As the recession deepens, Third World countries are seeing aid and development reduced dramatically as agencies struggle with falling donations and a weaker pound.
So could it be that, though it was a first world problem, it is yet again developing countries which are being hit the hardest?Lilian was self-employed, growing vegetables for export from her east-African country; the funds for this enterprise came from a micro-loan business. She made a very modest income that supported her family, including three daughters and two sons, although there was little to spare. When food prices rose, things got tough. Then, some months later, demand for produce shrunk. To compound her problems, Lilian’s husband was laid off. She approached her micro-finance contacts for an additional loan, but credit was not available.
Meanwhile her cousin, a migrant worker in Europe, stopped sending the cash they had come to depend on. Facing a drastically reduced income, she was forced to withdraw her daughters from school, saving on school fees, books and travel expenses. Of course, meat and vegetables were out of the question; they ate cheaper, less nutritional dishes. Weight loss and, eventually, malnutrition ensued. When her youngest son fell ill she could not afford medical help. Only when his condition deteriorated rapidly did she take him to the clinic. But by then it was too late; he died.
Lilian’s story is a real scenario facing the world’s poorest people; unwilling victims of what International Development Secretary Douglas Alexander has branded a “credit crunch tsunami”.
For most of us, talk of the credit crunch conjures up thoughts of UK casualties: spiralling unemployment, billion-pound bank bailouts, stagnant property markets and bankrupt businesses. The most serious global financial crisis in decades has, undeniably, affected tens of thousands of people nationwide. In contrast, many poorer countries were relatively untouched in the initial stages, when the fallout from the sub-prime mortgage disaster centred on the US and Europe.
Now, however, there are growing signs that the tide has turned towards the developing world, with devastating implications for those living close to the poverty line. Tearfund chief executive Matthew Frost explains: “The global recession is hitting development work in poorer countries, because many Western governments and aid agencies are reducing the amount of money they spend on international aid. However, needs are even greater in many poor countries as government budgets are cut and communities are affected by rising unemployment.”
The downturn comes hot on the heels of two equally damaging social tsunamis, the food and fuel price crises, which forced an estimated 130 to 155 million people into extreme poverty. The trio of food, fuel and financial crises has now left poor countries facing a development calamity: more than two million children could die and as many as 90 million more people could find themselves trapped in extreme poverty by the end of 2010, simply as a result of the economic difficulties, warns the World Bank.
As the number of people surviving on less than 90p a day rises, so too does the risk that the downturn could impair the G8’s commitment to ending extreme poverty, made at Gleneagles in 2005. Figures suggest that its efforts could be set back by up to three years. At the same time, progress toward the Millennium Development Goals (MDGs) is also slowing.
“Douglas Alexander has said that he expects the global financial crisis to set back the achievement of the Millennium Development Goals by three years straight away,” says Andy Clasper, executive director of Micah Challenge UK.
The latest Global Monitoring Report, an annual MDG assessment published by the World Bank and the International Monetary Fund, describes the outlook for the goals as “more worrisome than ever”.
Indeed, there was cause for concern when, in June, the One campaign group announced that the G8 nations were on course to break their promise to eradicate poverty in Africa. The group forecast that, by end of 2009, the G8 will have delivered only around half of what was promised. France and Italy are blamed for 80 per cent of this shortfall, with Italy alleged to have stumped up just 3 per cent of the £5.09bn it pledged.
It can only be hoped that Italy addresses this issue when it hosts the G8 Summit in L’Aquila (July 8th-10th). Both the MDGs and Africa’s development will come under focus as leaders of the world’s most powerful nations meet to discuss the international economy. Amid fears that aid budgets will be slashed, campaigners are calling for urgent action, lest hard-won advancements against poverty, hunger, illiteracy and disease are eroded.
