“The forthcoming Group of 20 meeting is a make-or-break event. Unless it comes up with practical measures to support the less developed countries, which are even more vulnerable than the developed ones, markets are going to suffer another sinking spell. [...] Institutions such as the International Monetary Fund face a novel task: to protect the periphery countries from a storm created in the developed world. [...] If they fail to do so, the periphery economies will suffer even more than those at the centre, because they are poorer and more dependent on commodities than the developed world. [...] If the periphery economies are allowed to collapse, the developed countries will also be hurt.” George Soros, writing in the FT.
“When this financial crisis began the theory of “decoupled” emerging markets was quickly shown to be a fiction. It was accompanied by an even bigger fiction - that low-income countries would not be affected because they are not as integrated in the global system. Now we know: the indirect blow for the poorest countries is even more painful. The economic crisis is hitting Africa’s poor hard, and countries who benefited so little from the process now stand to suffer the worst of its excesses - with the risks of wiping away recent development achievements,” Dr Donald Kaberuka, President of the African Development Bank
Introduction
In recent weeks a host of voices from George Soros to Kofi Annan, and institutions from the World Bank to UNCTAD, have sought to alert G20 leaders to fact that the global economic crisis is inflicting serious damage on some of the most vulnerable economies in the world. The UK government’s Department for International Development predicts that the crisis will push a further 90 million people below the poverty line; the IMF has revised sharply downwards its forecast for growth in developing countries in 2009. The World Bank has identified 43 developing countries it sees as highly exposed to the economic crisis, and the IMF has listed 26 low income countries as particularly vulnerable. The majority of countries in both lists are in sub-Saharan Africa, and South and Southeast Asia.
In line with these figures and predictions, Oxfam staff on the ground is already seeing first hand the negative impacts of the financial crisis hitting developing countries in which we work. The negative impacts are making people who were already vulnerable even more so and threatening to undo years of real progress in reducing poverty.
Initial snapshot
This is an initial snapshot based on a series of quick country-based assessments of varying length and complexity. As the crisis impact unfolds over 2009/10, Oxfam plans to carry out more in-depth studies in a number of countries in East Asia, Africa and Latin America, which will help us understand the nature of the impact, and the most effective responses for poor country governments and the international community.
These initial reports suggest that the most immediate impacts are being felt in regions that are more tightly linked to global markets - such as East Asia and Latin America. Meanwhile in much of Africa, the impacts of the financial crisis are still overshadowed by a lingering food price surge, and harder to differentiate from ongoing poverty and vulnerability caused and exacerbated by a number of factors including conflict and climate change.
Across the whole developing world there appears to be a lag effect - the first wave of impacts are now beginning to hit, but further waves are likely to break over poor countries during the course of this year and next.
Not ‘single sorrows’
Coming on top of the harsh effects of higher food and fuel prices and the increasing impacts of climate change, the impacts of the economic crisis in Africa and other very poor regions are putting further pressure on already-stretched coping mechanisms.
Although food prices on global markets have fallen back, recent data published by the UN’s Food and Agriculture Organisation and first hand research suggests that these reductions are not being passed on to poor consumers in developing countries.[1] When you spend up to 80% of your income of food, price increases of the scale seen in 2007-8 can make the difference between one meal a day and two. Levels of hunger and poverty had already started to rise even before the current crisis hit, with the World Bank estimating that some 150 million people had been pushed into poverty by soaring food prices.
Range of impacts
Oxfam’s research reveals a number of ways in which developing countries are being affected by the global economic downturn.
The most immediate is via the decline in global demand and the impact it has on employment in export-oriented sectors of the developing world.
- Developing countries’ exports in light manufacturing are falling. This has a major impact on women: In recent years millions of women have found work in export-oriented manufacturing in East Asia and Latin America. Many of these jobs are substandard, with little job security or labour rights. Now the crisis is making things worse - and having a devastating impact on their livelihoods, their rights and their families. Oxfam’s research in 10 countries shows that women are often first to be laid off, with employers refusing to pay outstanding wages and evading legal obligations to give notice and pay compensation. Many governments are turning a blind eye to these practices.
