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COVID-19 continues to have a devastating impact on public health and shake the global economy with structural shocks. The pandemic has now killed more than a million people, while the International Monetary Fund estimates that global GDP will reduce by 4.4% in 2020. But, strange as it may seem, the current crisis could offer developing countries a path to greater economic self-sufficiency.
This is partly due to the fact that developed countries have generally borne the brunt of the health effects of the pandemic so far. Many advanced Western economies have experimented more COVID-19 cases and deaths relative to their populations relative to developing countries in the global South, despite their superior health systems and stronger social safety nets. For example, the Indian healthcare system ranks 112th globally, while that of the United States is in 37th place. But considering that India has so far reported 6,400 COVID-19 cases per million population, America’s tally is more than four times higher.
Some developing countries like Vietnam effectively fought the Coronavirus introducing rigorous testing, traceability, and quarantine measures at a very early stage, which most developed countries have failed to do. Even after taking into account possible underestimations and inaccuracies in the data in poorer countries, the relative performance of developed economies remains a paradox.
Furthermore, development funding has already started to plummet as wealthier countries focus on engineering post-pandemic national footage. The OECD estimates that inflows of external private finance to developing economies could decline by $ 700 billion year-over-year in 2020, exceeding the impact of the 2008 global financial crisis by 60%. Non-resident portfolio outflows from emerging markets were overall 83.3 billion dollars only in March 2020, according to the Institute of International Finance. And the OECD believes global foreign direct investment (FDI) will decline at least 30% this year, with flows to developing economies likely to decline even more. Such trends imply a gloomy outlook for the countries of the global South that have historically relied heavily on development aid from the Global North.
But studies have shown that development aid and humanitarian assistance do not necessarily promote economic emancipation. A recent OECD survey found that between 48% and 94% of respondents in developing countries do not believe that humanitarian assistance helps them become economically self-sufficient. People want financial autonomy, not prolonged assistance.
The debate on the effectiveness of development aid is old, with critics arguing that rich countries use aid as a tool to exploit the resources of developing economies, and often attach conditions to ensure that donors collect the bulk of export revenue. But many developed countries have lost much of their soft power due to their chaotic pandemic responses.
Even before COVID-19 hit, many developing economies were looking for ways to sustainably shift from aid dependency to self-sufficiency. In 2018, Rwanda banned the import of second-hand clothing with the aim of encouraging its domestic textile industry to produce higher value-added clothing; the United States responded by ending the country’s duty-free export privileges. And last year, the UK government assigned part of its £ 14 billion (US $ 18.5 billion) aid budget for capacity-building projects to help developing countries increase their international trade and attract FDI.
Developing countries today have more opportunities to become self-reliant. For starters, trade in East Asian development declined less sharply than in the West during the pandemic, second to the World Trade Organization. One of the main reasons for this is that industries usually produce high value added goods suffer most during recessions. The greater resilience of developing countries, resulting from their dependence on low value added production, is evident in Vietnam textile and clothing sector, which remained operational throughout the pandemic and is expshould have a faster recovery in 2021 than regional competitors.
Second, digitization will play a crucial role in the post-pandemic recovery by significantly increasing e-commerce, which implies a fairer competitive playing field for manufacturers around the world. Bangladesh’s e-commerce sector grew by 26% year after year by August, and other South Asian countries show a similar trend.
Third, the healthcare and pharmaceutical sectors are expected to thrive in the post-pandemic economy as people become more aware of the importance of health and fitness. Least developed countries can take advantage of the provisions of the World Trade Organization by producing more generic medicines, which do not face patent obstacles.
Finally, governments in the global South can mobilize internal resources to offset the decline in funding for external development, in particular by transforming their fiscal policies to generate revenue from rapidly growing digital businesses. Currently, developing countries’ low levels of tax revenue as a share of GDP – typically between 10-20%, compared to 40% in high-income countries – hampers development by limiting governments’ ability to invest in public goods such as health, infrastructure and education.
Developing countries face various obstacles on their way to self-sufficiency, not least poor governance, unfavorable economic climates and civil strife. But they must also break with the post-1945 paradigm of finance for external development, which was primarily driven by the global North and shaped by its geopolitical agenda. For too long, developing countries have had to listen to the lessons of those who think they know them best. Today, governments in developing countries need to chart a development agenda that is free from donor conditionality.
Every crisis contains great opportunities, and the COVID-19 pandemic is no different. It offers developing countries no less than a chance to reinvent and restart their economies and shake off the crippling legacy of dependence on external aid.
Editor’s note: Syed Munir Khasru is the president of the Institute for Policy, Advocacy and Governance (IPAG). The views expressed in the article do not necessarily reflect the views of The Reporter.
Contributed by Syed Munir Khasru |
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