2 Global challenges
The last three decades were marked by historical progress for many developing countries: extreme poverty and child mortality declined, and life expectancy and levels of education increased. Even in the years before the covid pandemic, however, there were signs that this trend was about to turn: In many developing countries, there was a slight decline in economic growth several years before the pandemic, and in the wake of it, we have seen an increase in the number of poor people in the world for the first time in decades. Infant mortality, which has seen a steady decline for decades, has now increased in several countries as a result of the pandemic.4 Forecasts are more uncertain but no less pessimistic, which stand in sharp contrast to the optimistic outlook that culminated in the formulation of the Sustainable Development Goals (SDGs) in 2015.
The war in Ukraine has led to food and energy crises across the entire world. Inflation and financial instability are spreading rapidly across continents. The covid pandemic also showed how events or crises have global consequences. The climate crisis is the clearest expression of these mutual vulnerabilities, but also how unevenly distributed these consequences are: While climate change does affect all societies, the most severe ramifications are and will be felt mostly by poorer countries and groups that have contributed the least to the problem.5
Heightened geopolitical tensions also undermine multilateral cooperation, which is necessary to make progress on responding to global challenges. The effects of this rivalry on the functioning of the multilateral system to deliver aid effectively are significant.
The UNDP has for the first time since the inception of the Human Development Index registered a decline in human development.6 Loss of nature and possible collapse of ecosystems will have catastrophic consequences for communities and livelihoods in the Global South going forward. For example, the UN’s Intergovernmental Panel on Climate Change (IPCC) estimates that Africa has already lost 13 % of its gross domestic product (GDP) per capita due to the climate and natural crisis. Moreover, we have seen a global decline of democracy in recent years, and there are now twice as many countries moving in an authoritarian direction as there are countries moving in a democratic direction.7 Add to this that in absolute terms, the number of people in need of emergency relief has reached an all-time high at 274 million, up from 136 million in 2012.8
Over half of the world’s low-income countries (58 %) currently have or are at great risk of facing debt problems.9 The combination of weak growth in the tax base, a strong US dollar and major budget deficits has increased the debt burden. Although the debt crisis of the 1990s was more severe, the International Monetary Fund (IMF) warns that a similar critical situation may arise in the medium term, especially when debt needs to be refinanced at ever-increasing interest rates, and by a much more differentiated group of creditors.10
In his speech to the World Economic Forum Annual Meeting in Davos in January 2023, the UN Secretary-General pointed out that the world is facing a crisis of trust in the relationship between the Global North and the Global South.11 This is expressed in many ways, including in the field of climate. Climate-vulnerable developing countries – which are already feeling the consequences of climate change in the form of more frequent extreme weather and loss of livelihoods – do not feel that rich countries, which were largely responsible for the accumulated emissions that caused the problem, are contributing as they should to solving the problem.
Against this backdrop, the chapter describes key global challenges that form the basis for contemporary development cooperation.
In this chapter, we will
- show that the world has seen considerable progress in human development over the past 30 years, but that this positive development is now at risk without forceful action.
- show that there is a great and urgent need to invest in global problem-solving.
- show that there is significant potential for solving global challenges through ambitious and well-designed interventions, but that this requires both more public and private financing of development and the provision of global public goods.
- demonstrate that through such well-directed efforts over the next two to three decades we can avoid a manifold increase in future costs while at the same time helping poor countries to achieve sufficient capacity for economic growth.
2.1 Poverty, economic development and inequality
The last thirty years have been characterised by increased globalisation and economic growth. This economic growth has contributed to a significant reduction in extreme poverty in low- and middle-income countries. Yet, as Figure 2.1 shows, projections show that by 2030, many hundreds of millions of people will be living in extreme poverty around the world. If we add those living just above the extreme poverty line to this figure, the projection is even more dismal. With a poverty line of USD 3.65 a day, which is closer to the average of national poverty lines in several lower-middle-income countries, 23 % of the world’s population will live in poverty.
Figur 2.1 Three scenarios for reducing extreme poverty
Note: Global poverty rate of USD 2.15 a day in 2017 purchasing power parity. Percentage of the world’s population.
Source: World Bank, 2023. Poverty and Inequality Platform. Available at https://pip.worldbank.org/home.