- Global demand for non-agricultural commodities is also declining, leading to falling exports, job losses and lower government revenue. For the last few years, commodities such as copper, diamonds, oil, and timber, have driven robust growth in many countries, particularly in Africa. The collapse in global demand has hit both prices and trade volumes, with a significant impact on jobs and balance of payments. Sierra Leone has laid off 90% of its diamond mine workers; in Zambia some 5,000 copper miners have been laid off, with each mining job sustaining an estimated 20 jobs in the informal economy; Botswana has temporarily mothballed the diamond mines that generate 80% of its exports.
Major sources of financing for development are also drying up as a result of the crisis:
- Private capital flows to developing countries are rapidly declining. Across the developing world, finance is grinding to a halt. Private capital flows to emerging markets are likely to be $165 billion in 2009, after an estimated $466 billion in 2008, and a record volume of $929 billion in 2007
- Remittances are falling. Worldwide, migrant workers send some $300bn a year back to developing countries, three times the volume of aid. As workers are laid off around the world there is a real danger that remittance flows will collapse, leaving many families struggling. Oxfam’s research shows that illegal migrants are particularly at risk both from redundancy and abusive employers. Remittances are also transferred within countries, from migrant workers in urban areas or industrial parks to families back in rural areas, as well as from overseas. In Vietnam and China, Oxfam has spoken to families planning to take girls out of school to try and raise family incomes. In Bangladesh, where 1 in 9 rural families depend on remittances, families are eating less. Serious impacts are hitting other remittance-dependent economies such as Sierra Leone and the Philippines. There were numerous reports of migrant workers from cities or working overseas moving back to rural areas, where they are often unable to find jobs and become an additional burden on relatives.
- As a result of declining economic activity, tax revenues of developing country governments are expected to fall as well as Official Development Aid putting growing strain on health, education and social protection budgets precisely at a moment of increased need. As a result, governments in the poorest countries will be highly constrained in their ability to run ‘countercyclical’ policies that use state spending to boost the economy. Many will depend on increased aid to fill the growing financing gap. But Oxfam is concerned that developed countries may use the downturn as an excuse to cut back the very aid that will be increasingly needed.
What the G20 must deliver
Poor countries, weakened by high food and energy prices during 2008, are rapidly becoming vulnerable to the negative impacts of the crisis. There is a real danger that significant gains made towards meeting the Millennium Development Goals could be wiped out. At the London Summit on April 2, and beyond, G20 leaders should:
- Agree a rescue package for poor countries of around $580bn a year. Rich countries have bailed out their own countries but poor countries can’t afford to. They need help, and they need it now. This figure is made up of 3 things: A ‘fiscal stimulus’ for poor countries of 3-5% of their GDP ($24bn to $41bn); delivery on the promise to give 0.7% of GNI as aid; debt relief to all countries that need it in order to meet their basic needs.
- Crack down on tax havens, which bleed money from rich and poor countries alike. This means ensuring automatic information exchange between all tax authorities and country by country reporting.
- Reform global governance, giving developing countries the same say as rich countries in decision making about economics and politics. This includes a fair seat at the table at the World Bank and IMF, and agreement that the African Union should be fully represented in all negotiations.
- Build action on climate change into the design of our new global economy. This includes G20 rich countries embarking on collaborative greening of their national fiscal stimulus packages
First person testimonies
Below are a series of first person accounts from poor men and women affected by the global downturn. They were already vulnerable and now the spreading secondary impacts of a crisis that started in the US banking system, and which they had nothing to do with creating, are pushing them to the edge of survival.
EAST ASIA
Xiao Hong, 22, office administrator, garment factory, China
The factory owner told the workers that the company was not making a profit last year because of the financial crisis. Some buyers cancelled the orders. Xiao Hong told us about the measures taken by the management to cope with the crisis.
“It starts with the administration. The overtime of office workers and junior management is cut. On the one hand, one person is taking up a few persons’ works. Some of us feel exhausted and quit. On the other hand, some office workers are not given any task to do. In this way, they feel lazy and there is income reduced because of no overtime. These people do not want to waste their time and also quit the job.
I almost cannot stand it and want to quit as well. I am now taking up other people’s work. Before the bad times came, my responsibility was to administer paper work related to production. Nowadays I am supposed to help out in everything. If I do not handle them well, I will be scorned and shamed in front of others. Any small mistake might become an excuse of dismissal.
