COVID-19 has turned everything upside down. The global lockdowns, the stresses on weak health systems, the absence of fiscal space and social safety nets, the downturn in the world economy, have wiped out years of progress in development across the developing world.
Sub-Saharan Africa will for the first time in a quarter century experience negative growth of minus 3.3% in 2020. Forty million could be driven into extreme poverty in 2020, wiping out at least five years of progress, while the road to recovery will require both significant investments and international support. In Latin America ECLAC predicted a contraction of 9.1%, setting the region back ten years and increasing inequality and poverty. The World Bank’s report on East Asia and the Pacific estimates that the number of poor in the region will grow for the first time in 20 years, referring to them as the ‘new COVID poor’. In all these cases, because these regions have high informality rates, the worst affected will be women. Studies show that many children will face lasting effects because of reduced nutrition and education during the unprecedented lock downs. Food insecurity has also grown.
Many of these countries (especially the low-income and fragile states) did not manage to achieve the MDGs. The SDGs were going to be difficult but COVID-19 has compounded this.
When the G20 Development Working Group (DWG) was established in 2010 after the Toronto Summit, it recognised that a sustainable solution to the global financial crisis necessitated the narrowing of the development gap and reducing poverty. This meant that the G20 had to be mindful of the impact of its policy decisions on low-income countries. Focusing on enablers of development, the G20 adopted a multi-year action plan that included infrastructure, financial inclusion, food security, domestic resource mobilisation among others. In addition, the G20 adopted an accountability framework with annual progress reports and three-yearly comprehensive accountability reports. Since 2016 when the G20 Action Plan on the 2030 Agenda for Sustainable Development was adopted, the DWG’s mandate includes providing support sherpas to enhance policy coordination and coherence for sustainable development across relevant G20 tracks and work streams.
Although the G20 as a body is not a financier or project implementer, its most important contribution is in coordination and cooperation among its members. That has not always been easy. Some of the items on the development agenda may be the subject of disagreement among members, while it has also been difficult to engage with low-income countries meaningfully on the G20 development agenda. There is also not full alignment (the objective of the G20 Action Plan) between the activities of the G20 members to deliver the SDGs. The DWG Accountability Framework developed in 2014 requires updating, an effort that was begun by the Saudi presidency in 2020, based on the recommendations of the 2019 Comprehensive Accountability Report.
However, the development regression caused by COVID-19 in the developing world and specifically in Africa has highlighted a few priorities that are now pressing.
First, the G20 in both the finance and Sherpa track should develop a set of guiding principles for engaging with low-income and fragile states in this post-COVID environment. The focus should be on mitigating the development impacts of the pandemic in both social, economic and security terms. These countries need a specific set of international assistance.
The G20 should aim to streamline and coordinate the various initiatives already in existence dealing with fragile states and develop a multi-stakeholder approach that draws in MDBs, private sector initiatives and state and sub-state actors. These principles should also recognise the broader regional dimension and use that as a guide to interventions that integrate fragile states into their neighbourhood. There needs to be a conscious effort to boost foreign investment in fragile places with the requisite guarantees. This then has an associated dimension related to small businesses and women entrepreneurs, who have been the most impacted by the crisis.
Second, the G20 needs to grab the illicit financial flows challenge by the horns. The recent UNCTAD report highlighted again that illicit capital flight from Africa amounted to an average of $88.6bn (or 3.7% of Africa’s annual GDP). The estimated financing gap for African countries to cope with the socio-economic costs of COVID are estimated at $200bn annually. This is in addition to emergency health spending. Plugging the IFF gap would go a significant way towards closing the overall gap at a time when development aid is unlikely to increase significantly. Africa loses about $40bn a year from under-invoicing of commodity exports from Africa. South Africa has for long advocated for this issue to be tackled by the G20 (in the same way that the issue of base-erosion and profit shifting was taken up by the G20 and the OECD). A report on trade misinvoicing was commissioned and tabled at the G20 Development Working Group. This needs to be taken on board by the Italian presidency, and also tabled in the finance track.
Third, the G20’s agreement on a common approach for restructuring government debt in November, will be difficult to execute. It provides no mechanism to compel the private sector to participate and that for all its indication that it will participate China has thus far been reluctant to provide any significant relief to debtor countries, indicating that while it might make some allowances the debt will have to be repaid. My colleague, Cobus van Staden, argues that the African Union should set up a public database of all major loans to African countries and push for loan transparency to be legislated. This should be taken up by the G20 as a global initiative as the pandemic is creating debt distress for many developing countries.
Last, international frameworks aimed at addressing developmental challenges faced by LICs must also take into account middle-income countries (MICs). The G20’s debt standstill initiative excludes MICs, even though they may see some of the highest rises in poverty because of the crisis; and the COVAX facility for equitable access to vaccines is geared to the need of LICs, ignoring the specific circumstances of MICs.
These are all crucial issues on the development agenda of the G20. The pandemic must give the G20 renewed impetus to address these as the premier global economic governance forum.