Although future projections are bleak, the historical pattern is that the world has seen significant positive developments in poverty reduction over the past 30 years. Asia, in particular countries such as Vietnam, China, and India, has seen a formidable economic growth and associated poverty reduction. About one billion people have worked their way out of poverty in Asia in one generation.12 In sub-Saharan Africa extreme poverty was reduced from 55 to 41 % between 1990 and 2018. At the same time, however, the population doubled (to over one billion), bringing the number of people in extreme poverty up to around 150 million.13
Both economic growth and the reduction in the number of poor people in developing countries were significantly lower in the period 2011–2019 than in 2000–2010 (see Figure 2.2). The World Bank estimates that global economic growth in the period 2020–2025 will be at its weakest in 60 years. A new report concludes that the long-term factors for growth have been weakened.14 This indicates that the economies of many low- and middle-income countries experienced structural problems even before the pandemic and the war in Ukraine.
Figur 2.2 Development slowed in low-income countries in the years before the pandemic
Note: Average for the given periods. Note that we only have figures for the proportion of extreme poor in low-income countries up to 2018.
Source: World Bank, 2022. World Development Indicators (last updated April 2022). Available at https://databank.worldbank.org/source/world-development-indicators.
Corruption, and in particular cross-border corruption and other illicit capital flows, remain a major obstacle to development. The United Nations Convention against Corruption (UNCAC) notes that corruption undermines institutions and puts sustainable development, democracy and the rule of law at risk. The UNCAC also expresses concern about the links between corruption and other forms of crime, in particular organised and financial crime, including money laundering. Illegal export of capital stemming from, for instance, corruption and tax evasion leads to net capital flow from countries in the Global South to countries in the Global North, particularly to countries with low taxes and a high level of secrecy. This contributes to inequality, nationally and globally, and may give rise to social unrest and distrust.
The pandemic led to an increase in the proportion of extremely poor people in the world, from 8.4 % in 2019 to 9.3 % in 2020. As incomes in the poorest countries fell more than in rich countries, we have once again seen an increase in inequality between countries. This adds to a longer-running trend where extreme poverty is increasingly concentrated in sub-Saharan Africa.15
Over the past 25 years, inequality between countries has declined significantly.16 Within countries, inequality is still high and, in many countries, increasing. Figure 2.3 compares inequality across the world’s countries. Globally, it is estimated that a reduction in the Gini coefficient of one percentage point per year would contribute more to poverty reduction than an increase of one percentage point in economic growth.17 Addressing inequality can therefore, in some cases, be an effective way of reducing poverty. However, redistribution alone is not a realistic way out of poverty for many low-income countries. This is especially true for certain countries in sub-Saharan Africa, where the overall income is still so low that significant economic growth is the only way to lift larger sections of the population out of poverty. Nevertheless, the map also shows that this region, in addition to harbouring many of the world’s poorest countries, also has some of the highest inequality rates in the world.18
Figur 2.3 Highest relative inequality in South America and Africa
Note: The figure shows how many times less the lower 50 % of the population earned than the upper 10 % in 2021. For example, the lower 50 % of the population in Brazil earned 29 times less than the upper 10 %. Income includes pensions, social security and other individual benefits, but excludes other transfers and taxes.
Source: World Inequality Lab. 2022. Methodology. World Inequality Report 2022. Available at https://wir2022.wid.world/methodology.
Inequality is also manifest in how crises impact societies: In addition to the purely economic downturn during the pandemic, it was also in the poorest countries that we saw the biggest setbacks in health and education. By mid-2022, 72 % of people in high-income countries had been vaccinated with at least one dose of a Covid-19 vaccine, while only 21 % of people in low-income countries had been vaccinated in the same period. Moreover, the extent of missed school days was greatest in low-income and lower-middle-income countries, where the capacity for home learning is lowest. In these groups of countries, more than half of 10-year-olds were illiterate even before the pandemic.19 The economic consequences of the loss of learning will be substantial and lasting. Expressed in terms of increased years in poverty or reduced GDP, they may, according to some estimates, be even greater than the direct economic impact of the pandemic.20
There is currently a high degree of climate inequality. The richest 10 % in the world, around 770 million people, account for about 48 % of the world’s greenhouse gas emissions. The poorest half of the world’s population, 3.8 billion people, only account for 12 % of global emission and yet these countries are at the same time most vulnerable to the consequences of climate change.21
2.2 Fragile states are a particular challenge
Increasingly, extreme poverty will be concentrated in what are often classified as fragile states. Fragile states are often characterised by armed conflict and political violence and/or where government institutions are generally weak and unable to implement policies. The OECD highlights 60 contexts, mostly states, which are currently considered fragile.22 This means that 1.9 billion people live in fragile contexts. These areas are home to 73 % of the world’s extreme poor, a proportion that is estimated to rise to 86 % by 2030. Demographic developments will further intensify this trend, as half of the world’s total population growth until 2050 is expected to take place in just twelve countries, of which three of the five with the highest growth rates are fragile states; see Figure 2.4.