The employer is creating tension amongst the employees and provoking us to give up the job. In this way the employer is not seen to be laying off workers and does not have to pay compensation and severance. Since last year, quite a number of administrative staff not crucial to production have quit. Had my position not related to production, I would have been squeezed out by their tricks as well.
In the past we used to take orders worth at least tens of thousands, even million Yuan. Nowadays we are taking orders that we would never take before. I heard colleagues saying that some buyers are pressing down the price. For some orders the unit price is lowered by 10%.
The workload is increased but the income is reduced. But my mother keeps asking me to be patient. She is worried about me finding a new job and spending my money away. If it were not for her, I would have quit already.”
‘K’, 31, sewing worker, garment factory, China
“Since November last year, the factory merged a few sewing departments to cut expenses. We were told to reduce wastage in electricity and raw materials. The factory is using computerized sewing machines to replace manual labour. Not much manpower is needed when you operate the computerized machine. By merging the departments, at least two hundred workers were laid off already.
My husband is working in the machine-knitting department. He used to work 8 hours a day plus 2-3 hours overtime every night. His department was merged and he does not have much work to do now.
Since last year, the number of orders placed with our factory has reduced. After the merge, we are worried about job security. We sent our kid who was studying in the factory-provided kindergarten to our home in Sichuan province. We want to save the money. My mother in law is taking care of the kid.
There is much less work to do. I can even take a nap during the night shift. When the market was tight and the factory could not recruit enough hands, they took even green horns like me. That was the situation 5 years ago. Nowadays more knitting factories are closing down and people do not have jobs anymore. The factories do not want the un-skilled and keeps only the skilled workers.
The January and February salaries have not been paid yet. But you bet it will not be high. This is piece rate: if there is no work you don’t have income. We may not be able to save money now. Not to mention I am missing my boy everyday.”
Fan, 28, sewing worker, garment factory, China
“Our factory supplied jackets to famous brand companies. These jackets are sold at least for a few hundred US dollars. In the peak time, the factory employed more than a thousand workers. There were less than 200 staying behind after the retrenchment last year. The financial crisis is the main reason. There was no order placement.
In the past sewing workers like myself earned RMB1000-2000 a month. We were paid by piece rate. After October last year, we did not have much work to do. We went to the workplace just to punch the clock machine. There was nothing to do.
Many workers left the factory because even if you stayed, you were getting a few hundred Yuan only. Just before the Chinese new year, we finished the last slot of products. The production line workers were told to take vacation.
At that time we had feeling that the factory might not be able to survive the crisis. We were right. I remember the employer was saying the factory would re-open again after the new year holiday on 2 March. Go and take a look at the factory now, there is nobody there. The factory gate is locked. The security guard was changed. All the employers will tell you the factory is intact, the factory is not closing down. Nobody will tell you the truth. You are stupid if you believe them.
We are not so worried since we are skilled workers. It should not be too difficult to get another job. But the factories in the neighbourhood do not pay good salary. I don’t want to move too far away from here. My husband is working as security guard in another factory down the street. I will look out and find a new job in the neighbourhood. What should I do if I enter another factory and it closes down again?
My parents and the kid staying at home back in Sichuan needs our support. Before the factory closure, we have two people working to support two families. Now there is only one person working to support two families. Once you lose the job, there is no security not only for yourself but your family. The economic burden is not small. No matter how much you minimize your expenses, you’ve got to eat.
If we really cannot make ends meet, the two of us will go back to our hometown. Maybe we will do some farming and my husband will look for construction work to do.
Look at our factory. It is a big factory. The employer is a rich man. The local government also had earned a lot from these investments. But in the end, it is us losing the job. We have only ourselves to rely on. Once you lose the job, you lose the means to protect your living.”
Binh, 24, worker on an Industrial Park, Vietnam
Binh sits in a corner of her bed that occupies almost half of the room, talking about how life has become harder for her. The economic crisis is having an impact here in the industrial park halfway between the centre of Ha Noi and its international airport.
Up to a few weeks ago, she had been sharing this tiny room with her younger sister. But recently, her sister was made redundant as well as thousands other workers working in more than 60 various companies’ factories in the park.
Where Binh lives, the landlord has 10 rooms for rent that each used to be shared by two or three workers. Now there are only 3 rooms occupied. Binh is finding it difficult to find another roommate to share the cost as so many have left for their hometown since there are no jobs, there is no reason to stay. But the accommodation cost is not her only problem.
