The United Nations Conference on Trade and Development (UNCTAD) has urged for a fundamental rethinking of global development strategies as slow growth, high debt, and weak investment and trade deepen the divide between industrialized and developing nations.
UNCTAD highlihhted this in its latest Trade and Development Report 2024 titled “Rethinking Development in the Age of Discontent.” The report addresses the challenges posed by slow growth, high debt, and weak investment. These factors are widening the gap between industrialized and developing nations.
GLOBAL GROWTH: THE NEW ‘LOW NORMAL’
UNCTAD warns of a new trend: a “low normal” in global economic growth. The projected growth rate is only 2.7% for 2024 and 2025. This figure is down from the 3.0% average between 2001 and 2019. Prior to the global financial crisis, growth averaged 4.4%.
The Impact on Developing Economies
Developing economies are feeling the impact more acutely. From 2003 to 2013, these nations enjoyed impressive growth rates of 6.6%. Still, between 2014 and 2024, their average growth has dropped to just 4.1%. Excluding China, the situation is bleaker. The average growth rate for the Global South is only 2.8% over the past decade.
The report highlights the rising debt burdens in developing nations. Between 2010 and 2023, these countries saw their debt increase by 70%. This surge raises the risk of austerity measures. Such measures could hinder progress toward inclusive development.
INFLATION AND SOCIAL DISCONTENT
Post-pandemic inflation is a significant concern for developing countries. Factors such as supply chain disruptions and concentrated market power in key sectors have driven inflation. This inflation has eroded purchasing power significantly. Household incomes have dropped by 8% since 2020, leading to widespread social discontent.
A Call for Policy Changes
UNCTAD warns against relying solely on monetary tightening to tackle inflation. Instead, it advocates for a policy mix that includes fiscal and regulatory strategies. The report states, “Inflation has hit developing economies hardest, and has eroded households’ incomes.” To combat this, coordinated action is required. Policymakers must stabilize prices and expand fiscal space while promoting inclusive growth.
THE SHIFT IN GLOBAL TRADE DYNAMICS
Despite the challenges, UNCTAD identifies opportunities in South-South trade and the energy transition. South-South trade refers to trade between developing countries. This trade has more than doubled from $2.3 trillion in 2007 to $5.6 trillion in 2023. This growth offers developing countries a chance to reduce their dependence on traditional trading partners.
Leveraging Regional Agreements
Developing countries can gain by leveraging regional trade agreements. Agreements such as the Africa Continental Free Trade Agreement and the ASEAN Economic Community can enhance regional economic integration. Strategic industrial policies can help these nations navigate fragmented trade risks and build resilience.
Opportunities in the Energy Transition
The energy transition presents new growth avenues for developing nations. The demand for critical minerals and raw materials is on the rise. Many of these resources are located in Africa and Latin America. These materials are essential for electric vehicles, renewable energy, and the digital economy.
THE CHANGING STRUCTURE OF GLOBAL TRADE
The report highlights significant changes in global trade dynamics. Goods still account for over 75% of total trade. However, services trade is growing rapidly. Since 2023, services trade has expanded by 5% in real terms. Services now constitute 25% of gross global trade flows.
The North-South Divide in Services
Despite this growth, developing nations account for less than 30% of world services export revenues. The creative services sector, valued at $1.4 trillion in 2022, is dominated by developed countries. These countries account for 80% of creative services exports, despite making up less than 60% of the global economy.
RISKS FROM FINANCIALIZATION AND COMMODITY MARKET VOLATILITY
UNCTAD warns about the financialization of global commodity markets. Commodity-dependent economies are particularly vulnerable. Prices stay 20% above pre-pandemic levels. This situation heightens the risk of external shocks.
The report emphasizes the necessity for diversification strategies in commodity-dependent economies. Policymakers should implement tax policies that bolster resilience and create long-term financial sources.
A CALL TO RETHINK ECONOMIC DEVELOPMENT
The Trade and Development Report 2024 concludes with a strong message. Developing countries face significant policy trade-offs due to overlapping crises. These crises include high energy prices, rising demand for health and social services, and increasing protectionism.
UNCTAD urges nations to pursue new development pathways. This involves focusing on economic diversification, resilience, and inclusive growth. Countries must move away from traditional manufacturing-led export models.
Rebeca Grynspan, UN Trade and Development Secretary-General, emphasized the importance of industrial policy. She stated, “Industrial policy is back, alongside the need for robust state capacity to guide and coordinate these efforts.”
The report calls for a reevaluation of global development strategies. It stresses the need for reform in the international financial system. Moreover, it advocates reviving multilateralism to support developing countries effectively.
ADDRESSING THE CHALLENGES AHEAD
UNCTAD highlights the potential benefits of South-South trade and the energy transition. Yet, it also emphasizes the challenges posed by slow global growth, financial instability, high debt, and changing global trade dynamics.
Urgency of Global Governance Reforms
UNCTAD urges a rethink of macroeconomic and development policies. There is an urgent need for global governance reforms. This includes addressing issues across global debt, financial, and trade architecture.
The Path to Sustainable Development
Multilateral action and a shift toward development-focused global finance are essential. These measures can help countries navigate the risks and opportunities of a new growth era. By doing so, nations can achieve sustainable development and address social discontent effectively.
