---

Queen's Speech

My Lords, it is a pleasure to follow the right reverend Prelate the Bishop of Chelmsford. I hope that he will forgive me for focusing not on Europe, as he did, but on the acute problems that face the developing world in this global financial crisis. I declare my usual interest as a member of the council of the Overseas Development Institute. As my noble kinsman, the noble Lord, Lord Jay of Ewelme, said, it was quite appropriate that the Government should give overriding priority in the gracious Speech to domestic economic problems. However, unlike him, I was encouraged by the fact that the gracious Speech also said that the Government, "““will work for a co-ordinated international response to the global downturn””.—[Official Report, 3/12/08; col. 3.]" That position was spelt out in more detail by the Prime Minister in his report to Parliament on the G20 crisis meeting in Washington last month. My right honourable friend emphasised then that the commitments made to protect the poorest and most vulnerable countries would be upheld. He reconfirmed the millennium development goals and called, importantly, for a greater voice and representation for the emerging and developing nations at future meetings. This emphasis was, of course, consistent with his well established personal interest in the fortunes of the developing world. This Government, under both the present Prime Minister and his predecessor, have built a proud record on development in the past decade. Interestingly, this lead has been supported by enthusiastic public opinion. Campaigns to help the poorest people in the world have attracted unprecedented support. In the past few optimistic years, at times it seemed that the iconic ambition to make poverty history could become a reality rather than just a rallying slogan. But what are the prospects now? As we have already heard from several speakers, the global crisis is bound to have a profound impact on developing countries, particularly, as my noble friend Lord Anderson of Swansea said, in sub-Saharan Africa. In the past two months, the International Monetary Fund has downgraded its growth forecasts for 2009 by nearly two percentage points for both developed and developing countries. As noble Lords will be aware, world growth is expected to be only 2.7 per cent in 2009, compared to 5 per cent in 2007, and world trade is likely to stagnate. However we apportion responsibility for this dire situation, it is clear that the poor developing countries have played little or no role in creating it but are likely to suffer most and be affected most badly. Research shows that net financial flows to developing countries may fall by as much as $300 billion, which is equivalent to a 25 per cent drop, even in the next 12 months. We should remember that even before this autumn’s financial crises the World Bank estimated that more than 2 billion people are now living on less than $2 a day. The dramatic food price rises that we have seen mean that an extra 100 million will be dragged back into the miserable destitution of less than $1 a day. Of course, it is even harder to make exact forecasts for the next few years in the developing world than it is here. After all, if we look at the statistical projections in this country with our sophisticated systems and our many experts, we see that there are widely different opinions about how long and how deep the recession may be. In southern countries, the future is even more opaque, but I am grateful to the ODI and to the Institute of Development Studies at Sussex University, which have produced some rapid research analysis, Doing Development in a Downturn. The analysis suggests that developing countries will be affected, just as we are, by financial difficulties and a harsh contraction in their real economies. It seems probable that the effects will not be consistently bad. Experience may vary even between individual countries in the same region, particularly, for example, in south-east Asia. What is certain is that the poorest and most fragile places, the failing states, will suffer most. Somewhat paradoxically, at the moment they are insulated from one part of the financial hurricane. The success of debt relief initiated after the Gleneagles summit by this Government means that they are not burdened today by owing huge sums to foreign creditors. However, none of these countries is insulated from a collapse in the volume of remittances from overseas. Many sub-Saharan African countries are highly dependent on remittances; for example, Sierra Leone, Lesotho and Uganda are among those where they constitute more than 7 per cent of total gross domestic product. In Kenya, where a large volume of remittances comes from this country and the United States, the Central Bank has already calculated that there will be a massive drop of 40 per cent next year. Migrant workers faced with a squeeze on their livelihoods clearly will no longer be able to send payments to family and friends at home. The credit crunch and economic downturn in the industrial north are also having a major impact on direct investment in the south. In 2007, foreign direct investment to sub-Saharan Africa amounted to $25 billion. Not surprisingly, that figure is projected to fall substantially in the near future. For example, in South Africa and Zambia, major mining projects are already under review. The Ethiopian Electric Power Corporation has already severely compromised its investment plans. In general, entrepreneurial business activity is slowing down right across already vulnerable economies. Sudden withdrawal