It’s time to look for alternatives to exports and foreign investment to promote development

Development strategies in the global south in general – including the Arab region – are still based on the Washington Consensus formed in the 1990s, which focuses on expanding goods and services exports and attracting foreign direct investment as two main ways to spread and grow.

This strategy conflicts with the steady decline of economic globalization over the past decade, beginning with the global financial crisis in 2008/2009, which has damaged world trade and foreign direct investment from which it has not recovered to date, and then the subsequent crisis. of the Corona epidemic, which has also severely damaged the logic of globalization itself, favors the return of states’ control over their borders and their health and production systems.

This is in addition to the disruption of commodity trade and production chains, and the decline in trade in services such as tourism, travel and the movement of individuals. Finally, the effects of the Russian war against Ukraine on global trade and financial systems, which have not yet appeared in their full form with the continuation of hostilities and even the possibility of their expansion.

There is a need to review the foundations of the development strategy in the Global South, as it is particularly applicable to the non-oil Arab countries with large populations such as Egypt, Morocco, Tunisia and Jordan.

This article is specifically about The need to review the orientation to exports As a priority at a time when world trade is shrinking and the world is turning to more protectionist forms between the largest economic blocs in the world such as the United States and China, which are fighting, so to speak, a cold trade war. This is in addition to the escalation of the problems of regional integration within the European Union in the wake of the withdrawal of Great Britain, as well as the exclusion of Russia’s Western allies from the raw materials markets in the coming years as a long-term strategic measure to weaken and contain it.

This will have serious and lasting consequences on the cost of production and the availability of many raw materials for export or domestic consumption worldwide.

The recovery that did not take place

Looking at the figures provided by the World Bank, it can be clearly seen that the downward trend that world trade has taken since 2011 as a percentage of world GDP is constantly increasing.

The graph below shows that the proportion of world trade, with both parts of exports and imports, has never reached what it was in 2008 in the last decade, that is, before the global financial crisis. On the contrary, in 2020 the ratio was 51.6%, ie about 15% less than it was in 2008.

It should be noted that these numbers do not monitor the full impact of the Corona epidemic, which means that the average is expected to weaken further if we add the data for 2021 and 2022.

In the same way, the crucial place allocated to encouraging foreign direct investment in development strategies in the global south, including our Arab region, needs to be reviewed, given its deterioration over the past decade, albeit in a worse way as global trade.

It is clear that the proportion of net inward foreign direct investment to the world’s gross domestic product has peaked since 1970, on the eve of the global financial crisis. In 2007 the ratio was 5.43%, and then of course it collapsed in 2009 to start a slow recovery, but even in 2016 the ratio was 2.8%, or about half of what it was before the crisis was, and this of course before it dropped to 1.16% in 2020.

The decline in foreign direct investment can easily be linked to the relative global trade contraction at the same stage, as direct investment flows often flow into global production and distribution chains of goods and services.

Increasing exports or declining imports?

This article seeks to paint a larger picture of the transformations of the global economic system over the past few years, which create challenges for past postulates but open up opportunities for alternative strategies in the areas of production and investment.

Two main things can be concluded: The first is to revive plans for industrial deepening at national and regional level, if possible, instead of betting on expanding exports. This is especially true of countries suffering from chronic trade deficits, such as the general non-oil Arab countries.

It may be better for them to aim at the next stage to reduce their imports of intermediate and semi-finished materials, although the challenge lies mainly in avoiding the errors of import-replacement policies in the 1950s and 1960s, which are generally most parts failed. of the world.

The same goes for the target of foreign direct investment, as it has become clear that granting more incentives to foreign investors will not work with their global decline, and that generosity is exaggerated by tax exemptions, the provision of energy subsidies or the allocation of land and public assets at reduced or free prices can more The cost of what is hoped behind attracts these investors.

How do we borrow?

It refers to a strategy focused on local investment for commercial sectors that can competitively provide local or regional markets with production inputs needed for industry, agriculture and services. In addition, the formulation of strategies to link foreign borrowing with long-term investment plans, as indirect investment – especially in public and private sector debt instruments – has become the main body of capital flows in the world.

Since lending has become an inevitable evil for countries suffering from a shortage of capital, it should rather be on lines that are compatible with development goals in a way that balances pressure and financing burdens and the medium- and long-term returns of projects that are external. borrowing is used to finance. It is easy to show that the three axes are highly complementary and intertwined, and therefore they can and need to be integrated into a homogeneous development strategy in a world where globalization is declining.

(Prepared by: Amr Adly, an economist with an Arab angle and assistant professor at the American University of Cairo, Department of Political Science)

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