Will emerging markets participate in the trend towards global cooperation?

The onset of the Covid-19 pandemic in early 2020 had a dramatic effect on global connectivity. The implementation of border restrictions greatly disrupted the provision of goods and made cross-border travel extremely difficult. To adapt to these challenges, many governments, businesses and institutions moved towards a strategy of regionalisation. For example, in April 2020 the foreign ministers of the Association of South-east Asian Nations’ 10 member states endorsed several collective initiatives to fight the pandemic, including the establishment of a common Covid-19 fund to enable a rapid response to medical emergencies. In the same month the Gulf Cooperation Council agreed to roll out a food supply network .

Following on from a year in which supply chains and international travel were severely disrupted, 2021 saw an increase in global cooperation, as institutions, businesses and governments alike sought to work together to find solutions to some of the world’s biggest challenges.

Vaccine Cooperation

The year 2021 witnessed governments and international institutions collaborate on initiatives designed to help countries recover from the impacts of the Covid-19 pandemic. A leading example is the COVAX initiative: a collaboration between Gavi, the Vaccine Alliance; the Coalition for Epidemic Preparedness Innovations; and the World Health Organisation (WHO) designed to coordinate international resources to ensure that developing countries have affordable access to Covid-19 tests, therapies and, above all, vaccines.

Between the beginning of its rollout in February 2021 and December of that year, the initiative shipped more than 950m vaccine doses to 144 predominantly low- and middle-income countries. Despite such efforts, however, the COVAX programme has not been enough to bridge the vaccination gap between developed and emerging markets.

To take an example, while more than 90m doses have been delivered to Africa through COVAX and the African Vaccine Acquisition Trust, only five of the continent’s 54 countries were on track to meet a WHO target of fully vaccinating 40% of the population by the end of 2021, according to a December 2021 report from the Mo Ibrahim Foundation.

This has resulted in calls for greater global coordination with regard to vaccine distribution, particularly in light of the discovery of the Omicron variant in November 2021. Indeed, leading officials from the WHO, UN High Commission for Refugees and the International Organisation for Migration called on G20 governments in October 2021 to provide greater assistance to lower-income countries.

Financial Assistance

While the COVAX initiative has aimed to address the medical impact of the pandemic, other collaborative measures have sought to provide financial assistance to offset the worst of the economic fallout. One such was the Debt Service Suspension Initiative (DSSI), a G20run scheme that offers a moratorium on bilateral loan repayments owed to G20 members and their policy banks. Initially rolled out in June 2020, the DSSI, which is available to 73 low-income nations, was extended until the end of 2021.

Complementing that initiative was the G20 Common Framework for Debt Treatments Beyond the DSSI. Established in November 2020 by the G20 and the Paris Club – a 22-strong informal group of mainly Western creditors – the Common Framework applies to the same 73 countries that are eligible for support under the DSSI. It differs from the former programme in that it provides relief on a case-bycase basis, with assistance ranging from complete debt restructuring or reduction, to the longer-term deferral of debt payments.

Another move designed to ease fiscal concerns was the increased allocation of special drawing rights (SDRs). Managed by the IMF, SDRs are international reserve assets defined by a basket of five currencies – the US dollar, Japanese yen, euro, UK pound and Chinese yuan – which are used by member countries to supplement their own reserves. On August 2, 2021 the IMF’s Board of Governors approved the allocation of $650bn worth of SDRs to bolster global economic recovery. This was the first new allocation since 2009. It was also by far the largest of its kind, doubling the $318bn in SDRs previously released by the IMF.

While not considered blanket solutions to Covid-19-related economic problems, these measures are expected to help emerging markets address any liquidity squeezes they may be facing, which in many cases became more critical on the back of reduced bilateral support in 2020.

Infrastructure Expansion

International institutions were not the only ones that took a global approach in 2021, with a number of the world’s largest economies reaffirming their commitment to globalisation over the course of the previous year. Following a decline in spending in 2020 across many of the projects tied to its Belt and Road Initiative (BRI), China outlined a reformed vision for the future of its major infrastructure programme, focusing on three aspects: the Green Silk Road, the Health Silk Road and the Digital Silk Road. As the names suggest, the strategy will focus on developing environmentally sustainable projects, with a particular emphasis on those in the health and ICT sectors, across various emerging markets.

Meanwhile, in June 2021 the G7 announced the launch of its own global infrastructure development strategy to rival the BRI, called Build Back Better World. While specific details of the programme have not yet been released, G7 officials said the programme aims to close the $40trn infrastructure gap in the developing world, thus strengthening some of the connections between high-income and emerging markets. In late February 2022 Wang Yi, China’s foreign minister, told international media that China was willing to consider working with the US on the Build Back Better World initiative. Yi also stated that China was open to the possibility of the US participating in the BRI, as well as the Global Development Initiative – a proposal by China’s President Xi Jinping in September 2021 for countries to work towards sustainable development in the wake of Covid-19-induced economic shocks.

Elsewhere, on December 1, 2021 the EU launched Global Gateway, its own international infrastructure strategy, which aims to mobilise €300bn in investments through to 2027 to help with the global recovery from the pandemic. The funding will go towards connectivity projects, notably in the energy, transport, health, education and digital sectors.

The launch or continuation of these global-focused initiatives comes as a number of emerging markets are turning towards infrastructure projects to help stimulate their economic recoveries from the pandemic, with many placing a focus on green or sustainable developments.

Increased Diplomacy

Aside from Covid-19 recovery-related issues, there was also a higher degree of global cooperation with regard to some longer-term themes throughout 2021. After a decade of talks and months of negotiation, 136 countries signed up to an agreement to implement a global corporate tax rate of 15%. The landmark deal aims to limit aggressive tax competition and could bring in an estimated $150bn in extra tax revenue each year, according to the Organisation for Economic Cooperation and Development. The agreement was seen as a triumph for global diplomacy, particularly given that a number of emerging markets use low tax rates as an incentive to attract foreign investment. However, some emerging markets – namely Kenya, Nigeria, Pakistan and Sri Lanka – had not yet signed up to the plan as of late 2021.

Nevertheless, perhaps the largest diplomatic event of 2021 was the UN Climate Change Convention (COP26). Representatives from more than 200 countries gathered at the event, held in Glasgow between October 31 and November 12, to discuss ways in which they could reduce global emissions. The outcomes included pledges to “phase down” the use of coal-fired power and reduce deforestation, while more than 100 countries signed up to the US- and EU-led Global Methane Pledge, which aims to reduce methane emissions by 30% by 2030.

In addition, the parties agreed on a landmark deal to reform global carbon markets and improve rules about carbon trading, which are seen as key tools in the transition towards decarbonisation. However, the impact of COP26 was weakened by the absence of China and Russia, two of the world’s leading polluters. In addition, a number of emerging markets and small island nations criticised some of the proposals put forward by developed countries.