COVID-19 will stretch the world further apart. The developed world should proactively invest in the developing world to avoid further humanitarian disasters and seismic migration across the world.
COVID-19 knows no borders, but that does not mean its damage will be distributed equally. Rich countries can sustain debts because their borrowing debts are low and their bonds are seen as ‘safe haven’ assets by investors. Furthermore, countries that control their own currency, such as the UK and US, have a significant advantage as rich investors from developing countries will want to invest in ‘stable’ currencies should COVID-19 significantly shrink their own. This may cause the exchange rate of developing countries to plummet, meaning that debt becomes much harder to hold. This precarious economic situation will be exacerbated in three main ways.
Firstly, many developing countries rely heavily on the service sector of their respective economies, which has been stalled due to lack of consumer demand from social distancing measures. Developed countries tend to have comparatively smaller service sectors and have benefited from bailout schemes which have softened the blow for workers, but this comparative luxury is not afforded to many. Social distancing is not an option for many in the developing world.
Secondly, international humanitarian aid has dropped dramatically as a result of the crisis. NGO’s have not escaped the financial hardship that COVID-19 has caused with more than 40% of British international development NGOs saying they will collapse within six months if they receive no new financial support. Furthermore, the aid that remains cannot reach its intended recipients in many cases because of international travel bans and lack of available transportation. Countries such as Lesotho and South Sudan rely on international aid for infrastructure projects, which are now more dangerous to complete but increasingly necessary to control the spread of coronavirus.
Thirdly, due to the economic shutdown in developed countries, remittances have dropped significantly. Many migrants who moved away from their families in order to provide for them work in the service sector in the UK and other developed countries. With the service sector on hold to prevent the spread of COVID-19, so has the money going back to the developing world. The World Bank is predicting global remittances will drop by some 20% because of the impact of coronavirus, to $445bn in 2020 which Dilip Ratha, an economist at the World Bank, has described this decline as ‘unprecedented in history’.
Lebanon, whose economy is emblematic of all three issues outlined above, defaulted on its debt for the first time in its history last month after its currency collapsed, causing riots in Beirut. This was not because of COVID-19, but this economic and political instability is likely to be replicated in many other countries around the world. This may soon take hold in Nigeria, which has a population of almost 200m, where the Air Force have been deployed to tackle an insurgency in the North East of the country. Violence will exacerbate the spread of the virus, causing further economic and political instability.
The 2015 migrant crisis was handled poorly by European countries, with the sole exception of Angela Merkel’s Germany who, by allowing a million refugees to enter the country, recognised both the scale of the crisis and the political consequences of inaction. Europe can see another crisis looming and should take economic action now to prevent it. Its governments need to recognise not only that the virus will continue to spread if it is not suppressed everywhere, but also that the effects of possible economic and political instability will not be contained in the developing world (as the Arab Spring showed in 2011). There is both a moral obligation and a political necessity to invest in the developing world.
The World Bank Group and the International Monetary Fund have taken the first steps in this direction, with a $200bn package to regional development banks, and are encouraging creditors to suspend debt repayments until 2021 in order to provide much needed support to the poorest countries. The next decade will require national governments to rethink the integration between their international development, defence, and immigration policies, by prioritising investment and infrastructure over sanctions and military intervention. For example, investments in green energy startups and sustainable transportation will boost employment and help tackle the climate emergency. International cooperation on stabilising emerging economies through investment will require spending, but the expense will pale in comparison to the bill of inaction. The time to act is now.
Tom Whitting is Co-Coordinator for the Open Think Tank Network.