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After a trend towards regionalization last year, global cooperation strengthened in 2021

Vaccine cooperation and financial aid have helped meet the challenges of the pandemic

Major economies announced launch or expansion of global infrastructure plans

COP26 and the global tax rate were examples of successful global diplomacy

After a year in which supply chains and international travel were severely disrupted, 2021 saw an increase in global cooperation, as institutions, businesses and governments sought to work together to find solutions. to some of the major global challenges.

The onset of the Covid-19 pandemic in early 2020 has had a dramatic effect on global connectivity. The implementation of border restrictions severely disrupted the supply of goods and made cross-border travel extremely difficult.

In order to adapt to these challenges, many governments, companies and institutions have turned to a regionalization strategy.

For example, in April last year, the foreign ministers of the 10 ASEAN member states approved several collective initiatives to tackle the pandemic, including the creation of a Covid-19 pooled fund to enable a response fast to medical emergencies.

That same month, the GCC agreed to establish a food supply network to protect the region from food insecurity.

Vaccine cooperation

However, while 2020 was marked by a trend towards regional solutions, 2021 saw expanded global cooperation, as governments and international institutions collaborated on initiatives designed to help countries recover from the impacts of Covid- 19.

Foremost among these was the Covax initiative. The result of a collaboration between Gavi, the Vaccine Alliance, the Coalition for Epidemic Preparedness Innovations and the World Health Organization, Covax is designed to coordinate international resources to ensure that developing countries have affordable access to testing, to therapies and, above all, to Covid-19 vaccines.

Since vaccine distribution began in February, the program has shipped more than 610 million doses of vaccine to 144 countries, mostly low and middle income.

Despite these efforts, however, Covax has not been enough to bridge the vaccine gap between developed and emerging markets.

To take an example, while more than 90 million doses have been delivered to Africa through Covax and the African Vaccine Acquisition Trust, only four of the continent’s 54 countries are on track to meet the target of WHO to fully immunize 40% of the population by the end. of the year, according to a recent report from the Mo Ibrahim Foundation.

This has led to calls for greater global coordination with regard to vaccine distribution, especially in light of the discovery of the Omicron variant in southern Africa. Indeed, senior officials from WHO, the United Nations High Commissioner for Refugees and the International Organization for Migration recently called on G20 governments to provide more assistance to low-income countries.

Provide financial assistance

While Covax aimed to tackle the medical impact of the pandemic, other collaborative measures have sought to provide financial assistance to offset the worst of the economic fallout.

One of these was the Debt Service Suspension Initiative (DSSI), a G20-run program that offers a moratorium on bilateral loan repayments owed to G20 members and their merchant banks. .

Initially rolled out in June 2020, the DSSI, accessible to 73 low-income countries, has been extended until the end of this year.

The G20 common framework for dealing with debt beyond the DSSI complements this initiative.

Established in November last year by the G20 and the Paris Club – an informal group of 22 predominantly Western creditors – the Common Framework applies to the same 73 countries that are eligible for DSSI support.

It differs from the former in that it offers relief on a case-by-case basis, with assistance ranging from a full restructuring or debt reduction to longer-term deferral of debt payments.

Another measure intended to allay budgetary concerns has been the increase in the allocation of Special Drawing Rights (SDRs). Managed by the IMF, SDRs are international reserve assets defined by a basket of five currencies – the US dollar, Japanese yen, euro, British pound, and Chinese yuan – which are used by member countries to supplement their own reserves.

On August 2, the IMF Governing Council approved the allocation of SDR 650 billion to support the global economic recovery. It was the first new allocation since 2009 and by far the largest of its kind, doubling the $ 318 billion SDR previously released by the IMF.

While not seen as comprehensive solutions to the economic problems associated with Covid-19, these measures should help emerging markets cope with any liquidity shortages they may face, which in many cases have become more critical. due to the reduction in bilateral aid last year.

Global expansion of infrastructure

International institutions were not alone in taking a comprehensive approach in 2021, with a number of the world’s largest economies reaffirming their commitment to globalization over the past year.

After declining spending in 2020 on many projects related to its Belt and Road Initiative (BRI), China outlined a reformed vision for the future of the program, focusing on three aspects: the Green Silk Road, the Silk Road of Health and the digital Silk Road.

As the names suggest, the strategy will focus on the development of environmentally friendly projects, with particular emphasis on those in the health and ICT sectors, in various emerging markets.

Meanwhile, in June, the G7 announced the launch of its own global infrastructure development plan to compete with the BRI, called Build Back Better World.

Although specific details of the program have not yet been released, G7 officials said the program aims to close the $ 40 billion infrastructure gap in the developing world, thereby strengthening some of the links between high income markets and emerging markets.

Elsewhere, on December 1, the EU launched Global Gateway, its own international infrastructure strategy, which aims to mobilize € 300 billion in investments through 2027 to help the global recovery from the pandemic.

The launch or continuation of these initiatives comes as a number of emerging markets look to infrastructure projects to help boost their economic recovery from the coronavirus, with many emphasizing green or sustainable developments.

Increased diplomacy

Along with issues related to coronavirus recovery, there was also a higher degree of global cooperation on certain longer-term themes throughout 2021.

After a decade of talks and months of negotiations, 136 countries have signed an agreement to implement a global corporate tax rate of 15%.

The landmark deal aims to curb aggressive tax competition and could bring in around $ 150 billion in additional tax revenue each year, according to the Organization for Economic Co-operation and Development.

The deal was seen as a triumph for global diplomacy, especially as a number of emerging markets use low tax rates as an incentive to attract foreign investment. However, some emerging markets – namely Kenya, Nigeria, Pakistan and Sri Lanka – have yet to sign on to the plan.

Meanwhile, perhaps the biggest diplomatic event of the year was the United Nations Convention on Climate Change (COP26). Representatives from more than 200 countries gathered at the event, which was held in Glasgow between October 31 and November 12, to discuss ways in which they could reduce global emissions.

The results included pledges to ‘step down’ the use of coal-fired power and reduce deforestation, while more than 100 countries signed the US-EU-led Global Methane Pledge, which aims reduce methane emissions by 30% by 2030..

In addition, the parties also agreed on a landmark agreement to reform global carbon markets and improve carbon trading rules, seen as key tools in the transition to decarbonization.

However, COP26 was weakened by the absence of Chinese President Xi Jinping and Russian President Vladimir Putin, the leaders of two of the world’s top polluters. In addition, a number of emerging markets have criticized some of the proposals put forward by developed countries.

-Oxford Business Group

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