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Covid-19 : the great transition of the Emerging World

, October 28, 2020, 0 Comments

We remember the “world before”, marked by the rise of so-called emerging countries. Their weight in the world economy had crossed the threshold of half of the world’s GDP at the time of the 2008 crisis. Nothing seemed to be able to stop the North-South tilt so eagerly awaited by developing countries more than 50 years after the Bandung conference in Indonesia. A wind of optimism was blowing over their populations with a feeling of rebirth, even revenge and the launch of the BRICS marked the international scene in 2010.

The shock of 2020 is severe. All the health and economic indices are in the red and give the impression that the emerging world is imploding in full flight. Not so simple. As everywhere, the pandemic is a trend-setter. Behind health and economic indices that are grayer than black, the paradox is that the Covid-19 crisis has not (for the moment?) overwhelmed the emerging world but accelerated a transition in the making. The signs that gradually appeared after the 2008 global crisis seem to crystallize around two key words: moderate globalization in the true sense of Dany Rodrik, and relocation of the productive fabrics.

All are hit, but not all are dying

On the health front, one may recall the catastrophic predictions first for China, then India, then Africa and finally Latin America. Although the pandemic is far from over and without taking anything away from the sometimes terrible human costs it has caused, the realities are rather much more mixed. With the exception of South America, which has in fact been emerging for two centuries, the developing world has the lowest mortality rates in the world, and well below those of rich countries: even underestimated, on the order of 3 deaths per million inhabitants in China, 30 in Africa, 73 in India, compared to more than 600 in South and North, as well as in Western Europe. Moreover, average figures mask extreme geographical concentrations such as between South Africa, which is at nearly 300 compared to 10 in Ghana or 6 in the Sahel region.

Beyond the seasonality linked to geography, three series of factors seem to have played a role in the sanitary crisis: genetic, demographic and strategic.

* Genetics first, with a large number of experts highlighting intriguing factors of innate resistance in Chinese, Indian or African populations, with each time singular factors such as repeated exposure to lung attacks in India or to malaria in Africa.

* Demographics then, with a median age much younger than in European countries and a proportion of the over 65s varying from 1 to 7, for example, between Africa and Europe. But the correlation is far from being strict within the emerging countries. China, for example, is closer to South America, which is very much affected, than to India, as shown in the table opposite.

* Finally, strategic in the sense of public responses to the pandemic. Diversity here has clearly outweighed unity: Eastern despotism pushed to its paroxysm in China, chaotic management in India, more organic in Africa, and finally antagonistic in South America. The same diversity has occurred for the economic management of the crisis and is likely to play an important role in future economic trajectories.

Differentiation of short-term economic impact

In economic terms, the overall results of the emerging countries appear even less catastrophic than announced: the rich world will have lost 10 points of growth on average, compared to 6 points for the developing world, whose weight may exceed 60% of world GDP in 2021. Expectations of a V-shaped rebound appear to be more frequent, as in the latest global survey of business leaders conducted by McKinsey. But among emerging countries, the contrast is once again dominant, with a combination of factors linked to the local demand or supply, and to the fiscal and monetary policies implemented.covid-19-pandemic-emerging-world-marketexpress-in

China will do everything it can to contain the virus through vaccine as quickly as possible and restart the production and consumption machine. Its domestic and external demand is rapidly recovering with a touch of incredible agility in sectors linked to the crisis (pharmaceuticals and electronics), and a strong fiscal stimulus with a pragmatic monetary fine tuning completes the picture with a rapid relaunch of major projects, including on the Silk Roads. However, the shock is severe on the domestic employment front as shown by the domestic consumption still weak, and the transition to a slow growth regime is being confirmed. Nevertheless, the fast transition from a meagre 2% of the World GDP in 1980 (in purchasing power parity) to almost 20% in 2020 has fully disrupted the world order when the USA slowly went down from 22% to 15% and lost its full control on technology and global conglomerates.