Without her sister here, she has to go even more sparingly on the market spending of vegetables and occasionally bought tofu. More than ever, she now relies upon the more nutritious meal provided once a day by the company.
Likewise, when both Binh and her sister were working, they could spare one million dong - about US$60 - (two thirds of her current salary) for another sibling who is studying in a college in Ha Noi. “Now I don’t know how we can afford that”.
The production of the whole factory has also been reduced immensely. Her workshop is the better one with six lines still running while the other two are down to one out of the usually seven or eight lines.
If things get worse, she has thought that she would also return to her hometown in Thanh Hoa province, “still without money, but I know there is food”.
Lien, 19, worker on an Industrial Park, Vietnam
The weight of the global economic crisis has threaten Lien’s main source of income as well as many other thousands workers’ of the park.
19-year-old Lien saw how hard it was for her parents to put both her older brother and herself through school. Lien came to the decision to come down to this park seven months ago to earn enough money to pay for her own further education.
Lien got a job with a home appliance assembly factory and also managed to sign up to learn accounting trade in a college closed by.
It was not an easy start. “I was so used being free as a student of upper secondary school. Now I have to stand for two hours in the production line”.
When she thought life was almost manageable, there came the cutting of orders. Her factory production was slashed half from January.
“Before, my manager occasionally had to send someone to help me to keep up the speed of the line. Now, I can finish assembling one part and have 5-10 minutes before the next part arrives.”
Less production means less pay for the workers. This month they had to take 10 days off and on 70% pay. The company predicts they will probably have 2 weeks off next month.
Linh is determined to complete her studying. If she is made redundant, she has no choice but to ask for support from already burdened parents.
Workers from a shut down textile factory, Thailand
The sun is setting when we arrived, painting the sky orange. A strong sense of abandonment and emptiness covered the compound. An empty canteen was clearly not in use for a long while. A dusty ‘Happy New Year’ metallic ribbon banner hung over one of the abandoned food counters. A group of women was sitting in circle waiting for us.
“The flats used to house about 500 workers. Now there are only 65 people of us left, including 14 children.” One of the women told me.
They used to work for a textile factory nearby. The textile company owned the flat for workers. Most of them went home when they found out that the factory was closing.
While the future is not certain, for these remaining women, home is not an option. “There’s nothing back home.” Most of them have been factory workers for over 20 years. There is a strong sense of community here that they cannot feel back home.
“We got friends here. People in my hometown don’t know who I am and I don’t know them much as well.”
Although some of their families own a plot of land back home, farming or any other agricultural work became just something that older generations used to do that they do not know how to handle.
“My mother owns a plot of land where she used to plant sugarcane but now she’s too old to do that. The land is flooded and there’s no one to take care of it.”
Many of the women finished only primary school education or lower. If they return home, they can only expect some labour day-job that will earn them only about 100 baht per day.
“If I go back to tend the land, I’ll have to pay 100 baht a day to hire someone to take care of my child anyway.”
Industry sources warns that Thailand could lose up to 1 million industrial jobs by mid-2009 when global recession cuts into the country’s export.
SOUTH ASIA
Mohammed Selim, 23, Gulf construction worker from Bangladesh
Mohammed Selim had been working for only 10 months at a construction site in Sharjah in the United Arab Emirates, when the foreman summoned him to his office one day last December. “They told me sign a paper saying it was an application for leave.”
Apparently the company told the workers that they would all be granted leave for some time and join back afterwards. The workers were told that for the time being the government had suspended their loans. The construction work had to stop. They said it was a temporary setback. Despite his premonition, Selim signed the paper. “There was nothing else I could do anyway.”
Only at the airport did he realise that it was merely a ploy of the company to get away from paying any compensation since the work visa was actually for three years and they were virtually terminating the employee after just ten months. “Some people who returned with me had worked for even less time.” The duration of employment is important because for most expatriates from Bangladesh, it takes almost two years only to save the amount of money they had spent for procuring their visa. “It is only from the third year that we can really save and send home some money.”
Selim sits on the small lawn of his father’s two-room house amid fishing nets and clothes spread out to dry. His 5 younger siblings mill about. Selim is stocky and as he sits on a chair in his white shirt and the traditional lungi his eyes show his despair and disbelief.
