PRESENTATION TO UK INTERNATIONAL DEVELOPMENT SELECT COMMITTEE, 12 October 2010
1. The bottom billion
Paul Collier argued that the world’s billion poorest people are concentrated in 60 countries which are stuck in poverty traps, like conflict, the resource curse, being landlocked with bad neighbours and so on. That tallied with research from the early 90s that found 93% of the world’s poor people in low income countries.
But more recently, Andy Sumner of the Institute of Development Studies has published research arguing that three quarters of the world’s 1.3 billion poor people – those on less than $1.25 a day – live in middle income countries. Only about a quarter of the poor, about 370m people, live in the 39 low income countries that remain, most of them in Sub-Saharan Africa.
2. The next billion
The world is entering the final phase of a period of explosive population growth that peaked in the mid-60s. Between now and 2025, a billion more people will arrive, taking the global total to 8 billion. They will be Asian or African. 68% of them will live in emerging or developing countries, 28% in least developed countries. And just about all of them will live in cities.
And as the world heads towards peak population, many poorer countries will come to a turning point. Half the population of the very poorest countries will be under 20, and half the people in developing and emerging economies will be under 30.
These are favourable demographic conditions, with lots of young adults entering the workforce and having to support fewer children. These countries could collect a big demographic dividend, with their incomes tripling in the next 2 decades. But they could also slide into demographic disaster – if poorly skilled young people face lives of unemployment and frustrated aspirations.
3. The financial crisis
Lots of people supposed that the financial crisis and ensuing downturn hit poor countries hardest – not unreasonably, given that poor people and fragile states tend to have least capacity to adapt to most kinds of shocks.
But in fact, data in the IMF’s new World Economic Outlook last week tell a different story. Researchers at the Brookings Institution compared what the 2008 Outlook had to say about individual countries’ growth prospects in 2013, with what this year’s report projected for 2013 – in other words, how much their prospects have been hurt by the financial crisis.
Russia and Eastern Europe were the biggest losers, with lots of countries seeing their 2013 incomes 15 to 20% lower than they would have been. Brazil, China and India all emerge pretty much unscathed. But here’s the surprise: among the 71 countries that managed to post an increase in per capita incomes in 2009, we find three quarters of the world’s low income countries – who, contrary to fears, actually fared reasonably well during the crisis.
4. The next oil price spike
If the financial crisis proved less painful than we thought for some poor countries, that’s certainly not true of the oil price spike that peaked in 2008. An International Energy Agency study in late 2007 found that 13 non-oil producing African countries, including South Africa, Ghana, Ethiopia and Senegal, had over the previous 3 years paid out more for oil imports than they’d received in aid and debt relief.
While oil prices have eased since their July 08 peak of $147, the stage is set for another oil crunch as the global economy recovers – potentially as soon as 2013. Investment in new oil production was already too low before the financial crisis, and then fell by another 19% during the credit crunch. Not long after that, we can expect the global peak of oil production to loom into view. This will all have huge implications for trade, for globalisation and for development.
5. Feeding the nine billion
The oil price spike was intimately connected with the food price spike. Though there were plenty of other causes of the food spike – low stock levels, bad weather, panic measures by governments and so on – high oil prices had a huge effect by making fertilisers, on-farm energy use and transportation more expensive at the same time as making biofuels much more attractive.
In the background are other aspects of the new ‘age of scarcity’. The amount of arable land per person has fallen from 0.39 hectares per capita in 1960 to 0.21 hectares today – even as productivity growth has fallen from 2% a year at the height of the Green Revolution to 1% today. Groundwater depletion is already a massive problem. On top of all this, we have climate change to take into account.
And over the longer term, demand for food is projected to rise by 50% by 2030 – which will need massive investment, not only to make agriculture more productive, but also more sustainable (it accounts for 70% of water use, and up to 30% of greenhouse gas emissions), more resilient (above all to deal with climate change) and more equitable (given that three quarters of the world’s poor live in rural areas).
