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COVID-19 continues to have a devastating impact on public health and to shake the world economy with structural shocks. The pandemic has now killed More than a million people, while the International Monetary Fund estimates that world GDP shrink 4.4% in 2020. But, oddly enough, the current crisis could offer developing countries a path to greater economic self-sufficiency.
This is partly due to the fact that developed countries, in general, have been hit the hardest so far by the health effects of the pandemic. Many advanced Western economies have experienced more cases and deaths from COVID-19 relative to their populations than the developing countries of the Global South, despite their superior health care systems and stronger social safety nets. For example, the Indian health system is classified 112 worldwidewhile the United States ranks 37th. But while India has so far reported on 6,400 COVID-19 cases per million population, The US bill is more than four times larger.
Some developing countries like Vietnam fought the Coronavirus effectively by introducing strict test, trace, and quarantine measures at a very early stage, something that most developed countries did not do. Even after accounting for possible lack of information and data inaccuracies in the poorest countries, the relative performance of developed economies remains a paradox.
Furthermore, financing for development has already begun to plummet as richer countries focus on engineering national post-pandemic recoveries. OECD Dear that external private financing inflows to developing economies could decline by $ 700 billion year-on-year in 2020, outpacing the impact of the 2008 global financial crisis by 60%. Nonresident portfolio outflows from emerging markets totaled $ 83.3 billion only in March 2020, according to the Institute of International Finance. And the OECD believes that global foreign direct investment (FDI) will decline at least 30% this year, and flows to developing economies are likely to fall further. These trends present a bleak outlook for countries in 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 empowerment. A recent OECD survey found that between 48% and 94% of respondents in developing countries do not believe that humanitarian assistance helps them become financially self-sufficient. People want financial autonomy, not long-term assistance.
The debate over the effectiveness of development aid is longstanding, and critics claim that rich countries use aid as a tool to exploit the resources of developing economies, and often attach conditions to ensure that donors get the bulk of export earnings. 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 had been looking for ways to make a sustainable shift from aid dependency to self-reliance. In 2018, Rwanda banned second-hand clothing imports with the aim of encouraging its domestic textile industry to produce higher value-added garments; 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 ($ 18.5 billion) aid budget for capacity-building projects to help developing countries increase their international trade and attract FDI.
Today, developing countries have more opportunities to become self-sufficient. To begin with, trade in developing countries in East Asia has declined less sharply than in the West during the pandemic, according to the World Trade Organization. A key reason for this is that industries that produce high value-added goods generally suffer more during recessions. The increased resilience of developing countries, derived from their dependence on low value-added manufacturing, is evident in Vietnam textile and clothing sector, which has remained operational throughout the pandemic and is expEcto to have a faster recovery in 2021 compared to its regional competitors.
Second, digitization will play a critical role in the post-pandemic recovery by significantly boosting e-commerce, creating a fairer competitive playing field for producers around the world. Bangladesh e-commerce sector grew 26% year after year in August, and other South Asian countries show a similar trend.
Third, the pharmaceutical and healthcare sectors are expected to prosper in the post-pandemic economy as people become more aware of the importance of health and fitness. Less developed countries can take advantage of World Trade Organization provisions by producing more generic drugs, which do not face patent-related obstacles.
Finally, governments in the Global South can mobilize domestic resources to offset declining external financing for development, in particular by transforming their fiscal policies to generate revenue from fast-growing digital economic activities. Currently, the low levels of tax revenue of developing countries as a percentage of GDP, generally between 10-20%, compared with 40% in high-income countries, hamper development by limiting the ability of governments to invest in public goods such as health, infrastructure and education.
Developing countries face several obstacles on the road to self-reliance, including poor governance, an unfavorable business climate, and civil conflict. But they must also break with the post-1945 paradigm of external financing for development, which has been driven primarily by the Global North and shaped by its geopolitical agenda. For too long, developing countries have had to listen to lectures by those they think they know best. Today, the governments of developing countries must 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 nothing less than the opportunity to reinvent and revive their economies and shake off the crippling legacy of dependence on foreign aid.
Editor’s Note: Syed Munir Khasru is President of the Institute for Policy, Promotion and Governance (IPAG). The opinions expressed in the article do not necessarily reflect the opinions of The Reporter.
Contributed by Syed Munir Khasru |