Selim was able to send only about Tk 1 lakh during the 10 months that he was in Sharjah. He had spent about Tk 2.1 lakh for going abroad and had borrowed Tk 50,000 at an annual interest of 120 per cent. He still has Tk 30,000 left to pay back to the local moneylender. “The interest piles up by the day and even paying that off becomes a daunting challenge.”
At 23, Selim is already burdened with the responsibility of looking after his entire family, as he is the eldest of the children. Selim had to quit school after the fourth or fifth grade. With his little education, no land and few skills other than that of a farmhand, Selim has few opportunities. “My father is a just a fisherman. It was becoming very difficult to keep my two sisters in school. I had hoped that I would be able to change things with this job. We virtually exhausted all our resources. But the future turned all bleak. I am looking at a life time of debt.”
Anwarul Islam, 36, Bangladeshi factory worker returning from Jordan
Anwarul Islam is tending to his mango trees outside his small hut, where he lives with his family. Anwar’s father owned quite a bit more land but a lot has been lost to river erosion. Anwar has not been able to find suitable work or employment since his return from Jordan about a month ago, where he worked in a garment factory.
“We were hearing that there was no work and the factory would be shut down. Initially there was talk that only those who had been working there for several years would be sent back. It all happened quite fast actually. Although there was much talk, the authorities did not really tell us anything till almost the last week. I have heard some people being rounded up just as they were sitting down for supper and deported virtually within days without any chance to make arrangements.
I have done almost all kinds of work at the factory there, but in Bangladesh it would not be possible to for me to work at a similar position.”
Anwar says the pay is not good enough in Bangladesh for him to support himself and his family. He does not want to be forced to take his children out of school. “I am realising the hard way that schooling is very important. It would be very unfortunate if I did not put my children through school.”
Abdul Quddus, 40, farmer and migrant worker, returned to Bangladesh
Short, stocky and sunburnt, Abdul Quddus has an air of the indomitable farmer who refuses to give up on his crops despite floods and droughts.
Quddus decided to go to Dubai to seek labouring work, believing that it would be his ticket out of subsistence farming. Quddus staked all he had - and more - to afford the visa. He old his land, cattle and wife’s jewellery. But that was not enough. So he borrowed another Tk 100,000 from a local money-lender at an annual interest of 120 per cent.
He lost his luggage on arrival in Dubai and missed the bus that was supposed to take him to his camp. He didn’t find it or get compensation. “I did not bother with what I had lost, hoping that in three years I would earn a lot more and make up.”
Less than a year after he arrived Quddus was rounded up with other Bangladeshis “The company officials told us that we would be sent off because the construction was being suspended.” He never got any compensation for the premature termination of his 3-year contract of employment.
During the 10 months that Quddus was in Sharjah, working at a construction site, he was able to pay back only Tk 25,000. “The money-lender would have held his patience if I were abroad since the loan would be paid off, sooner or later. Now that I am back, he knows full well that there is little chance of that happening. So he is pressuring me for the money every few days.”
From a small farmer, he has been reduced to a landless, homeless near-refugee in his own village. He has no land, no home, no cattle. Quddus is now even more marginalised than he used to be. “I used to get by with what I had before I paid for that visa. Now my bare hands are all that I have left.”
Lalitha, 35, worker in a gem factory, free trade zone, Sri Lanka
“I’ve two children aged 9 & 6 years. [Three years ago] I started working in the Katunayake Free Trade Zone in a gem-cutting factory. Although I was 32 years of age and the factories only take workers below 30 years, I was able to talk to the Personnel Manager and get a job. Recently, the factory said that they were running at a loss and retrenched 150 workers and I was also included in that lot. I fell to the fire from the frying pan. Now I’m 35 years of age, and I’m too old to join another factory. I’m in deep trouble and thinking how to live with my two children.”
LATIN AMERICA
Ruth Cerna, 44, ex-factory worker, El Salvador
“I worked as supervisor, checking the parts being made in the factory. Then one day the factory closed because the boss just didn’t turn up. He had no money to pay us so he disappeared. Since then we have been taking care of the factory. I have been looking for work. I might find work at the hospital but I don’t know. It is hard work, and after a week of unpaid training they say “we’ll call you” but then you just end up waiting.
