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Reflections on four key issues ahead of this year’s Commonwealth Heads of Government Meeting

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Written by Prachi Agarwal, Laetitia Pettinotti, Sherillyn Raga, Lucy White

Image credit:Cross-border trade in Kenya. Lucy White

The Commonwealth Heads of Government Meeting (CHOGM) will finally take place in Kigali, Rwanda from 20-25 June 2022, after being postponed twice due to COVID-19. At CHOGM, the Commonwealth leaders will meet to reaffirm their common values and agree actions and policies to improve the lives of all their citizens. Four members of ODI’s International Economic Development Group provide reflections on the following issues:

Trade: The ‘common advantages’ of trade in the Commonwealth must reach the Small Islands Developing States (SIDS) and Least Developed Countries (LDCs).

Climate finance: Increased bilateral climate finance is needed for the most vulnerable Commonwealth countries – the SIDS and LDCs.

Shock financing: The Commonwealth SIDS need increased access to shock financing facilitates.

Digitalisation: The Commonwealth members should support frameworks to ensure that digital technology supply chains are transparent, legal and ethical.

Prachi Agarwaltrade links in the Commonwealth: is the shared advantage real?

A recent event held in early June 2022 on Commonwealth Trade Prospects at the Commonwealth Secretariat highlighted the importance of trade links amongst Commonwealth member countries amidst growing concerns about the impact of the COVID-19 pandemic and the Ukraine-Russia conflict. Members of the Commonwealth are friends due to decades of shared history, common language, common legal and administrative systems, and a large and dynamic diaspora. The idea of a shared commonwealth advantage is thus implied given this illustrious historical relationship. The shared vision to put “wealth” back into the commonwealth, and the “common” back into wealth to ensure future prosperity is also understandable, yet more complex to achieve. The economic disparity amongst members countries, existing digital divides, the vulnerability of Small Island Developing States (SIDS) emanating from climate shocks, and unequal economic development in the Least Developed Countries (LDCs) means that we are far from equal access to our “shared wealth”, or even a truly prosperous future.

However, the Commonwealth Secretariat has already taken steps in the right direction, through technical trade assistance, debt management support, connectivity agenda, and climate finance. Today, the bilateral trade costs between members countries is 21% lower, on average, than that with other partners. Moreover, in 2021, intra-group exports climbed to US$ 768 billion, surpassing the pre-pandemic levels in 2019. So naturally, trade under the aegis of a common advantage, has become the lifeblood of economic activity and the very basis of economic partnerships between the members. Following trade, intra-group investments were also 27% higher than those between other countries in 2021. But has this common advantage reached the SIDS or the LDCs that rely more on fellow Commonwealth members for trade than the others? And with growing pressures from persistent supply chain disruptions, rising inflation and debt, soaring food, freight and energy prices, and the ongoing conflict in Ukraine, the vulnerable group of countries within the commonwealth are placed at an even greater economic disadvantage. At least for the seven small state members on the African continent (Botswana, Eswatini, The Gambia, Lesotho, Mauritius, Namibia, and Seychelles), the new African Continental Free Trade Area (AfCFTA) will provide a platform to encourage mutual trade and economic growth. There is, therefore, a role to be played by the Commonwealth to support the adoption and implementation of this agreement by providing technical assistance that is urgently needed by most national governments.

In a broader sense, what the Commonwealth countries need, is a stronger voice, a stricter stance, and a clearer aim for the Secretariat to address climate change, sustainable recovery from the pandemic, and shock absorption from geopolitical events to protect and promote trade and economic development in the 32 (out of 54 members) vulnerable countries. If members are to create a shared pool of knowledge and economic goals that can be shared and supplemented through common effort, only then can the Commonwealth truly be a mutually-beneficial group of countries that seldom go to war, but also support growth and revel in each other’s future prosperity.

Laetitia Pettinotti – the role of the Commonwealth in climate finance

The upcoming CHOGM will bring together governmental delegations from across the world with the aim of reinforcing multilateral cooperation and tackling shared challenges, such as climate change. The topic is of acute relevance to the 25 small island developing states (SIDS) which are part of the Commonwealth, of which many are classified as Least Developed Countries. The reality of such UN classification is that these states, while amongst the most impacted by climate change and the least responsible for its causes, are also the most vulnerable and with the least capabilities to address its challenges.

Under the United Nations Framework Convention on Climate Change (UNFCCC), and in the name of the Common but Differentiated Principle, finance is to flow from developed to developing countries to respond to the unfairness of the climate emergency: triggered by the few and borne disproportionately by those with the least financial capabilities. Yet, the developed countries of the Commonwealth, namely Australia, Canada, the United Kingdom, New Zealand and to a lesser extent Malta and Cyprus, do not pay their fair share of climate finance to support developing countries.

The Commonwealth can be a platform to increase ambition on climate finance. The Commonwealth Climate Finance Access Hub is already in place to support SIDS and LDCs’ ability to access and administer climate finance, but it needs long term financial commitment for its continuity. The hub scope could go further - supported by Commonwealth developed countries funding - and unlock increased bilateral climate finance, specifically focused on adaptation. It could also be a platform to explore alternative instruments such as ‘debt-for-climate-swaps’. Climate and environment are a cross-cutting theme to the CHOGM 2022 agenda. yet climate finance is not front and centre when that is where progress is needed: putting the money in the hands of those who need it.

