The Impact of Global Recession on the Developing World & on ElectricAid

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The Impact of Global Recession on the Developing World – and on ElectricAid.

Capital keeps the world’s economies moving. A reduction in capital investment and in economic growth means fewer jobs, decline in trade and severe cuts in the resources available for social spending. This is true all over the world; this squeeze is being felt in most countries – including Ireland.

Our country is experiencing the worst recession in its history. With unemployment heading for record highs and the highest external debt in the world, this is likely to go on for at least another 2 years. The impact the recession is having on Ireland and the other rich countries is well documented, but what of the poorest countries? Initial indicators regarding how the poorest countries would fare were rather optimistic, they were least affected by the “first wave” of the recession because of their limited exposure to financial markets. But now the signs are just as ominous. Since they are starting from a much lower base than us, many of their people are pushed into absolute poverty and destitution. Developing countries are derailed by even the slightest economic hiccup – this recession is an economic tsunami.

Developing countries rely on four sources of finance: aid, trade, foreign capital flows and remittances. Each of these has suffered a serious decline over the past year. Capital flow to developing nations as well as direct investment in them has reduced significantly. Equally, the commodity markets in which these nations supply raw materials to the developed world are suffering. Foreign earnings are dwindling. Unstable economies across Africa are becoming more so. Development aid from most developed countries has been drastically slashed or even stopped totally. Germany, for instance, is the world’s second largest aid donor, now faced with its own internal problems has reined in its development aid, as have Italy & France. Ireland has reduced its aid budget by €250 million since 2007. That money could have been used to save and improve the lives of millions through anti-malaria drugs, wells, education and basic food production. While the developed world is hurting in the financial crisis, for the developing world it is turning into a human disaster.

Those of us of a certain age will remember the importance of emigrants’ remittances to the Irish economy. Money coming from relatives working abroad was critical to the survival of many families and of the overall economy. This factor has however become much less important to Ireland over the last few decades. For developing countries money sent home by migrants constitutes their second largest financial inflow after international aid. Additionally remittances are important for promoting financial and social inclusion, and the viabiluty of the extended family in developing countries. This vital source of income for the developing world of up to $400 billion is expected subsantially dry up for millions of people because of increased global unemployment – migrants from poor countries are most exposed and soonest affected.

The flow of investment money into the Developing World this year will be just just $165 billion by the end of 2009, down from $929 billion in 2007. What this means is more job losses and micro-business failures, in fragile economies already suffering unemployment rates of over 30%. These are societies with no social provision for unemployment – if you are destitute in the poor world, you are on your own, or at best you may be helped by the extended family, if they are in a position to do so. Job losses will result in many more people being pushed over the edge and into poverty. Simultaneously food prices have soared over the last year and food riots have broken out in Haiti, Yemen, Guinea, Indonesia, Mauritania, Mexico, Morocco, Uzbekistan, Burkina Faso and other West African nations. Some estimates suggest that at least an additional 50 million people will be thrust into extreme poverty. That’s 50 million people lacking the resources to respond, having to go without proper food, clothing, water, shelter, education, the list goes on. Hopes of meeting the millennium goals including targets in reducing hunger and infant mortality by 2015 are becoming ever more unrealistic.

As the United Nations Secretary-General, Ban Ki-moon, put it recently, “it’s not just Wall Street and Main Street that are hurting; people with ‘no streets’ are suffering too.”

Effects on ElectricAid

ElectricAid has been lighting candles in the darkness of the poor world for the last 23 years. This is only possible thanks to the continuing generosity of ESB and EirGrid staff, pensioners, and companies. Without this support the hundreds of projects we fund would not be possible and the thousands of people whose lives we improve would slip back into poverty, destitution, and worse. We finance real, tangible projects like wells, agricultural schemes, basic health care and school equipment. This grass-roots approach spends the money at the community level and is very effective. Every single cent gets there, with nothing taken out for administration, overheads, or marketing. This model has worked well, but faces an unprecedented challenge over the next two years.

So far (August 2009) funding applications are more than 20% up on last year. As other funding sources dry up we expect this figure to continue to rise. Our own membership and revenue growth have flat-lined – understandably so, in current economic conditions. We are now rejecting many more excellent applications and cutting the funded amounts for other projects.

One clear example of the impact of the recession is on the malnourished children of Haiti. This is a country where 60% of deaths of children under 5 can be attributed to malnutrition. Those who do survive childhood suffer for the rest of their lives due to the permanent developmental harm that childhood malnutrition causes. Already due to our government’s aid cutbacks a large multi-year project being developed by ElectricAid in conjunction with Partners in Health for Haiti has been cancelled. The project envisaged building agricultural capacity for poor farmers by producing ingredients for a high-calorie food supplement for some of Haiti’s poorest and malnourished children. It cannot now go ahead. The children of Haiti must wait and suffer on.

The UN’s Food & Agriculture Organisation is now saying that more than a billion people in today’s world do not have enough to eat. As in Haiti, children are the most vulnerable. The World Bank recently estimated that child deaths could rise by 30% in Africa – that’s an additional 700,000 preventable deaths per year. The world is a very different place to just one year ago. The fate of so many who were promised so much and did nothing to cause this situation now hangs in the balance.

ElectricAid will continue to fund as many priority projects as we can, focusing on basic needs at the grass-roots community level. We will continue to seek new members, and where possible, increased subscriptions from our existing and very generous membership. We will not solve the problems of the world – but we will continue to address some of the problems for some of the poorest people of the world. We will do all we can – and to do more, we hope you are with us in this life-giving journey.

Robin Bass, ElectricAid 10.08.2009 Additional Information: Justin Kilcullen, Trócaire