My kids are grown up now, and working, but I still have responsibilities - loans to pay back, and the mortgage. It’s been three months since they shut the factory and they haven’t paid us anything, no severance pay, not even what we were owed.
1700 people worked in the factory and they have all lost their jobs, including a significant number of pregnant women and terminally ill women, who are now left with nothing.”
Patricia Rivera, 27, garment factory worker, El Salvador
“The factory I work for closed in January, apparently due to a drop in demand from our main customer [a well known high street clothing brand]. Since the global crisis hit they say that they are not selling the same amount; this means people are being laid off. In the last two years, layoffs were common. Out of the blue they would say: ‘we are going to get rid of a production line’ and so they did.
When the plant closed, there were 14 women pregnant. The plant offered to pay Social Security up to the end of the maternity leave or give the women the money directly. Unfortunately, most were really impressed by the figures calculated by the Ministry of Labour, and they wanted to take the money, but this means now that they can’t give birth in a hospital covered by Social Security, they will have to go to a private clinic for their check-ups and have their baby wherever they can afford it.
I’m 7 months pregnant and I didn’t accept the company’s offer to take the cash, they paid Social Security. Now that I’m out of work, I am living off my severance pay and with what my husband makes. He works in a factory too.”
Yolanda Estela Aquino Rojas, 37, factory worker, El Salvador
“I am a single mum with three kids. I worked as a supervisor in the factory, and would have been working 10 years in February.
The factory closed in November. They still owe me two weeks salary. They also owe me my pension fund contributions. For two months they didn’t give us the national insurance certificate. In October they gave as a fake certificate. It didn’t have a stamp or the bars which an authentic one would have. They didn’t see us in the National Health Insurance office because apparently we had not paid [our contributions] but it’s not true - the payment was deducted from our salary.
We are already looking for work. Some tell us ‘after the elections’, others ‘at the end of February’ but we don’t find anything. I have had some help from time to time from my father and sister and have also got some work doing washing and ironing - enough to survive.
I am only buying the necessities, with the help of my family. One of them gave me $5. Another gave me some shoes. I am renting where I live and I owe 4 moths’ rent. I’ve never been in a situation like this before.”
AFRICA
Olamatu Bangura and Marie Sissay, Freetown, Sierra Leone
Olamatu Bangura lives in Susan’s Bay, a slum in downtown Freetown. “Every year my sister in Boston sends $200 at Christmas which I use to do small business selling food in the market. This year she only sent $50 because she’s lost her job. It’s harder for me to pay the school fees and buy clothes for my children”.
On the streets everyone complains about the cost of food and transport. Prices have dropped a bit recently but they’re still higher than they were a year ago. Marie Sissay sells cooked food on the street and her family eats what’s left over at the end of the day. “People buy less food than before. Business is bad because food is so expensive. It’s hard to make a living.”
Miners in Kenema and Kono districts of Sierra Leone
High operational costs in Sierra Leone’s mines are compounding falling global demand for luxury goods such as diamonds, which historically has been the country’s number one export. In regions such as Kenema and Kono the knock on effect on the local economy is significant.
Chief Shaka “Mugabe” Sandi, chairman of the Sierra Leone Indigenous Miners’ Movement, said: “We’ve laid off all of our day labourers. I used to employ 20 men. Overall employment is down by more than 80%. There are empty houses around the town now. Everyone has gone back to the villages to farm, but it’s impossible to make a living from farming. There’s no credit to enable us to grow enough to have a decent business. Mining is a tough life but at least the salary helped people here to make a living.”
Yusef Musa is an artisan miner: “Every year I have planted a small farm which my family looked after while I worked in the mine. This year I will have to work full-time in the farm but I can’t afford to plant much. If you fail in school, or come from a village you come to the mines to try to earn money. Some people are going to the north to mine gold”.
Click here for more Oxfam research and case studies on the impact of the financial crisis in poor countries, including an overview of impacts in Zambia and Latin America, and for a list of Oxfam’s demands and activities around the G20 summit.
[1] http://www.oxfamblogs.org/fp2p/?p=201 and FAO database: http://www.fao.org/giews/pricetool/info/ecard.htm
Tags: Add new tag, financialcrisis, g20