of foreign capital has also caused steep falls in exchange rates; for example, the South African rand lost 35 per cent of its value in one month, between September and October. Equally at risk are the exports of developing countries, particularly of primary products. The price of Zambian copper exports has collapsed dramatically, down by 40 per cent since July. Ghana’s cocoa prices, which make up a significant percentage of GDP there, have fallen by 24 per cent. The same is true of the coffee trade in Kenya and Uganda. The crisis in these countries is compounded because several of them have very few reserves. None of this bleak assessment is unexpected, given the current global retrenchment. Even the emerging giants of China and India, which are usually vast importers of primary products, are indicating that their needs will be less. However, that makes some kind of immediate success in the Doha trade round even more urgent. Again, the Prime Minister’s assurances after the G20 meeting were encouraging. On 17 November, my right honourable friend noted the vital importance of a ministerial meeting this month to reactivate the stalled Doha talks, saying: "““To ensure the trade round truly is a development round which benefits the poorest countries, it will be accompanied by a $4 billion aid-for-trade programme to invest in the infrastructure of those developing countries””.—[Official Report, Commons, 17/11/08; col. 23.]" Even more recently, my noble friend Lady Ashton, in her new role as EU Trade Commissioner, expressed confidence about achieving an immediate deal. She said: "““In this economic climate, any move towards inward-looking protectionism would be dangerous””." She added: "““The consequence of not being able to complete the round in these circumstances would not only be a shame but a tragedy””." I hope that these strong European sentiments are echoed on the other side of the Atlantic. Some of President-elect Obama’s campaign rhetoric was alarmingly protectionist and the incoming Secretary of State, Hillary Clinton, took an even harder line in the primary elections. Optimistically, one has to assume that in office the Obama Administration will pursue a more open global policy. After all, we all know that in a hard-fought general election public opinion polls are a powerful influence. Although, as I said, there is widespread support for international development, that support is broad but shallow. It is naturally vulnerable to how people feel about their own jobs and livelihoods at home. In a recession, the tension between altruistic concern for the world’s poorest and how people want their taxes to be spent is often especially focused on the overseas aid budget. As noble Lords will recall, at the G8 Gleneagles summit in 2005 world leaders ambitiously pledged to double aid by 2010, now just a matter of a year away. Those promises have been repeated many times since, but action has not followed the words. Actual delivery of more aid is currently 30 per cent below target. The British Government have once again demonstrated leadership by sticking firmly to their commitment, but France and Italy, as well as the United States, have fallen well behind. The Italian Government have now proposed to cut aid by half in their latest budget and no doubt as the world recession deepens pressure will grow on other donors to follow suit. However, some economists are now arguing that, in spite of the political difficulties, aid budgets should be increased rather than cut. At its simplest, this is a kind of international Keynesianism. Aid may not just prevent poor developing countries from sliding back on their modest economic and social growth of the last few years and protect social stability, but could also provide an additional welcome stimulus to currently frozen trade flows. Ever since the Brandt commission in the 1980s, we have understood at least theoretically the economic interdependence of the rich and the poor worlds. In the last prosperous decade, this understanding of interdependence, combined with popular enthusiasm for the moral case for helping the world’s poorest people, has made it politically straightforward for Governments to give development policy the prominence that it deserves. Perhaps now, in a global recession, it is time to re-emphasise global interdependence not just in economics but in the current threats of climate change and potential disease pandemics. I follow the noble Baroness, Lady Northover, in thinking that in the broadest sense this is just as much about our own security as about threats of terrorism and military action. More and better trade as well as more and better aid can undoubtedly create more international stability. We must try to achieve this by multilateral action and reform of international financial institutions so that developing countries are given a much stronger voice in global decisions. A densely interconnected world with 2 billion marginalised people will never be either secure or stable. The Government clearly understand this and have given a powerful lead over the past 10 years. Ministers need to maintain momentum at a time when the instinctive response is to look inwards and concentrate solely on the crisis at home. I know that my noble friend Lord Malloch-Brown, who is to reply to the debate, will champion internationalism, as he has always done in his distinguished career. The United Kingdom has a great opportunity in 2009 in chairing the G20 group of nations and I am sure that the Minister, the Prime Minister and all members of the Government will seize it enthusiastically.