“The [economic] crisis demonstrates to us beyond a shadow a doubt how interconnected the fortunes of our nations are,” says Clasper. “And it proves that governments can find funding if the emergency is big enough. Oxfam believes that in total banks have received bailouts to the value of US$8 trillion since the crisis began. That’s around 80 times the annual international aid budget.”
With donor promises potentially falling short at the very time they are most needed, it is worth casting a glance at several other areas that have also been struck by the credit crunch tsunami:
Humanitarian organisations have not escaped the effects of the recession. As Christian Aid’s associate director for finance Martin Birch puts it: “The double whammy that the development charities face is the loss of income and the ability to deliver the same level of impact with that income, because of the falling value of sterling. We’re caught at both ends.”
The pound’s plunging rate has already cost Christian Aid around a quarter of the value of its money, diminishing its overseas purchasing power by £15m. This has forced it to review its domestic activities and cut funding for some international projects. The agency has also experienced a plateau in donations. “We haven’t as yet seen any significant fall in our voluntary income; in the financial year to March 2009 it’s about the same as it was the previous year,” says Birch. “However, we haven’t had growth, which is what we’ve experienced consistently over the past decade and which has allowed us to expand our work. So the recession is clearly impacting our income and ability to address the scandal of poverty. The challenge is how we can find new sources of funding in a recessionary environment.”
Christian Aid is not alone in cutting costs, be it at home or away. Tearfund chief executive Matthew Frost comments: “Tearfund’s partners in developing countries are having to adjust because we’re finding that the exchange rate is affecting the funds that reach the field, reducing their value by around 25 per cent in many countries...We have made a strong decision to protect the sterling value of grants and to continue to support local churches around the world to tackle the needs in their community, so we’re reducing overheads in the UK and overseas in order to make this happen.”
World Vision UK has had to “slow” its funding commitments, admitted financial director Sarah Powley. “Because of the pressure on income and the decline in the value of pound sterling, we have been challenged to review costs here in the UK, and unwillingly scale back some of our project budgets and plans next year,” she says. Although it has not had to cut “significantly” its funding costs to any projects for this financial year, there are “many more projects” it would “willingly support if more funds were available”.
It has long been recognised that trade is an effective route out of poverty for many poor communities. However, foreign direct investment in low-income countries is now waning, particularly in the natural resource sectors. Experts predict that the flow of cash from foreign companies into developing countries will plummet this year by a staggering 80 per cent, from £565bn in 2007 to £100bn in 2009.
This issue has not gone unnoticed; business leaders and economists recently met in London to discuss how commerce can help developing nations. This meeting was hosted by the Transformational Business Network (TBN), a Christian organisation that enables UK groups and individuals to get involved in training, business launches, investments and imports in foreign countries. Since launching in 2003, TBN members have started or supported more than 60 business schemes in 22 countries, which have created, or are facilitating, 13,000 jobs.
These initiatives are largely sustainable, not dependent on fluctuating donations from the West. Despite this, they are not out of the recession’s reach. General manager Jerry Marshall comments: “The impact of the financial crisis has been felt on TBN projects in two ways. First, although we aim to create sustainable projects, some projects still need donor income and this has fallen. Second, TBN-linked businesses selling consumer products to the West have seen sales fall.”
One TBN-supported scheme that has fallen prey to both these factors is Hagar, in Cambodia. Based in Phnom Penh, the ministry offers vocational training, education, counselling and support for abused and disadvantaged women and children. It also equips women to earn a living outside the sex trade, with most of them employed in Hagar-run enterprises, such as its soya factory, crafts and garments production, a catering business and restaurant. “600 people are employed by Hagar, but recently there have had to be redundancies,” Marshall reveals.
