and the traditional public sector-driven delivery (followed in continental Europe). 

The takeaway is that effective project delivery “requires an active public sector that can supervise consultants and contractors, learn within its own institutions, and assume risk”. Even when project delivery is largely done by private consultants, they are done “under public-sector supervision, with institutional knowledge retained in government agencies even in an environment of privatization”. 

If there’s a common theme to the various elements of Southern European (and largely also French and German) urban rail procurement norms, it’s that they require an expert civil service. Teams of engineers, planners, architects, procurement experts, and public-sector project managers are required to manage such a system, and they need to be empowered to make decisions. This empowerment contrasts with American public-sector norms, in which to a small extent in law and to a very large extent in political culture, civil servants are constantly told that they are dregs and cannot make any decisions. Instead, they are bound by red tape requirements that can only be waived if a political appointee wants to take the risk… 

The idea of listening to engineers and planners is denigrated as siloing, whereas generalist managers with little knowledge are elevated to near-godhood… In contrast, it is less important how many civil servants are hired to supervise contracts than that they have the authority to make judgment calls and that they do not have to answer to an overclass of generalist managers. Italy and France use very large bureaucracies of planners and engineers at Metropolitana Milanese and RATP respectively… Once the civil servants can make decisions and supervise contractors, they can look at bids and score them technically, or delve through itemized lists, or oversee changes and make quick yes-or-no decisions as the builders are forced to vary from the design… making this the most significant single intervention in reducing infrastructure construction costs.

Levy lists out some of the good practices followed by Southern European countries, which have a track record of delivering large projects on time and within budget. While he discusses in the context of metro rail systems, these principles apply to infrastructure projects in general. 

• Technical scoring: infrastructure contracts must be awarded primarily on the technical score of the proposal (50-80% of the weight of the contract) and not on the cost (maximum 50%, ideally about 30%)

• Itemized costs: contracts must have a bill of items, priced based on transparent lists produced by the state, with change orders using the same itemized list to reduce conflict

• Separation of design and construction into two contracts (design-bid-build), rather than bundling into design-build contracts

• Public-sector planning, with the decisions on the type of project and technology made before any designers are contracted

• Flexibility for the builders to vary from the design, so that in practice the design only covers 60-80% of the design, as 100% design is impossible underground until one starts digging

• Moderate-size contracts (tens of millions of dollars or euros to very low hundreds), to allow more contractors to compete

• Limited use of consultants, or, if consultants are used, regular public-sector supervision

The orthodoxy on infrastructure project management today is characterised by certain core principles drawn from management theories - efficiency maximisation (bundling of design and construction), life-cycle cost approach (bundling of construction and O&M), private sector efficiencies (PPPs and long-term concessions), outsourcing services to professional experts (PMCs, IEs), etc. Levy attributes this dominance of modern management theories to the soft power of “English-speaking multinational consultants with extensive experience in megaprojects” and the belief that they knew better than the continental European state. 

As I have blogged on numerous occasions (and written in detail here), contrary to conventional wisdom, it’s technically prudent to separate design and construction in most cases, though with some significant design flexibility during the construction phase; it is financially prudent to separate construction and O&M, so that the O&M contractor does not bear any construction risk; it is cheaper to construct with public finance and then do concessions; and leverage and PPPs must be used only where there are private sector efficiencies to be had and never merely as a means to address fiscal constraintsand avoid large upfront costs. 

A very important, and under-appreciated, aspect is that of effective contract management by the government entity. It’s not uncommon for the consultants employed for the project, including the IE or the third-party quality audit firm, to be captured by the project developer. Given the financial stakes involved, the political economy of infrastructure construction, and the tightly knit ecosystem involving the project developers, consultants, IEs, and other service suppliers, the incentives are strongly aligned to collude at the margins. Strict internal supervision and monitoring become essential to address this problem.

Fortunately, the use of IT applications makes it possible to significantly increase the quality of oversight and remote monitoring of large projects. However, this must go beyond mere videography, biometric attendance, location tracking, GIS mapping, data acquisition systems, and so on, and involve deep data analytics of the data so captured to identify outliers and trends of systematic manipulation. Getting this done and effectively using it to enforce contract and execution discipline is deeply dependent on internal capabilities. 

An important takeaway here is the capabilities of the internal project team and the autonomy given to them. Perhaps the most important requirement for the success of any large project delivery is ensuring that the project team is adequately staffed with engineers, planners, and leaders who are competent and have high integrity. Any relaxation on this, especially in important positions, is a recipe for certain failure. Nothing is more important than this requirement. Unfortunately, this is often the area where governments tend to compromise the most.