Aid is a crucial source of funding in fragile contexts. In 15 of the most fragile contexts, ODA volumes are seven times the amount of foreign direct investment and three times that of remittances from migrants. In 2020, total international aid allocated to fragile contexts reached a record high of USD 91.4 billion. Fragile states are a priority in Norwegian development cooperation. Eleven of Norway’s 16 current partner countries for development cooperation are defined as fragile states, including several of the largest individual recipients of Norwegian aid, such as Ethiopia and Syria.
Figur 2.4 Half of the world’s population growth through 2050 will occur in 12 countries
Note: Population growth by 2050 in 12 countries. The UN projection of global population growth shows an increase of around two billion people through 2050. The twelve countries in the figure account for one billion of this increase.
Source: UN. 2022. World Population Prospects 2022. Available at https://population.un.org/wpp/.
The challenges associated with fragile states highlight a fundamental problem. Peace and stability are preconditions for development and economic growth. For low- and middle-income countries, a violent conflict costs on average around 30 years of GDP growth.23 At the same time, economic development is an important driver of reduced conflict and violence within and between countries.24 This forms the basis of what is referred to as the conflict trap: A low level of socio-economic development is a driver of conflict, while conflict has a further detrimental effect on economic development.25 This dynamic can lock countries in a spiral of conflict and poverty that is difficult to stop. Had the world only consisted of stable poor countries, we would most likely have achieved SDG 1 (End poverty in all its forms everywhere) within this decade.26
The increase in the number of conflicts we have seen in recent years is therefore an ominous sign for the 2030 Agenda.27 Projections based on current levels of conflict and historical trends estimate a global economic loss (reduced economic activity) between 2022 and 2030 of USD 28 trillion.28 This economic loss is expected to grow to USD 292 trillion by 2050. About 150 million people are expected to live in extreme poverty caused by civil war in 2030, compared to a scenario without conflict.29
Around 130 million of these live in only ten particularly vulnerable countries where conflict mitigation can make a highly effective contribution to reducing extreme poverty.30
2.3 Climate change as a growing challenge
Climate changes may soon reach a ‘tipping point’ with potentially irreversible consequences. We can already observe how climate change is increasing the frequency of extreme weather events and droughts, destroying food production and displacing people. In this way, climate change can reverse the progress in human development. Reducing climate emissions and ensuring adaptation is therefore an urgent task.
The consequences of climate change are greatest in countries in the Global South, which have contributed the least to creating the problem. While there is no doubt that economic growth and climate action must go hand in hand in the long term, there is a tension in the short and medium term between prioritising economic growth and poverty reduction on the one hand and climate action on the other.31
The IPCC highlights in its synthesis report (see box) that to achieve climate- and sustainability goals, it is necessary with climate resilient development. The core of climate resilient development is emission reduction, climate adaptation and sustainable development, with the aim of ensuring a safe climate, fulfilling basic human needs, eradicating poverty and enabling equitable and sustainable development.
