Home|[in] focus|How the War Is Impacting the Global South
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by Philani Mthembu

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Categories: [in] focus

by Philani Mthembu

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The ongoing conflict in Ukraine has continued to not only impact Russia, Ukraine, and its immediate region, but has reverberated throughout the various regions of the world through direct and indirect consequences for global efforts to meet the Sustainable Development Goals (SDGs) by 2030. This has especially had consequences for countries in the global South, who were looking forward to a period of recovery following the negative impact of the COVID-19 pandemic. These countries are affected both directly and indirectly through actions that are not of their own choosing. The following article provides an overview of some of the most pressing direct and indirect consequences of the conflict in Ukraine. It outlines the economic costs and their uneven distribution across the global South, while outlining how countries in the global South are adjusting their economic and political strategies to navigate an international order fraught with uncertainty and the possibility of greater fragmentation.

Countries in the global South have been disproportionately affected by the economic consequences of the conflict, which continues to see further escalation instead of efforts to de-escalate. Some of these consequences have included rising food and energy prices, while shortages in the supply of other important goods such as fertilisers have been exacerbated. These direct impacts of the conflict have also seen a raft of indirect effects on the global South, constraining their fiscal space and eroding safety nets across the world.

Percentage of net food imports in domestic food supply (total calories)

Russia and Ukraine are major commodities producers, and disruptions brought on by the conflict and the accompanying sanctions have caused global prices to soar, especially for oil and natural gas. Food costs have also jumped, with wheat, for which Ukraine and Russia make up 30 percent of global exports, reaching a record. The example of Egypt comes to mind as a country that imports about 80 percent of its wheat from Russia and Ukraine while traditionally attracting many tourists from both countries.  Some of the costs have also been brought on by disruptions to supply chains and payment channels brought on by the unprecedented sanctions placed on Russia, which has had to find alternative means to get their products to the market while creating alternative forms of payment. The removal of Russia from the SWIFT payment system has been especially disruptive, especially for those countries with closer economic ties. The creation of alternative payment systems has thus become a high priority for Russia to maintain its economic relations with countries in the global South.

International Wheat Prices and Trade Policy Measures

Some of the most visible indirect effects have been seen in the raising of interest rates by the US Federal Reserve and the European Central Bank. These macroeconomic interventions from central banks in leading industrialised countries have sought to combat growing inflation in the US, member states of the European Union (EU), and the United Kingdom in the midst of what has become a cost of living challenge for their citizens. However, such interventions have led to sharp increases in the external debt burden of many countries in the global South. This is outlined by the United Nations Conference on Trade and Development, whose report states that at the end of 2022 over 90 countries were on the brink of a debt crisis.

Countries in the global South have thus had to confront a number of direct and indirect effects of macroeconomic policy decisions in developed countries, increasing their cost of finance. Rising interest rates have additionally impacted exchange rates, leading to currencies in the global South weakening against the dollar, euro, and pound sterling. It is thus not only repayment costs to national debt that have gone up, but also the cost of importing essentials for countries in the global South, most of which are denominated in dollars.

It is important to note that the effects have not been uniform, with large importers being disproportionately affected. Those economies in the global South that heavily rely on oil imports have thus seen wider fiscal and trade deficits and more inflation pressure, while some exporters have benefited from higher prices, charging more for their products, which range from commodities such as oil, copper, iron ore, corn, wheat, and metals.

Change in Real Income in Selected Countries and Regions

While much has been said about the impact of the conflict on food and energy security, it is also important to factor in the impact of an increasingly fragmented geopolitical landscape on the global South as it drains much of the world’s focus away from addressing development challenges towards military expenditure. It has also created additional pressures on countries in the global South as they have had to weather a diplomatic onslaught from the United States and its European allies in their attempts to win the support of the global South in condemning Russia.

While countries in the global South have mostly sought to chart a non-aligned position, they have also encountered veiled and at times open threats about the consequences of their decisions to not openly condemn Russia and back Western positions. Examples have included the likes of South Africa, which faced false accusations of supplying weapons towards Russia. These accusations led to dire economic and reputational consequences, and illustrated the extent to which the US was willing to go to apply pressure on countries in the global South as South Africa would eventually send envoys to countries of the G7 to explain their position on Ukraine while seeking to prevent further negative economic consequences resulting from their non-aligned position.

Many countries in the global South have also had to consider the broader implications of the unilateral sanctions imposed by the US and its European allies on Russia, which are seen as part of continued actions that have weaponized the US dollar. The most glaring example is the removal of Russia from the SWIFT payment system and the freezing of its foreign reserves, amounting to roughly $300 billion held in gold and forex reserves. It is perhaps this action that sent the biggest shock waves in the global South, leading some to conclude that if Russia’s foreign reserves could be frozen, there was very little keeping the US from freezing the foreign reserves of other countries who took positions seen to go against US interests. This has become a growing concern in a fragmented geopolitical landscape that has seen multilateral institutions in crisis and the erosion of international law and long accepted diplomatic practices. Such an environment lends itself to increased efforts to create alternative payment mechanisms and increase the use of local currencies to settle financial transactions, which was also emphasized during the BRICS Summit hosted in South Africa.

While most countries in the global South do not oppose sanctions that are supported by the United Nations Security Council (UNSC), they have generally voiced their apprehension with unilateral sanctions. This is reflected not only in the reluctance to impose sanctions on Russia, but in their principled opposition towards unilateral sanctions applied to the likes of Zimbabwe, Iran, Cuba, and Venezuela. This explains why even those countries in the global South that have condemned Russia have not imposed their own sanctions, instead calling for dialogue and a peaceful resolution to the conflict. However, this also points to a difference in approach from countries in the global South, who often voice their frustration that diplomatic channels were not fully exhausted to resolve tensions between Russia, Ukraine, and members of the EU and NATO. It also points to a UN system in crisis and in need of reforms. While countries in the global South had no problems abiding by sanctions imposed on Sudan by the UNSC, the UN system has been shown to lack the necessary tools to address conflicts where a member of the UNSC is involved.

In the longer term, it remains a plausible scenario that the conflict in Ukraine may continue to alter the global economic and geopolitical order as countries in the global South feel compelled to adapt to greater uncertainty brought by increasing geopolitical competition. Some of the important areas to pay attention to will be shifts in the energy market, and a reconfiguration of supply chains as countries in the global South seek to strengthen and develop regional value chains .to enhance their resilience. The longer the conflict lasts, the more likely that payment systems will continue to fragment, with more countries rethinking reserve currency holdings in the fear that the US dollar could be weaponised even more, especially against countries seeking to take independent positions that are not necessarily against the US and its Western allies, but that do not necessarily follow step by step their policy prescriptions. This would thus exacerbate the risk of further economic fragmentation, especially for trade and technology.

Dr. Philani Mthembu is Executive Director at the Institute for Global Dialogue. 

This article was first published by bpb.de https://www.bpb.de/themen/wirtschaft/europa-wirtschaft/543289/wie-der-krieg-den-globalen-sueden-trifft/

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