Weekend reading links

1. Beneficiaries of George Soros and his Open Foundation.

Among the beneficiaries is Hungary’s Viktor Orbán whose Oxford scholarship was paid by Soros in 1989. Talk about no good deed going unpunished. Another kind of beneficiary is Scott Bessent, the US Treasury secretary, who ran Soros’s hedge fund for many years. Soros was the anchor $2bn investor in Bessent’s own hedge fund, Key Square Group, in 2015.

2. Chinese companies produce many AI tech components.

3. Yogendra Yadav reviews Partha Chatterjee's new book, For a Just Republic: The People of India and the State. 

4. The US tariffs latest update.

5. India's IT industry facts of the day

The top five Indian IT firms had free cash flows of nearly $13bn in the 2023-24 financial year, according to HFS Research. And Infosys said on September 11 it had approved a $2bn share buyback offer — a week before the Trump order. Yet the R&D to sales ratio for India’s IT industry is abysmal: 0.88 per cent on average, according to a 2024 report by India’s Ministry of Corporate Affairs.

6. China moves to restrict Ericsson and Nokia equipment in their telecom networks. 

Chinese state-backed buyers of IT equipment — which include mobile network operators, utilities and other industries — have begun more closely analysing and policing foreign bids. That process has required contracts by Sweden’s Ericsson and Finland’s Nokia to be submitted for “black box” national security reviews by the Cyberspace Administration of China where the companies are not told how their gear is assessed. The reviews by the powerful tech watchdog can stretch three months or longer. Even in cases where the European groups ultimately secure approval, the lengthy and uncertain audits often leave them at a disadvantage to Chinese rivals that face no such scrutiny, the people said... Beijing’s growing sales restrictions have collapsed Ericsson’s and Nokia’s combined market share in China’s mobile telecoms networks to about 4 per cent last year from 12 per cent in 2020.

Amidst these moves, Europeans have been half-hearted in their efforts to restrict Huawei and ZTE. 

Huawei and ZTE have retained 30 to 35 per cent of the European mobile infrastructure market, down only 5 to 10 percentage points from 2020, data from Dell’Oro Group shows. Germany has 59 per cent of installed 5G gear sourced from Chinese groups, according to John Strand of Strand Consult, even though the country plans to phase out high risk Chinese vendors by 2029.

7. FT writes on the wealth of the super-rich

When Forbes magazine released its first global billionaires list in 1987, just 140 names appeared on it. The 2025 version featured more than 3,000 people, worth a collective $16tn. Even allowing for factors such as the rise of China and over three decades of inflation, it is a staggering increase in both numbers and values; the net worth of Elon Musk, judged the world’s richest person in April 2025, was estimated at $342bn — compared with $295bn for the entire class of 1987. Globally, the average wealth of the top 0.0001 per cent of the population grew on average 7.1 per cent a year between 1987 and 2024, compared to 3.2 per cent for the average adult, according to Gabriel Zucman, a professor of economics at the Paris School of Economics and at the University of California, Berkeley... The top 400 wealthiest Americans had a total effective tax rate of 23.8 per cent of income in the years from 2018 to 2020, including individual income taxes, estate and gift taxes, and corporate taxes. In comparison, the rate for the wider US population was 30 per cent, rising to 45 per cent for the highest-earning workers.

Historically, asset-based taxes were the main revenue source for governments. Taxes on income in the UK, for example, were a mid to late-20th century phenomenon closely tied to the emergence of a welfare state. Now, as demographics worsen (with fewer worker and more retired people), the case for wealth taxes is becoming more compelling. 

8. How housing prices in the UK have changed over the last 35 years. 

9. GCCs are cannibalising the business of India's IT services firms.

As GCCs grow, they are eating into the pie of IT services majors, both in terms of business and skilled talent... Out of the 200,000 tech roles in India in FY25, approximately 120,000 were in GCCs, with a 10–15% year-on-year growth, said Vikram Ahuja, co-founder of ANSR, a GCC solutions platform... The real evolution started with traditional companies coming in to set up true capability centres, like [department-store chain] JCPenney, [luxury-superstore chain] Saks Fifth Avenue, [lingerie retailer] Victoria’s Secret…They have no business to be experimenting with this concept. All airlines, hotel chains, car-rental companies are coming. So, it’s become industry agnostic. On the contrary, the more low-tech and the more traditional you are, the more the need [for a GCC]... Lloyds has hired over 2,500 engineers in Hyderabad within 14 months, with 95% focused on tech. At Barclays’ India operations, two–thirds of its tech workforce is now in-house—a stark jump from just about 33% a decade ago. Even Indian lenders are following suit. Just six months ago, RBL Bank achieved a 60:40 split between in-house and outsourced tech talent—a significant leap from the 35:65 ratio of a few years ago.

A major reason for the exit is the low and stagnant wages paid by IT services firms, even as the scope of work expands. 