* In India, the nationalist regime has decreed a surprise confinement end of March without accompanying it either health-wise, or economically, and even less socially. The shock is such that the collapse of activity is one of the most marked in the world (-24% in the second quarter, -10% on average) and extreme poverty has suddenly risen to nearly 40% of the population. India’s organic resilience of its society – in this case close to Africa – seems, however, to explain its surprising resilience both in terms of health – with a collective immunization rate of over half the population – and the economy. The growth of agriculture (+3.4%) and all related activities is a good indication of this. The latest economic data show a marked V-shaped rebound, even if it is at the price of an increasing number of Covid cases so that the near future is quite uncertain due to the trade-off between health risk and economic risk.

Africa has also surprised a lot by its economic resilience since the contraction of activity could be around 3% for the year. Indeed, the continent is known for its dependence on raw materials, the last commodity reports showed the precipitous fall in prices and demand linked to the breakdown of global value-added chains. There was therefore little room for active fiscal policies in Africa. All the more so since the small rescheduling of debt has not brought much oxygen to many countries now over-indebted. This was also true vis-à-vis China, which was very cautious on this point, as Zambia realized with its Kasenseli gold mine taken over by China and the same situation arisen every week in the black continent. So where does the overall small GDP contraction come from when mobility has fallen in the context of a self-containment that was more triggered by prudence than imposed by failed States? Most certainly from the importance of the informal economy and the increasingly active local economic dynamics poorly captured by official statistics.

Latin America, finally, appears to be both the most affected area and without any prospect of a short-term sharp rebound. It is probably following its long-term trend marked by the difficulty of crossing the threshold of semi-development due to structural factors first of all on sociological and political factors.

Emerging markets and a new globalization on the making?

It could in fact be that the short-term impact of the crisis accentuates a trend that was previously perceptible in the emerging world: a slow but inescapable refocusing on its domestic supply and demand, right down to the very local levels, as was rightly successfully experienced by populations during the pandemic. This is obviously not the vision of Beijing, which would like to play the card of a new globalization “under its roof” (Tianxia in Chinese) as an alternative to the Pax Americana. Apart from Latin America, where China has clearly increased its presence during the crisis, the objective and subjective resistance coming from other emerging countries could thwart this desire, even if the game is far from over.

In India, the epidemic has taken a back seat for several weeks, while tensions with China on the Himalayan borders provoked the first anti-Chinese mass movement. In this country of 1.3 billion consumers, where China had become the leading trading partner, made in China products and services were publicly burned or destroyed. The rupture is now clear even if India does not want to leave the BRICS or make a brutal break with Beijing. But far beyond China, it is the whole dynamic of India’s development that is actually sliding towards a more moderate openness and relocalization of the economy. Apart from the official Atma nirbhar Bharat Abhiyan, which translates to ‘self-reliant India’ or ‘self-sufficient India’ announced in May 2020, a good example is the announcement at the end of September of the launch of the Delhi-Meerut regional rapid rail project based on the model of the metro designed by the very Indian NCRTC as prime contractor and Bombardier rolling stock but fully made in India. A less commented but probably more significant experience is the acceleration of the implementation of local natural agriculture schemes such as ZBNF, which was discussed last year in this column and which has largely helped to withstand the shock in rural areas.

In Africa, what is happening in Senegal is symptomatic of a trigger caused by the pandemic. The PAP2a recovery plan announced at the end of September by President Macky Sall includes a significant structural component. Beyond the autonomy sought in the short term in hydrocarbons, the plan sets as a major priority food, pharmaceutical and health sovereignty while also targeting domestic industrialization, digital, tourism and housing, as well as major national infrastructure. The priority given to agriculture is evident from the 50% increase in funding for the current agricultural season. The high debt level facing most African countries will on one hand constrained any stimulus policy on the macro side, but accelerate structural policies of this kind on the other.

As for Latin America, no clear trends are perceptible at this stage except that the outcome of the present deep crisis may lead to what was observed after the big crisis of the 1930s: a sharp refocus on domestic priorities and what is happening in Argentina, Chile or Peru are good indication of this trend.

Mutations to watch out for!