The world economy is declining into a period of slow growth from a triple-whammy: a global recession caused by covid; commodity price shocks from the Russo-Ukrainian war and increased interest rates by the United States Federal Reserve. The gains that developing economies have had in the past decade are now being unraveled, and, through these pressures, populations are being pushed back down the poverty line. There is a clear need for intervention and investment into these recovering economies to be more targeted and effective for the businesses and communities that are most underrepresented and vulnerable to reap the benefits.
Through the Covid years of 2020 and 2021, the combination of lockdowns, medical emergencies, travel restrictions and supply chain disruptions have devastated – and continue to devastate – many communities worldwide. The United Nations has estimated that the Pandemic has already caused 77 million people to fall into extreme poverty, with immense debt distress and an increased possibility of food shortage leading to more falling in-between the gaps.1 The large vaccine disparity during the pandemic and difference in available capital for post-pandemic economic recovery has also created a ‘pandemic recovery gap’ that serves as another obstacle for the global South to overcome. 1,2
The Russo-Ukrainian war has led to increased prices of commodities due both to the sanctions placed on Russia and the stoppage of Ukrainian exports.3 These commodities are important for developing countries both in their domestic consumption needs, as well as in their light and heavy industries: wheat, fuel, pig iron, and nickel.4 These materials are essential to produce commodities further up the value chain for export or consumption (i.e., fuel for tractors; feed for livestock). Strained supply chains affect not just the businesses directly from the availability of material, but they also have a cascading impact on the economy. The overreliance of just-in-time schedules of supply, means that when one sector is affected, the whole chain seizes. Fluctuations in global energy prices from the war has ramifications beyond just higher costs of fuel: fertilizer has become scarce due to the lack of gas, a critical component in their manufacture, without which agricultural production would be affected.4 These have combined to narrow profit margins for many industries in developing countries, threatening to worsen the already wide ‘recovery gap’ that these countries face coming out of the pandemic, and ultimately setting them back years in their pursuit of the economic recovery and prosperity. 2,3
The recent announcement by the US Federal Treasury of their plans to increase interest rates bodes ill for development in the coming years in two ways. Firstly, the current, and increasing attractiveness of American and Corporate bonds comes at the expense of investments in the developing world.5 Global investors would much rather put their investments into safer investments in the Federal Treasury than place them in projects in developing countries which are deemed riskier.5 Developing countries would thus have less foreign investment to spend on economic recovery, turning instead to drawing on reserves already scarce after the pandemic.2 Secondly, rising interest rates leads to an increased valuation of the US dollar. As commodities are traded internationally in the US dollar, developing countries would have to purchase US dollars – at ncreasingly unfavorable rates – to purchase commodities – which already are at unfavorable rates due to supply shortages.
These three events – the fallout from a global pandemic, a war in Europe and a rise in US interest rates – are each already significant by themselves, but when combined, have been described by the UN as the ‘perfect storm’ of economic devastation in the years to come.