9. Private equity is taking over India's IB and IGCSE school chains. And results are not good.

Private equity firms are betting big on Indian education, and their playbook mirrors a Western model—optimised for cost control, standardised for scale-up, and centralised for effective management... Both CBSE and state-board campuses face tighter fee caps and myriad state-level approvals. International boards like International Baccalaureate (IB) and Cambridge have a wider fee latitude and can levy “development” charges, creating room for upgrades and margins. The model makes money within India’s nonprofit rulebook. The school usually sits in a Section-8 entity to satisfy K–12 regulations. A for-profit services arm—typically charging 10–15% of school revenue through the likes of management fees, royalties, and infrastructure leases—operates on the side... 

Investors like GSF fall back on the same approach with each school: centralise leadership, trim excess, introduce standardised systems, and make visible infrastructure upgrades. But beneath the surface, the effects of this strategy vary sharply... While fee hikes have remained within the standard 5–10% range at premium schools like Sancta Maria (Rs 7–8 lakh in annual fees)—already operating near permissible ceilings—some lower-fee campuses could see steeper increases... Infrastructure investment varies significantly by operator and campus... The international school Manthan in Hyderabad saw 60–70% staff attrition after a 100% ISP acquisition... At TIPS Coimbatore, acquired by Globeducate, 20% of the staff left after the founder exited... Student numbers, too, fell by nearly a fifth at Glendale and Oakridge in the years after their acquisition... Pre-acquisition pay rises of 8–15% have been slashed to 2–7% under new management—standard practice in the West, but a sharp adjustment in Indian schools... The result: well-trained, experienced teachers leave, and classroom quality drops... The same Western-school playbook that made these operators successful abroad doesn’t map cleanly onto India’s hyper-competitive, founder-led education landscape.

How JVs with US MNCs strengthened Chinese manufacturing (and weakened the US)

Amidst all the concerns about China’s weaponisation of its manufacturing dominance, we tend to overlook the critical role played by Western multinational corporations in helping China develop those capabilities. 

I had blogged earlier about how Apple and the iPhone made China. As this Bertelsmann Institute report shows, China has been the standout beneficiary of the era of globalisation spanning the last three decades. 

In this backdrop and as US companies shift their operations away from China, a new paper by Jaedo Choi, George Cui, Younghun Shim, and Yongseok Shin reveals how joint ventures by US companies in China have strengthened Chinese firms, reduced US welfare, and benefited large US firms at the expense of small firms and the real wages of workers. 

They show that, notwithstanding the risks of technology leakages, the US companies, by and large, voluntarily complied with the Chinese policy that explicitly or implicitly mandated technology transfer by MNCs through JVs. This ultimately led to over-investment in the JVs and excessive technology transfer to China, resulting in profit losses for other US firms due to intensified competition from China. 

One novel finding is that US firms experienced more negative outcomes in industries with more joint ventures in China… Our quantitative analysis shows that there are indeed too many joint ventures in equilibrium relative to the social optimum for the US… we find direct positive spillovers from MNEs to Chinese parent firms (or partners) of joint ventures… Following the formation of joint ventures, Chinese parent firms experienced significant growth in sales, capital, and exports. Furthermore, their patenting activities became more similar to those of their MNE partners, indicating a direct diffusion of technology between partners through joint ventures… we find evidence of indirect spillovers to other Chinese firms. In industries with more FDIs (joint ventures and wholly foreign-owned enterprises), even the Chinese firms that were not a party to a joint venture grew faster and more technologically advanced… we find that in industries with more FDIs into China, US firms experienced more negative outcomes in terms of sales, employment, investment and innovation.

They use a two-country growth model to estimate the impact of such joint ventures. 

Once a joint venture is established in China, the probability of technology diffusion from the US leader firm to the Chinese leader firm increases, consistent with our empirical finding of direct spillovers. As a result, the surplus from a joint venture includes not only the flow profit of the joint venture firm but also the value of the higher probability of technology diffusion to the Chinese leader firm. Additionally, Chinese fringe firms, which do not participate in any joint venture by construction, benefit indirectly. This is because there is an additional source of technology diffusion—the joint venture firm itself—within the industry, and the Chinese leader firm is likely to have higher productivity after forming the joint venture… 

The entry of a new joint venture firm immediately intensifies competition in the industry. The stochastic technology diffusion to the Chinese leader and the fringe firm further intensifies competition over time. The US leader takes all these competition effects into account when making the joint venture decision. It also partially captures the profit flow of the joint venture and the spillover benefits to the Chinese leader through bargaining. However, it ignores the negative effects of heightened competition on the profits of its domestic competitor, the US fringe firm…

US leaders benefit from joint ventures in the short run through lower trade costs for serving the Chinese market and lower wages in China. They also partly capture the value of technology transfer to Chinese leader firms through bargaining. Over time, however, Chinese firms catch up faster due to the technology diffusion facilitated by these joint ventures, and the heightened competition negatively affects US leaders. Nevertheless, the present discounted value of US leaders’ profits is higher with joint ventures—otherwise, they would not invest in them. For US fringe firms, leader firms’ joint ventures have only a negative effect on their profits, through intensified competition from China. Because US leader firms ignore this negative effect on US fringe firms, there may be too many joint ventures relative to the US social optimum.