6. Climate change
Global average temperatures are 0.6° Celsius higher than they were before the industrial revolution, and we’re already committed to another 0.7° C on top of that, whatever we do to reduce emissions. And the weak outcome of last year’s Copenhagen summit leaves the world on course for at least 3° C of warming.
The challenge of adapting to this level of climate change is absolutely not a stand-alone area of activity. On the contrary, it will intensify the challenges on all areas of development – from agriculture to cities, and from health to the risk of violent conflict. At the same time, the price tag for achieving the MDGs will be substantially higher than it would have been without climate change – as a result of which adaptation finance needs to be additional.
But don’t lose track of the potential for climate finance to be a major new source of development finance, too. Global aid was worth $120 billion in 2008; emissions trading was worth $64 billion in the same year, even though it’s in its infancy. Yet developing countries are missing out on this valuable new market – because they have no emission targets, and hence own no tradable permits. If developing countries did have targets, on the other hand, and they were set on an equitable basis (such as equal per capita entitlements), then over time we could expect it to become a far bigger force for poverty reduction than aid.
7. The trade agenda
Until recently, most arguments in trade were about subsidies or about market access – the kind of disputes you expect in a buyer’s market, and which the WTO was set up to mediate.
But with the food price spike, we saw the opposite: disputes over security of supply, of the sort you get in a seller’s market. Over 30 countries had food export restrictions in place, leading to panic among import-dependent countries and very great danger for the world’s poorest consumers – at which point we realised, as someone in Ban Ki-moon’s office put it to me, that we didn’t have a system for managing this.
This is just one way in which the trade agenda is moving incredibly fast – even as the Doha round remains stuck as a ‘multilateral zombie’. Another is the way in which protectionism has become about currency valuations, not tariffs or quotas. A third is the risk of unilateral ‘carbon tariffs’ of the sort that France wants to apply to exports from poor countries. And note that in all three cases, the WTO is in the same place: left on the sidelines.
8. Changing face of conflict
Over the last decade, the kinds of conflicts we’ve had most experience of have been civil wars, in places like Sudan, the DRC, Liberia and Sierra Leone, and so on. This has led to more UN peacekeepers being deployed than ever before – at the last count, 80,000 soldiers, 12,000 police and thousands of civilian staff. The system is showing worrying signs of overstretch, including MONUC’s inability to prevent mass rapes like the ones happening in the eastern DRC.
But the face of conflict is also changing – with 2 trends especially worth highlighting. One is the growth of subnational, relatively low-intensity forms of violence in rural areas – like the Naxalite insurgency in India. We can expect to see more of this kind of violence in future, as disputes over land and water (and the livelihoods that they enable) become more common.
At the same time, I think we’ll also come to hear more about failed cities as well as failed states. Mexico remains a prosperous country – a member of the G20 and of the OECD – but in cities like Tijuana and Ciudad Juarez, 27,000 people have been killed in armed conflict since 2006.
9. The global governance deficit
As the interconnectedness of the global economy has grown, so more of the risks faced by poor people and poor countries come from outside rather than inside their borders. While international donors can do a certain amount to help the poor to become more resilient, this is no substitute for preventive action on these trans-boundary risks.
But we should be worried about the capacity of multilateral action to do this. I mentioned that the WTO looks increasingly unable to manage risks to open trade. Last year’s Copenhagen summit saw a painfully weak outcome on climate change. The G20 hasn’t managed to defuse growing currency wars.
In the background in all of these cases, we see similar underlying issues. A lack of leadership, coupled with limited political space for really far-reaching action. In many cases, genuine uncertainty about what solutions look like or where we’re trying to get to. An unwillingness to talk turkey about the changing global balance of power.
This matters for development. And with G20 members facing acute political pressures to concentrate on issues and interests that are close to home, it will take real pressure from bodies like the IDC to stay focused on poor people.
10. So what does this mean for how the UK does development?
Four concluding thoughts on what all of these global trends mean for DFD and how the UK does development:
- We need to focu