Lessons to help mitigate global trade disruptions and other crises

Since 2020, the world has experienced a series of interconnected crises that have severely impacted emerging and developing economies in the Global South. Aid cuts and tariffs on US imports are the newest contributors to uncertainty in the global economy, already disrupted by the Russia-Ukraine war, other conflicts, climate change and the COVID-19 pandemic.

In this polycrisis scenario, research to inform policy responses in the Global South is more important than ever. As countries have limited fiscal resources, their choices between different types of policies — monetary, debt relief, taxation, subsidies and trade promotion — play an important role in recovery. Policymakers need to understand the trade-offs associated with each policy and policy-design choice, including how they may impact inequalities within societies. The world’s ability to build shared prosperity and strong industries and trade depend on it.

Research led by three African research organizations and ODI shows that it is possible to address inequalities in policy responses. Supported by IDRC and Global Affairs Canada, this research and earlier work on the COVID-19 pandemic focused on the unequal impacts of external shocks, the expected impacts from policy choices and the actual impacts once policies are in place. It illustrates how gender-blind policy interventions — including liquidity easing and cash transfers — can reinforce the unequal gender impacts of the polycrisis.

A recent ODI synthesis report summarizes lessons from Africa’s experience during the Russia-Ukraine war to help navigate external shocks.  

Ukraine war and food security in Africa

The world was still recovering from the pandemic when the Russia-Ukraine war started. Trade disruptions interrupted food, fertilizer and fuel supplies, in particular. The impacts of the war have been global, with lower-income economies less able to protect themselves against external shocks.

The country-level analyses of these shocks, carried out by the African Economic Research Consortium, Economic Research Forum and Partnership for Economic Policy, indicate that the impacts of the Russia-Ukraine war in Africa have varied. Simulation studies suggest that the war led to an average 0.2% decline in Africa’s gross domestic product (GDP). But in Ethiopia, Kenya and Sudan, GDP growth was estimated to be 3.1% to 3.8% lower in the third year of the war.

UN estimates have shown an increase in hunger around the world following the outbreak of the Russia-Ukraine war. Using simulations and household data, the IDRC-supported research found that women, particularly those earning low incomes, had seen food security and their access to cleaner energy disproportionately affected in most countries.

In Egypt, for example, more women than men experienced food insecurity, including from a 60% reduction of wheat imports, which force the country to import food at higher global prices. While food subsidies helped in general, targeted measures like ration cards, bread cards and cash transfers appeared to be more effective in reducing food insecurity of women-headed households. 

Another example is the increased fuel prices that led rural Kenyan women to switch from kerosene to firewood, requiring more time for them to obtain and cook with it. The impact reinforced gender inequalities since women spend more time than men on collecting fuel and cooking. Fuel subsidies were not enough for most of them to revert to cleaner energy fuels. 

Aggravated by debt and import dependency

Global economic stresses from the Russia-Ukraine war and the pandemic have triggered higher borrowing costs and contributed to increased and often unstainable debt levels in lower-income economies.

Addressing growing government debt requires careful consideration of policy alternatives, as debt repayments crowd out key development investments, including in food security and nutrition programs that are needed in times of crisis. Innovative debt instruments and alternative financing — such as debt swaps allowing countries to renegotiate debt in exchange for development commitments — can address debt vulnerabilities and boost development spending simultaneously.

Policy responses to the shocks can entail other trade-offs. For example, the tightening of monetary policy (leading to higher interest rates) to contain inflation can increase borrowing costs, slow investments down and lead to a contraction of the economy, as research in Ethiopia revealed. When researchers presented their results, Ethiopia’s finance ministry realized the need to increase the capacity to innovate in public debt management. The researchers provided training for that purpose, signaling the need to institutionalize this type of skills building. 

Countries dependent on commodity imports felt the impact of the Russia-Ukraine war more than others. One of the lessons from the research is that deeper economic integration among African countries could promote long-term resilience and contribute to stability during global shocks. Lessons include the importance of maximizing continental trade through incentives for industries to integrate regionally, and establishing mechanisms to manage the risks involved in switching to regional trade, to name just two measures.

Countries can also reduce their risks by diversifying sources of supply. They can, for example, increase domestic production, release existing stocks and diversify import sources. Focusing on renewable energy projects and energy efficiency measures could reduce dependency on imported energy. 

Lessons from the COVID-19 pandemic

IDRC-supported research during the COVID-19 pandemic also aimed to build national economic resilience and slow the widening of inequalities. The research generated a rich body of evidence on building resilience to global economic shocks.

The pandemic slowed economic growth. Inflation soared and public debt in many low-income economies became unsustainable. Higher-income economies put in place large economic responses, reaching 23% of GDP. By contrast, low-income country responses, with limited fiscal resources, amounted to 4% of GDP.

As with other global shocks, the impacts were uneven, not only across countries but also within them, further undermining progress towards global goals such as health and education for all. Pandemic lockdown measures impacted certain groups more than others: workers in the informal sector including migrants; youth whose education, training and employment opportunities suffered; and women who carried increased responsibilities for care work.

In Zimbabwe, a study led by local experts revealed how the pandemic exacerbated existing vulnerabilities — particularly among poor women — through income loss, food insecurity and increased unpaid domestic work. The researchers recommended targeted measures to protect vulnerable jobs and support poor women’s re-entry into the labour market. Through the team’s direct engagement with the minister heading the National COVID-19 Task Force, these recommendations were incorporated into the Zimbabwean government’s COVID-19 responses.

Cash transfer programs to support individuals and debt repayments can inadvertently reinforce gender inequalities if there is no gender analysis or policies to increase the availability of money and credit in the financial system. Similarly, the studies on the impact of the Russia-Ukraine war on Africa show that targeted cash transfers, employment schemes and business support could have been more effective than broad-based subsidy measures to address the unequal impacts on food security and energy uptake during periods of price shocks.

As crises continue to rock the Global South, more investments are needed to enhance the capacity for impact research and make more data available for decision-making.

Read the ODI report

Contributors: Arjan de Haan, senior program specialist, IDRC; Dianah Ngui Muchai, collaborative research manager, African Economic Research Consortium; Sherillyn Raga, research fellow, ODI; Jane Mariara, executive director, Partnership for Economic Policy; and Alemayehu Geda, professor, Department of Economics, Addis Ababa University, Ethiopia.