Boks 2.1 Key takeaways from the sixth IPCC Assessment Report |
Climate change is here now: Climate change is a threat to human well-being and planetary health (C.1). The IPCC now concludes that the effects of warming occur at lower temperatures than previously estimated (B.2, B.2.2). All regions of the world are already affected (A.1). This decade is critical – every hundredth of a degree matters:The choices and actions implemented in this decade will have impacts now and for thousands of years (C.1). There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all (C.1). With every additional increment of global warming, the number and intensity of extremes will become larger (B.1.3), making climate-resilient development more difficult to achieve (C.1.1). Injustice: Who contributes to and who is affected by climate change is not fairly distributed (A.1.5, A.2.2). Vulnerable communities who have historically contributed the least to current climate change are disproportionately affected (A.2). The need:Stopping global warming at 1.5 or 2 degrees requires immediate, comprehensive and sustained emissions cuts in all sectors this decade. (B.6). To limit warming to 1.5°C, global CO 2emissions must be halved by 2030 (B.6.1), reaching net zero CO 2 in the early 2050s (B.6.1). Adaptation: A number of systemic constraints are preventing successful climate adaptation, such as a lack of financing and poor understanding of the urgency (A.3.5). Adaptation options often have long implementation times (C.2.1), and accelerated implementation of adaptation in this decade is essential (C.2.1). Adaptation options that are feasible and effective today will become less effective with increasing global warming (B.4), and human and natural systems will reach their adaptation limits (B.4). People: Increasing weather and climate extreme events have exposed millions of people to acute food insecurity and reduced water security (A.2.2). The productivity of agriculture, fisheries and aquaculture has been weakened (A.2.4). Roughly half of the world’s population currently experience severe water scarcity for at least part of the year (A.2.4). In all regions, increases in extreme heat events have resulted in human mortality and morbidity (A.2.5). The incidence of infectious diseases and mental health challenges has increased (A.2.5). More and more people are being displaced (A.2.5). Economic loss from climate change has been detected in climate-exposed sectors, such as agriculture, forestry, fishery, energy, and tourism (A.2.6). Around 3.5 billion people live in contexts that make them highly vulnerable to climate change (A.2.2). |
Box 2.1 (cont.) FinancingBoth adaptation and mitigation financing will need to increase many-fold (C.7). To limit warming to 1.5°C or 2°C will require annual investments of three to six times the current levels (C.7.2) (C.7). Financing gaps and opportunities are largest in developing countries (C.7.4) and accelerated financial support from developed countries is crucial (C.7.4). What we need to do going forward: Climate resilient development, i.e., both adaptation and emission reductions, is made possible by international cooperation and mobilisation of funding, especially for the most fragile regions, sectors and groups. To succeed in climate resilient development, we must include all levels of society – civil society, local authorities, the private sector – and work across sectors, but in a way that is adapted to local circumstances and conditions. |
A new report series from the World Bank shows that for low-income and some middle-income countries, the greatest challenges will be of an economic and financial nature, both in terms of the direct costs incurred as a result of climate change and the requirements for investment in the transition.32
Middle-income countries comprise 5.5 billion people and account for a rapid growth in emissions. Per capita emissions correlate strongly with income levels and are therefore highest in high-income countries (Figure 2.5). At the same time, we see that the previously strong correlation between growth and emissions changes has started to change in some countries. Many EU countries, for example, have already managed to decouple economic growth from increased greenhouse gas emissions.33 However, it is not enough that emissions grow more slowly than the economy – they must be dramatically reduced in the years ahead if we are to reach the 1.5°C target.
Figur 2.5 High-income and higher-middle-income countries still account for most greenhouse gas emissions
Note: Total greenhouse gas emissions per year, broken down by income category.
Source: World Bank, 2022. World Development Indicators (last updated 23 April 2022). Available at https://databank.worldbank.org/source/world-development-indicators.
The green transition will be crucial in the decades ahead. In countries with a high consumption of fossil fuels, this will lead to loss of income and investments in the short term, but an increase in gains in the longer term. The conflict between climate action and economic development is therefore most precarious in the short and medium term and is clearly greatest in low-income countries with limited financial leeway. During the transition, the degree of conflicting interests and the legitimacy of climate action will depend on the availability of funding and social safety nets for those affected.
2.4 Investment opportunities
Africa has over 60 % of the world’s unused arable land, and 90 % of its food is produced by small-scale producers. Investments in technology to increase productivity can significantly increase food production on the continent. This will ensure food for 200 million people across Africa who currently do not have access to enough food, and thus make a significant contribution to global food security.34
Despite pessimistic developments, the potential for making good investments in developing countries is significant. Sixty per cent of the world’s highest-quality solar energy resources are found in Africa. These resources can make a crucial contribution to solving the world’s energy crisis, if they are developed. They also provide a unique starting basis for electrification of the continent and thus a growth trajectory based on renewable energy.
The African continent also has significant potential for digital infrastructure development. Africa has seen greater growth in mobile and internet access than any other region in the past decade. Over 40 % of Africa’s population now has access to the internet, and this is expected to grow by 11 % over the next 10 years, contributing to a 2.5 % GDP growth.35Increased internet access will also mean increased access to a global digital labour market for the growing young population, and, in turn, unique access to labour for global technology companies.