Many low-income countries are heavily dependent on revenue from commodity exports, the prices of which have nosedived along with global demand. With this international trade projected to shrink in 2009 for the first time since 1982 – by 2.8 per cent – these nations are coming under increasingly intense fiscal pressure. This year their GDP growth is expected to fall to 4.5 per cent (it was 7.9 per cent in 2007). Lower demand for exports also means lower demand for staff, with the International Labour Organisation predicting that global job losses could reach 51 million during the crisis. Already, some 300,000 miners’ jobs in the Democratic Republic of Congo have reportedly been axed and in India more than half a million jobs were lost in exportorientated sectors – gems, jewellery, cars and textiles – in the last quarter of 2008. These figures make for sober reading.
A tenth of the world’s population is estimated to rely on remittances – cash sent from migrant workers overseas to relatives back home. Some even suggest these remittances are worth three times as much to developing countries as global aid. However, they are projected to decline by close to £12bn next year; in Kenya, they are already down a third.
Taken together, the above factors create a cocktail of challenges for impoverished communities, one that could have long-term implications for three crucial development areas: health, education and women’s and children’s welfare.
The downturn is deeply affecting the capacity of low-income country governments to meet public needs in critical areas such as maternal healthcare, according to a policy briefing from the World Bank’s Human Development Network. Preliminary research by the World Bank, conducted with UNAIDS and the World Health Organisation, revealed that the fiscal crisis is expected to disrupt HIV treatment and prevention programmes in up to a third of developing countries by the end of 2009.
Initial findings showed that if treatment stops and peopledie, households in high-risk regions such as sub-Saharan Africa face a “desperate situation”. The welfare and economic costs will be high: more children orphaned and a widespread loss of earning potential. Prevention efforts may also be jeopardised, with more new infections triggering greater future treatment needs. All this puts further strain on health services at a time when their resources are already dwindling and devaluing currencies are increasing costs of medical imports.
Families that lose income may have to pull their children from school, as tuition fees become increasingly hard to find. Girls in poor countries with pre-existing low female schooling are particularly vulnerable to this. In Madagascar, a country with low female enrolment rates, girls were more likely to drop out than boys when agricultural income plummeted. There are also long-term implications; the chance that pupils will be unable to regain the learning gaps arising from non-attendance and, even worse, the risk that they will never return to the classroom. All the while, the ability of governments to invest in education weakens.
Women and children
Research released by Oxfam earlier this year revealed that women workers in developing countries are being hit the hardest by the downturn. When job cuts happen they are first in line, since they often have the most insecure posts, warned the charity. Then there are other recognised gender-specific consequences. For instance in some nations, such as Nicaragua, Bangladesh, and the Philippines, women dominate employment in export manufacturing. They also make up the majority of workers in high-value agriculture, in places like Uganda, Thailand, Ecuador. As such, females will suffer harshly from export contraction. Similarly, the majority of micro-finance institutions’ clients are women – 85 per cent of the poorest 93 million clients in 2006 – so as credit dries out, so will their earnings. With this in mind, there is real concern that progress in gender equality and women’s empowerment will be reversed.
Simply put, the downturn’s impact on impoverished communities worldwide demands an urgent response. As vicepresident for Human Development at the World Bank Group Joy Phumaphi vividly tells us, the economic crisis has “taken a wrecking ball to the growth and development gains of the world’s poorest countries”. While these problems may appear insurmountable, Christians must persevere with prayer, charitable giving and campaigning.
“The global financial crisis has demonstrated where a “me first” attitude – whether by bullying nation states, morally blind corporations, or blinkered consumers – inevitably leads us,” says Andy Clasper. “The world urgently needs to see a different set of values modelled and we are the people to show the way. As God’s people worldwide, the way we live counts. We are called to be a light to the world. In the way we spend, the way we invest, the influence we have over our employer, the voice we have into our government we can show what it is to live right in an interconnected world.”
Now is the time to call on leaders of the richest nations and urge them to throw a lifeline to those at real risk of sinking under the financial tsunami. If there is one message they need to hear, it is this: For wealthy nations like ours, the recession is chiefly a matter of livelihood and debt. For millions of the world’s most deprived people, it’s a matter of life and death.