Rolling back globalisation – slowly but surely

fossil fuel
On Ilha de Cabo, an island off the coast of the Angolan capital Luanda.
Article as analysis
The call can no longer be ignored, production offshored to low-wage countries must be brought back. The more pressing a paradigm shift, the more careful the approach must be. Otherwise developing countries could yet again pay the price.

In just a few short months, a virus first appearing in China has brought the world to its knees. Aptly styled the globalisation virus, it has spread like wildfire to the furthest reaches of the world. Some even argue that certain countries have emerged relatively unscathed not because of good crisis management but because they are not well integrated into global value chains. Others like Italy are paying a very high price for that very reason, owing to their high degree of globalisation and their close economic ties with China.

What is beyond doubt is that the great lockdown undertaken by about half of humanity will have incalculable consequences for the world economy, comparable with the 1929 world economic crisis. It can be assumed that the current crisis will have major negative implications especially for developing and emerging countries. To cite one example, on the strength of International Monetary Fund (IMF) data, Tunisian economist Sami Saya predicts that Tunisia will face the worst economic crisis since gaining independence in 1956. Tourism is one of the hardest hit sectors in this very open country. For his part, the President of the Tunisian Hotel Association (FTH) Khaled Fakhfakh is also aware that the 2020 tourism season will be in serious jeopardy if the airspace remains closed for any length of time after the easing of the state of emergency. The following figures give an indication of what this means: depending on the estimates used, Tunisia’s tourism sector accounts for 8 to 14 per cent of national income, almost every tenth job depends on it and the holiday industry provides a livelihood for 400,000 families.

Relying on less volatile sectors

In Europe on the other side of the Mediterranean Sea, ever more people are coming to see the covid crisis as an unprecedented opportunity for climate protection, starting with the fact that they are no longer setting foot on any aircraft and are planning to spend not just this year's holidays at places they can reach by train. However commendable this intention may be, especially in the context of the paradigm shift being advocated under the UN 2030 Agenda for Sustainable Development, it does embody the danger that the economies of tourism-dependent countries in the South could be plunged into even greater difficulty. The argument is obvious: these countries were badly advised, they have opted for an unsustainable development model and relied on a volatile sector par excellence, one that suffers whenever there is an attack or from the growing environmental awareness in Europe.

The Tunisian Government had recognised this long before the current crisis. The Foreign Investment Promotion Agency (FIPA) invites foreign investors to invest in sectors it deems promising and which are engaged in high value-added activities: mechanics, electricity and electronics, services (such as call centres), synthetics processing, auto-parts and air travel, as well as traditional, more labour-intensive sectors such as the textile and garment industry, food processing, as well as the leather and footwear industry. Tourism does not appear on this list, but replacing it will take time.

The problem is that the dependence of the export industry on foreign investment is neither environmentally nor economically sustainable, as it reacts sensitively to crises triggered by external factors. After 2008, developing and emerging countries were hit particularly hard by the financial crisis. Those most affected were countries which – often under World Bank and IMF pressure – had embraced an export-oriented economic model and had become highly dependent on foreign direct investment.

Jobless textiles workers

There is no doubt that the rollback of globalisation and the relocation of production to Europe and neighbouring countries would augment the potential of the textile and garment industry in the Maghreb beyond what it is today. But the industry is vulnerable for being so highly dependent on international demand. While many in our country have even welcomed both the freezing of our consumption-driven economy and the sudden slowdown, the closure of warehouses and fashion boutiques here led directly to the shutdown of textile factories and the layoff of millions of workers in the producing countries of South-East Asia, most often with no social security whatsoever. Now that production is resuming, factories have moved from miserable wages of 150 to 200 US dollars per month – which is not even enough to cover the half of basic needs – to even lower wages. The British risk advice firm Verisk Maplecroft was cited in the NZZ am Sonntag newspaper to the effect that the somewhat better conditions that the region’s textile workers have won for themselves over recent years could simply be wiped out again.

In Bangladesh, a country much commended for the way it is tackling poverty and the climate crisis, 80 per cent of foreign exchange is generated by the textile industry. The Bangladesh Government too could be accused of opting for an export-oriented development model and for complicity with corporations and their subcontractors whose unwillingness to pay a little more for jeans and a pair of trainers is fuelling a race to the bottom, on the backs of women workers.

Coronavirus has brought out the extreme dependence of many countries on China: 80 per cent of the active ingredients in medicines sold in Europe are produced in the Middle Kingdom, that figure being 27 per cent for Switzerland. The sudden interruption of supply chains and/or the threat of relocation of some production activities should prompt developing country governments to turn towards an economic model focused on boosting the local economy and the domestic market. But that is easier said than done; and above all, such a transformation cannot be carried out from one day to the next. But not least of all, a "domestic" market also requires robust internal demand, which in turn necessitates a redistribution of income in favour of the masses of disadvantaged people many of whom currently cannot afford either foreign or domestic products.

Aviation grounded, oil price plummets

Air travel was another branch of the economy the grounding of which was welcomed by not just a few. With almost all aircraft on the ground and cars and lorries spending weeks in their garages, demand for oil has fallen to an all-time low, with the price per barrel even entering negative territory at times. This is undoubtedly good news for the climate. The problem, however, is that many developing countries are highly or entirely dependent on fossil fuel exports: South Sudan, Nigeria, Angola, Ecuador, Iraq and Algeria, to name just a few, have not diversified their economy and have nothing else to sell. In Algeria, oil and gas account for almost all exports and for three quarters of government revenue. For decades, the kleptocratic leadership in Algiers neglected to develop other sectors as additional income streams. From this viewpoint, neighbouring Tunisia may count itself lucky to have to survive almost entirely without raw materials. Still, Algeria is waking up thanks to popular pressure and has decided to diversify its energy supplies and use its oil revenues to industrialise the country. The government is about to sign an agreement with Germany on participation in Desertec, a gigantic solar energy project in the deserts of North Africa launched in 2003 under the aegis of the Club of Rome, but which has ground to a halt. The new Algerian Government that came to power in 2020 has revived the project.

The covid crisis has brought out the vulnerability of our globalised world much more quickly and sharply than even the climate crisis. Adaptation is a necessity, and reorientation a matter of urgency. But the transition to a new way of organising the world economy must be done gradually and democratically. Otherwise the cure for developing countries could have consequences worse than the disease.