They point to important impacts of JVs on innovation and comparative advantage.

On the one hand, the increased probability of technology diffusion to China means that profits from successful innovations are smaller and shorter-lived, which may reduce innovation efforts. On the other hand, the option to form a joint venture makes US leaders innovate more, because their innovation increases profits from the joint ventures and the fees they receive from Chinese leaders through bargaining. In our quantitative analysis, the former dominates in the medium to long run, so US leaders innovate less with joint ventures. For Chinese leaders, technology diffusion serves as a substitute for their own innovation efforts, and they innovate less with joint ventures.

Furthermore, in the model, the value and hence the likelihood of forming joint ventures for US leaders are higher when the US-China technology gap is larger, which we confirm in the data. Since joint ventures reduce the technology gap between the US and Chinese firms through technology diffusion, they have the effect of eroding the US comparative advantage and terms of trade, reducing the gains from trade for the US.

The authors use their model to calculate the short and medium-term impacts of a ban on JVs from 1999.

We find that prohibiting joint ventures increases US welfare by 1.2 percent in units of permanent consumption. For the US, leaders’ profits fall by 22 percent in present value terms, while fringe firms’ profits increase by 4.9 percent. The total profit of the corporate sector declines. Yet, the real wage increases by 2.9 percent due to higher labor demand in the US, leading to the overall welfare gain. The ban has a transitory negative effect, because US firms cannot immediately benefit from lower wages in China and reduced trade costs via joint ventures. However, this effect is outweighed by medium-run benefits, as the US maintains its technological advantage over China for longer, driven by higher innovation efforts and less technology leakage to China.

As for China, when the US bans joint ventures, Chinese leader firms compensate for reduced technology diffusion by increasing their own innovation efforts. However, China’s productivity growth is substantially delayed, and the absence of joint ventures reduces China’s welfare by 10.3 percent in units of permanent consumption. In China, the profits of both leaders and fringe firms, as well as the real wage, are lower without joint ventures from the US.

The role of the JV model of technology transfer is an under-appreciated aspect of China’s economic growth. More the technology gap, the greater the economic benefits to the host country for the investment through the JV strategy. 

A JV mode of technology transfer, especially in the scale and manner that China has achieved (the iPhone is the best illustration), is not replicable. No other country has the political system and economic advantages that enable its firms to undertake the kind of hard bargaining required to extract JVs that involve technology transfer. There are at least two aspects.

Only an authoritarian one-party system like China can summon the level of coordination and discipline required to force such JVs on foreign multinational corporations. Complementing this, the Chinese firms, too, (with the guidance of the Government) have shown an unmatchable level of commitment and enterprise to use the JV as a springboard to vault them into global leadership in their industry. It’s this combination of the two, government and private sector, working together, that made these JVs succeed in technology transfers and quickly move Chinese firms up the value chain. This is Public Private Partnership (PPP) with Chinese characteristics. 

On the face of such evidence, it is not tenable for the US (and European) firms to continue with such JVs even as China tightens its dominance in manufacturing and the Cold War intensifies. The restrictions imposed by the US on multinational corporations’ activities in China in strategically important sectors must be viewed in this context. This should also be another reminder to all remaining supporters of continuing normal trade and investment activity with China (academic scholars who promote free trade, and corporate interests intent on maximising their private gains from such trade). 

The normal rules of the game on the economy and trade do not apply when faced with a political and economic system like that in China. Even those arguing that China will gradually vacate the lower-value-added manufacturing and move up the value chain are most likely wrong, since, given the continental size and diversity (in terms of stages of development) of the economy and its unparalleled competitive advantages, China is unlikely to vacate them in any meaningful manner for a long time. 

The other takeaway from this is that while it may not be possible for other countries to emulate China’s approach to JVs with foreign companies in full, it’s useful to make them an important instrument of their industrial policies. No country is closer to China in this respect than India. It has many of the economic advantages that China offers to foreign MNCs, which make it acceptable enough to agree to such JVs. 

In areas like defence equipment, aeroplanes, renewable energy generation, metro railways, smart meters, telecom equipment, surveillance cameras, and so on, the Indian market is among the largest for foreign firms. It provides the government sufficient bargaining power to single-mindedly pursue the objective of maximising technology transfers through JVs. It should show the coordination, discipline, and persistent pursuit required to achieve the objectives.