Respondents to the latest Global Risks Perception Survey (GRPS) 2022 expect the next three years after the COVID-19 pandemic (2022-24) to be characterised by consistent economic, political and social volatilities, which will further widen the gap between the rich and poor.
The Global Risks Report 2022 analyses key risks emanating from current economic, societal, environmental and technological tensions annually. Asked to evaluate the past two years after the pandemic, respondents to the GRPS perceive societal risks in the form of “social cohesion erosion”, “livelihood crises” and “mental health deterioration”, as those that have worsened since the pandemic began in 2019. Only 16% of respondents feel positive and optimistic about the outlook for the world, and just 11% believe the global recovery will accelerate.
When asked to rank the top-ten social and economic issues facing the world over the next ten years, respondents named climate action failure, extreme weather, biodiversity loss, social cohesion erosion, livelihood crises, infectious diseases, human environmental damage, natural resource crises, debt crises and geo-economic confrontation to look out for.
From the above list of issues, societal and environmental risks emerge as the most pressing issues that both public policy and private sector decision-makers need to address. In other words, ‘Social cohesion erosion’ is the risk that has worsened most globally since start of the COVID-19 crisis. It is perceived as a critical threat to the world for the next 10 years. The report predicts that by 2024 the economies of developing counties (excluding China) will have dropped by 5.5% below their pre-pandemic expected GDP growth, while advanced economies will have surpassed it by 0.9% – further widening the global income gap.
Overall, the global economic outlook remains weak, as economic growth is forecast to be 2.3% smaller by 2024 than it would have been without the pandemic. Besides, the unending rising of commodity prices, inflation and debt are threatening developing economies – stifling the abilities of these countries to facilitate a sustained recovery. Thus, the resulting global divergence will create tensions within and across borders; a trend that could worsen the pandemic’s widespread impacts and complicate the mobilisation of resources needed to tackle common challenges, including strengthening climate action, restoring livelihoods and improving societal cohesion among others.
According to the GRPS 2022 report, across the globe economic fallout from the pandemic is increasing. Key areas of concern are labour market imbalances, protectionism and widening digital, education and skills gaps that risk further widening the poverty gap. The GRPS forecasts that short-term domestic pressures will make it difficult for governments to focus on long-term priorities, a trend that could limit the political capital allocated to address global concerns.
Social cohesion under threat
The Report notes that “social cohesion erosion” is an emerging threat in 31 countries, including Argentina, France, Germany, Mexico and South Africa from the G20. The logic flowing from this development is that if social cohesion is a threat in some G20 countries, the very poor countries with fragile economies run a risk of economic meltdown unless there is a global commitment to bail them out. This undoubtedly includes Ghana’s economy, which has been badly hit by the pandemic – thus worsening the debt shackles that are suffocating the economy.
In fact, the sovereign debts of many poor countries, including Ghana, have spiked because of the pandemic. In 2020 global government debts increased by 13 percentage points to 97% of GDP. Furthermore, the already constrained public finances in developing countries are at a higher risk from unsustainable debt and an appreciation of the US dollar. GRPS respondents identified “debt crises” as a critical short- and medium-term threat to the world over the next decade. The Report forecasts that debt overhangs will make it more difficult for poor countries to deal with the economic impacts of COVID-19.
This what is happening to Ghana’s economy: In the 2023 Mid-year Budget Review, Ghana’s finance minister, Ken Ofori-Atta, noted that Ghana’s debt overhang compelled government to turn to the IMF for financial support. The debts have wreaked a negative impact on the financial sector, as banks and other institutions have been exposed to these restructured assets, says the finance minister.
This has resulted in the Domestic Debt Exchange Programme’s (DDEP) launch to restore macroeconomic stability and debt sustainability.
According to the finance minister, the Russian invasion of Ukraine has further exacerbated persisting effects of the COVID-19 pandemic on the global economy – with dire consequences for Ghana. In this regard, structural constraints within the global supply chain have contributed to record-level inflationary pressures and hampered the central banks’ monetary policy instruments.