Sherillyn Raga – shock financing facilities are critical to help Commonwealth SIDS recover stronger from shocks

The world is still being scarred by the lingering effects of the COVID-19 pandemic and yet a new global shock is emerging from soaring commodity prices induced by the Russia-Ukraine war. The successive crises are pushing public debts to historic highs in many developing countries in the Commonwealth. As of late 2021, 17 Commonwealth countries are classified to be at high risk of, or already in, debt distress, 9 of which are Small Island Developing States (SIDS). In the face of the Russia-Ukraine war, the top 10 least resilient (e.g., with limited fiscal and monetary space to mitigate the economic fall-out from the war) out of 34 Commonwealth developing countries are either SIDS (i.e., Maldives, Grenada, Mauritius, Belize and Samoa) or least developed ones (i.e., Sierra Leone, Zambia, The Gambia, Lesotho and Mozambique).

SIDS have unique characteristics that make them disproportionately vulnerable to external shocks, such as their typically undiversified trade, high public debts, and limited capacity to mobilise public and private finance. They are also vulnerable to climate change as aforementioned above. For example, Maldives is heavily reliant on its tourism sector, which comprises 80% of its exports and is a major source of government revenues and foreign reserves. Thus, when the COVID-19 pandemic hit and lockdowns were imposed in 2020, Maldives’ economy contracted by more than 33.5%, exacerbating the country’s pre-pandemic high risk of debt distress. Tourist arrivals recovered in 2021, but downside risks are significant this year given that traditionally high shares of Chinese and Russian tourists are constrained by the current COVID-19 lockdowns in China as well as the Russia-Ukraine war, respectively. On top of these challenges, 80% of Maldives’ land area is less than 1 meter above sea level, making rising sea levels due to climate change an existential threat to the country.

With seemingly more frequent and overlapping global crises, and the structural constraints of SIDS to respond to the shocks, it is important for the international community to elevate its partnership and earmark shock financing to help SIDS recover faster and stronger from crises. This echoes the result of the Commonwealth Secretariat’s Universal Vulnerability Index (UVI), a multi-dimensional index reflecting countries’ economic, environmental and social vulnerabilities as well as resilience that are within and beyond (structural) the immediate control of policymakers. The results show that 22 SIDS (out of all 34 SIDS globally) appear more vulnerable and less resilient due to structural constraints compared to other developing countries, highlighting the need to consider structural constraints in the allocation of development assistance. Currently, challenges to SIDS’ access to finance include issues on eligibility criteria, the need for tailored debt treatments, and mismatch between complex finance provider systems and SIDS’ limited staff capacity. Lessons from past crises suggest some features of shock financing facilities that can help increase their relevance for SIDS: i) including clear trigger variables which would allow simpler, faster and speedier allocation of financing resources; ii) introducing resilience-building component in financing facilities; and iii) tailoring financing instruments (e.g., grants, blended finance, swaps) to allow synergies among development partners.

Lucy White – Africa’s digitalisation, but at what cost?

Over one-third of the Commonwealth members countries are in Africa. Among these countries, the average proportion of the population with access to the Internet, in 2022, is 44%, with the highest rate in the Seychelles at 79%, and the lowest in Malawi at 20%. This indicates that there is great disparity both among and within the African Commonwealth members.

In 2008, East Africa was the only major region in the world without fibre-optic broadband Internet access. While noticeable progress has been made since then, a new report by the Broadband Commission estimates that an additional $100 billion is needed to achieve universal access to broadband connectivity in Africa by 2030.

Today in Africa, most Internet adoption is driven by mobile phone connections through 3G/4G networks. This gave rise to Africa’s digital economy, which is underpinned by mobile money transactions. In 2021, mobile money transaction values increased by 39% in Africa to US$701.4 billion, accounting for 70% of all mobile money transaction values globally, which reached over $1 trillion for the first time in 2021.

While access to mobile phones in Africa is increasing, with estimates that 615 million Africans- equivalent to 50% of the region- will subscribe to mobile services by 2025, there is one extremely critical factor that is constantly overlooked. Mobile phones rely on tantalum- a metal from coltan, as well as cobalt- a mineral used for lithium-ion batteries. The Democratic Republic of Congo (DRC) is the world’s largest tantalum producer and is home to 60% of the world’s coltan reserves in the ‘copper belt’. While mineral extraction accounts for 90% of the DRC’s exports and plays a central role in the Congolese economy, one major problem is the use of systemic child labour, whereby over half of the children working in cobalt mines perform dangerous and hazardous labour without protective equipment or safety measures. Adults also undergo the same harsh conditions as they work in illegal mining operations, which are prone to fatal landslides.

Considering how the DRC is not a Commonwealth member, should this be of concern to the Commonwealth? The answer is yes, absolutely. The DRC is by far the world’s largest producer of tantalum, of which it produced 700 metric tons in 2021. Without this production, Africa’s Internet connectivity and digital economy- which heavily rely on mobile phones as aforementioned- would not have been able to progress to where they are today. Not only do African Commonwealth countries rely on the DRC’s tantalum for everything ‘tech’, from mobile phones to laptops to renewable energy technologies, but so do the advanced nations- the United Kingdom, Canada, Australia and New Zealand. Indeed, while it is true that the Commonwealth members Rwanda and Nigeria produced 270 and 260 metric tons of tantalum in 2021 respectively, this combined is only 75% of the DRC’s production and it does not suffice to meet the Commonwealth’s growing demand for technology and digitalisation.

So, what should the Commonwealth leaders do to address this problem? It can be recommended that the Commonwealth should support policies, regulations and frameworks- for both companies and countries- around the sustainable and responsible production of these minerals, with an end goal to foster and engage in transparent, legal and ethical supply chains.