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Can WEF discussions help poor and vulnerable countries prepare for the new reality?

Written by Dirk Willem te Velde

The World Economic Forum Annual Meeting, which began yesterday in Davos, is discussing the Eurozone fiscal problems, rising inflation, rising unemployment, fears of trade and currency wars, and increased food prices. The Forum now needs to respond to long-terms trends, not just short-term crises, but what does this mean for poor and vulnerable countries (PVCs)?

Global risks and the new reality

The 2011 Global Risk report, released two weeks before Davos, presents the  risks that are most likely and that will have greatest impact in the coming decade: climate change, fiscal crises, economic disparity, global governance failures, storms and cyclones, geopolitical conflict, corruption, flooding and water security. The world is becoming richer and more globalised, but is also affected, increasingly, by crises on a global scale.

On closer inspection, some risks resemble near certainties, akin to a new reality and a number of interconnected trends are now very likely. A rising world population, expected to grow from 6.8 billion now to more than 8.3 billion in 2030, and increased incomes in emerging powers (particularly in India and China), are both expected to increase demand for energy (up 40% by 2030), water (also up 40%), food (up 50%) and associated land acquisitions. The WEF report calls it the energy-food-water nexus. This new reality means some form of transition sooner or later: moving towards resource efficiency and productivity to avert scarcity and climate change, or coping with the new reality of scarcity, or both. The WEF can, however, help to shape roles for the public and private sectors to prepare for such transitions.

The contours of development in the new reality

The rise of emerging powers and other middle-income countries (MICs) requires a different development approach. It is now a moral hazard to use developed country aid to overcome the failings of large MICs to distribute wealth equitably (notwithstanding the emphasis in some development circles on the large numbers of poor people in such countries). Instead, developed countries will increasingly need to work with MICs to fill gaping holes in global governance, including failures to reach global trade and climate deals, and use development cooperation more broadly (e.g. climate finance). This is essential to achieve global development objectives such as  a low-carbon economy. At the same time, the focus of traditional development efforts is likely to be on countries that are least able to deal with global risks, e.g. countries on low per capita incomes or small countries with climate and other vulnerabilities.

This new reality sets new challenges for PVCs. The rise of emerging powers provides a good economic opportunity for these countries to tackle this transition, provided PVC strategies are put in place, such as   linking up with the G-20 or preparing the private sector to make use of diversification opportunities.

PVCs that sit on large stocks of natural resources should obtain a better bargaining position in the new reality of global scarcity for food, water and land. This opportunity, however, needs to be translated into real, country level development opportunities, requiring a strong policy and institutional framework in tune with the needs of the private sector. Resource-poor PVCs will need to attract a resource-efficient private sector and promote resource efficiency, which will require leadership from companies as much as from governments.

Climate change is seen as the greatest and most likely risk. The necessary transition towards a global low-carbon economy involves large adjustments and economic opportunities in PVCs. A threat to this process is the failure of the global powers to design an appropriate framework for emission reduction targets or to ensure that climate finance is flowing in large quantities. It is in the interest of business to press for a stronger role for the international community, ranging from a global climate deal, to re-tooling development finance institutions to take on riskier business (including renewable energy production), and promoting effective state-business relations to improve energy efficiency.

The public and private sector in this new reality

Understanding the respective roles of the public and private sector in these great transitions (dealing with increased global scarcity, moving towards a global green economy, converting natural resource stocks into real development opportunities) are amongst the challenges being considered as we prepare the next European Report on Development, a joint project led by leading European research-based think tanks (ODI, DIE and ECDPM) for the European Commission and EU member states.

Let’s hope the WEF will be successful in bringing the new reality to the attention of world leaders and global business, but much remains to be done if the transitions towards this reality are to pay off for the poorest and most vulnerable countries.