Consequently, in many emerging and developing economies, fiscal and banking sector risks are increasing. Mr. Ofori-Atta confirmed that this global backdrop, in addition to the existing vulnerabilities, has resulted in an unanticipated economic crisis for Ghana. Moreover, the financial sector clean-up from 2017 to 2021 and shortfall of budgetary provisions from the energy sector have further contributed to Ghana’s debt dynamics worsening beyond its organic growth.
These developments together with investor concerns attracted multiple credit rating downgrades, besides negatively affecting exchange rate depreciation, substantial capital outflows, restricted external market access and reduced international reserves. These cumulatively led to acute domestic financing difficulties.
What’s worse is that disparities which were already challenging societies are now expected to widen. The GRPS notes that an estimated 51 million more people are projected to live in extreme poverty compared to the pre-pandemic era. This volatile population cuts across the world, but the majority of them are from Africa and at risk of increasing polarisation and resentment within their societies.
Perhaps the political upheavals in West Africa – which have led to military takeovers in Guinea, Mali, Burkina Faso and now Niger – are the result of an unfair global economic order that has created the platform for western countries to continue siphoning resources out of poor countries, while the people live on next to nothing. Small wonder that the new military rulers in Mali, Burkina Faso and Guinea are renouncing the colonial policy of France that empowers it to control all the natural resources of poor Francophone countries.
Climate change concerns
Apart from concerns over political and economic instability, the planet’s health is beginning to dominate global concerns and policymaking. Several studies, including the one under review, have found environmental risks as the top-five most critical long-term threats to the world. Besides the debt crisis facing poor countries, climate change, global warming, extreme weather, ocean depletion and biodiversity loss constitute the top-three threats facing the world. These issues, if not addressed comprehensively, are expected to spark geo-economic confrontations and diplomatic spats among poor and rich countries over the next 10 years, according to the GRPS.
Not surprisingly, respondents to the GRPS rank “climate action failure” as the number-one long-term threat to the world. Climate change is already manifesting rapidly in the form of droughts, fires, floods, resource scarcity and species loss, among other impacts in poor countries. In 2020, multiple cities around the world experienced extreme temperatures not seen for years; such as a record high of 42.7°C in Madrid and a 72-year low of -19°C in Dallas; and regions like the Arctic Circle have averaged summer temperatures 10°C higher than in prior years.
Extreme heat and drought in the Sahelian countries of Africa over the past few years have been well documented. The change in weather patterns is making it difficult for peasant farmers to cultivate food to feed their families, let alone selling to earn an income. Whereas Africa’s contribution to global warming is insignificant, the continent bears much of the brunt from effects of the operations of multinational companies that pollute the environment and water-bodies. In fact, climate change continues to be perceived as the gravest threat to humanity – though many people are not taking its threat seriously.
Facing the pressure
Consequently, governments, businesses and societies are facing increasing pressure to reduce the effects of their operations on the global environment. Given the complexities of technological, economic and societal change at this scale, and the insufficient nature of current commitments, it is likely that any transition that achieves the net zero goal by 2050 will be unequal as poor countries continue to suffer the worst effects of climate change.
Though the 2021 United Nations Climate Change Conference (COP26) succeeded in getting 197 countries to align on the Glasgow Climate Pact and other landmark pledges, these new commitments are expected to miss the 1.5°C goal established in the 2016 Paris Climate Agreement. Failure to meet the target may increase the risks from a disorderly climate transition.
There are indications that countries and companies that are still relying on carbon-intensive sectors risk losing competitiveness, compared with those shifting to renewable energy.
While carbon-intense industries currently employ millions of workers, adopting renewable energy and environmentally friendly innovations is the safest approach to business transitions, effective land use and sustainability. It must be noted that any transition that fails to account for social cohesion and livelihood protection will exacerbate inequalities across borders – as already being witnessed in West Africa. This explains why environmental social governance and corporate social responsibility and accountability reporting are attracting global and local attention. It is heartwarming that some corporate entities are responding to some level of societal demands to be good corporate citizens.