More than 60 % of Africa’s population is currently under the age of 25. While the rest of the world’s population is ageing, 42 % of young people globally by 2030 will be Africans. Moreover, we are already seeing how the majority of African start-ups are run by Africans under the age of 35. There are also other positive demographic trends that give reason for optimism. The consequences of child and maternal mortality are disastrous, not only for the family, but for society at large in the form of loss of economic opportunities. Infant mortality has decreased by 59 % since 1990, while maternal mortality has decreased by 38 % between 2000 and 2021.36
Investment in education for girls has long been known as one of the best investments developing countries can make. Education for girls contributes to reducing maternal and child mortality, lowering population growth and the number of child marriages, in addition to protecting children’s rights and strengthening women’s position at home and at work. Today, 87 % of girls complete primary and lower secondary school, an increase of 20 % (from 67 %) in 1995.37 This, too, provides a good basis for economic growth.
2.5 Pandemic, climate, war, protectionism and lack of trust
Globalization entails both economic and political interdependence: Just as global trade helps produce growth and reduce poverty, the breakdown or reduction in such global trade have consequences for both rich and poor countries, albeit in uneven ways. Such interdependence extends to a range of issues, and there is broad recognition of the need for global cooperation on issues that are truly global in character. Action on climate changes is the clearest example, but it also applies to research and development of vaccines, tackling biodiversity, and producing digital public goods. The upshot of this is that – more than ever – developmental challenges in low- and middle-income countries are closely linked to global conditions and to the political and economic situation in high income countries.
The prevention and management of pandemics, for example, require global efforts, in rich and poor countries alike. However, Covid-19 showed the extent to which the resources for dealing with a pandemic are characterised by severe imbalances between rich and poor countries. International climate negotiations are also characterised by conflicting interests: Rich countries that have been responsible for the largest share of greenhouse gas emissions are now asking poor countries to decarbonise their economies while climate financing for such efforts often comes at the expense of traditional ODA targeting poverty reduction and is therefore not “additional” as agreed at the UN’s sixteenth climate change conference (COP 16) in 2010.
International trade, which was one of the main catalysts of the Asian development miracles seen in recent decades, is now facing an increasing number of protectionist measures, for instance in the form of customs fees, tariffs and technical barriers to trade.38 International goals to increase the least developed countries’ (LDC) share of global exports have not been met – they still only account for 1 % (the same as in 2011). Barring investments in China, foreign direct investment in low- and middle-income countries has declined significantly since 2008, from nearly 4 % of GDP to just over 2 %.
Decades of growth in international trade have contributed to increased economic growth and a reduction in the number of poor people in the world, despite population growth. The pandemic and the war in Ukraine have disrupted key global value chains, as access to raw materials, transport and production capacity have become more expensive or, at worst, been lost. Several countries have decided, also for security policy reasons, to become less dependent on these value chains by strengthening their own production capacity. Reduced international trade and disruption of global value chains will lead to reduced economic growth. This will also affect the poorest countries and slow the reduction of, or at worst increase, global poverty.
The past decades have seen a significant increase in the number of refugees and migrants. This trend affects both how aid is used and relations between countries. According to the UN International Organization for Migration (IOM), there were around 281 million international migrants in 2020, representing an increase of 81 million from 2000. At the same time, the number of refugees has increased dramatically in the past decade, to around 32.5 million in 2022.39 This can be partly explained by an increase in conflicts and political instability in several countries, such as Syria, Afghanistan and Venezuela, forcing millions of people to flee their home countries. Increasingly, climate change is contributing to this upward trend in migration and refugee flows.
Russia’s invasion of Ukraine has global consequences. For developing countries, it means both increased food prices and thus reduced food security, but also a relative decline in ODA funding as more of it is being channelled to help Ukraine. This development has arguably contributed to a further erosion of trust between countries in the Global North and Global South.
2.6 Conclusion
Global economic growth forecasts are weaker than only a few years ago. At the same time, the climate crisis produces new dilemmas for countries that need both rapid economic growth and a green transition at the same time. In general, global crises and events are impacting the prospects for development, thereby increasing the need for responses that are both national and global in orientation.
The 2020s have brought about fundamental changes in global development. The strong positive trends that dominated the decades leading up to the adoption of the SDGs have weakened, at the same time as new and overlapping crises have put further strain on development cooperation. Some crises have been brewing for a long time, while others have emerged quickly. Some of these have been predictable others not, but none of the crises have emerged in a vacuum. UN Secretary-General António Guterres summed up the challenge in a speech to the World Economic Forum in January 2023 by pointing out that while the need for urgent and effective international cooperation to prevent and act on global crises is higher than ever, mistrust and geopolitical tensions make such international cooperation less likely. In many ways, the character of global problems has outgrown the international political and institutional architecture that was established to solve them. This is the topic of the next chapter.