The crisis and the world’s poorest
However tight the crisis seems for us, its effect on the world’s poorest is proving devastating. New research from the Institute of Development Studies (with whom I’m currently doing some work) released ahead of the G20 summit suggests that it’s not just making the poorest poorer. It is also accelerating the cycle of poverty. There only bright spot is that the falling oil price has eased some of the economic pressure on oil importing countries.
The IDS’ own website summary of the research is admirably concise, so I’ll just summarise it quickly here. The research is in Bangladesh, Indonesia, Kenya, Jamaica and Zambia, and is part of a wider study designed to understand a range of effects of the financial crisis, including the effect on world prices and trade; the availability of trade finance; how the crisis might affect China’s investment in Africa; and the impact on poor households. A set of policy briefings going into more detail can be downloaded.
In summary, then, the effects at an individual level include:
- People are eating less frequently, less diverse and less nutrient-rich foods.
- People are adapting livelihoods in order to cope but often into illegal or dangerous activities.
- Children are leaving school early – there are some reports of growing numbers of children selling sex.
- There are signs of rising domestic violence, tensions between groups, crime and drug and alcohol abuse.
The economic effects are mixed: exports are falling, but the fall in oil prices has helped countries which are net importers of oil, which includes most of the very poorest. So far, access to trade credit has not been a problem for Africa’s established exporters, but is causing more problems in Latin America. Meanwhile, China is using the crisis for its ‘long game’: IDS suggests that “Chinese analysts in Africa are investing in commodities for long-term food and energy security and growth. China’s stimulus package focuses heavily on infrastructure, which will maintain demand for oil, cotton and copper when global demand is falling.”
And perhaps unsurprisingly, at the level of international trade, the effect appears to be that the powerful exert more power.
Major global buyers are forcing developing country suppliers to absorb the bulk of the risks associated with the crisis. … Horticultural firms, in particular, reported that some British buyers were keeping the prices they pay fixed in pounds despite the dramatic fall in the pound relative to the US dollar forcing developing country suppliers to absorb all the exchange rate risk.
Why does that sound like British supermarkets up to some of their typical business practices?
Meanwhile the United Nations agency Escap, covering Asia and the Pacific, concluded in its review of the impact of the crisis that Asian and Pacific countries are particularly vulnerable to the triple threat of food and fuel price volatility, climate change and the global economic crisis. The emergence of all three crises at the same time has “hit the world’s poor the hardest,” and the result was likely to be social unrest and political instability.
Neil McCulloch, who led the IDS research, has – in an earlier report, Causes, Pathways of Impact and Policy Options (opens in pdf)- looked at ways to reduce the impact on the very poor. The lessons from theAsian financial crisis of the 1997/8 are that social protection is critical. Governments need to:
- Expand established safety net programmes rather than creating new ones.
- Protect pro-poor spending (not only health and education, but infrastructure too)
- Learn from other country experience about how to target social protection (a work requirement improved targeting in Argentina post-2001; food subsidies can help the poor, but are often poorly targeted and therefore expensive, e.g Indonesia post-1997; unconditional cash transfers can be faster to roll out than more sophisticated conditional cash; transfers such as PROGRESA in Mexico)
- Macroeconomic stability is important for the poor too. Policies to maintain price stability and employment levels are key.
But a lot of this comes back to aid funding, especially in Sub-Saharan Africa. As well as being vulnerable to the downturn in the global economy, the poorest are also vulnerable to the political fallout if the rich countries cut their aid funding.