# The triple crisis of debt, demand and decarbonisation: a preliminary analysis of the impact of COVID-19 on commodity-dependent developing economies

Keston K. Perry (Department of Accounting, Economics and Finance, University of the West of England Bristol, Bristol, UK)

ISSN: 1446-8956

Article publication date: 7 December 2020

Issue publication date: 6 July 2021

657

## Abstract

### Purpose

This paper aims to offer a preliminary overview and analysis of the impact of the COVID-19 crisis on commodity-dependent developing economies (CDDEs). Using debt, decarbonisation and demand as empirical and analytical prisms to understand impacts and dynamics, the paper offers “rent space” as a theoretical tool to appreciate the changing possibilities for using resource rents for capital accumulation and expand development frontiers. It maps out the certain common features among this group of developing countries facing an increasingly adverse and uncertain situation. It offers a political economic perspective on the global dynamics and internal political situation that constrain these countries’ ability to manage the effects of this external shock that date to the 2008 crisis, and to therefore shore up an effective recovery in the coming years.

### Design/methodology/approach

The paper draws together secondary literature and evidence from a number of sources including the World Bank, United Nations and International Monetary Fund on the empirical situation in these countries in view of COVID-19. The paper uses a thematic approach to understand how the current crisis has exposed these embedded and worsening vulnerabilities in this group of countries.

### Findings

Results demonstrate the wide-ranging effects of COVID-19 as an existential crisis of demand in short and medium term, the explosion of debt due to actually occurring financialisation and the looming medium and long-term consequences of decarbonisation that may oblige countries to abandon exploitation of fossil fuel resources.

### Originality/value

In the final analysis, COVID-19 has revealed a number of lingering effects of the commodity boom and global financial crisis. The increased indebtedness that resulted not only underscores the long-term unviability of commodity-based development as a strategy but also reveals new unprecedented weaknesses and challenges. Given the current configuration of global and domestic political economy dynamics, the paper shows that the “rent space” in fossil fuel exporters is particularly constrained and shrinking, compared to mineral exporters, but all showing a trend towards concentration in commodity production overall and worsening prospects for green recovery or industrial pathway.

## Citation

Perry, K.K. (2021), "The triple crisis of debt, demand and decarbonisation: a preliminary analysis of the impact of COVID-19 on commodity-dependent developing economies", International Journal of Development Issues, Vol. 20 No. 2, pp. 226-242. https://doi.org/10.1108/IJDI-07-2020-0166

## Publisher

:

Emerald Publishing Limited

## Introduction

The onslaught of the novel SARS-CoV-2 (COVID-19) pandemic has had a profound effect on commodity-dependent development economies (CDDEs). While the pathogen causing the virus emerged in late 2019 in Wuhan, China, a few weeks after it evolved into a global public health emergency. It soon spread throughout the world and has triggered an economic crisis which has been particularly acute in CDDEs. In part, it is due to 10% of commodities are exported to China (The Economist, 2020b), the initial source of the virus, and also as measures to stem the disease required entire cities and countries to institute lockdown and containment that drastically reduced energy consumption and commodity exports (IEA, 2020a; World Bank, 2020a). These actions resulted in rapid reduction of energy demand by about 6 percentage points – the entire yearly demand of India and the largest fall since the Second World War – unraveling global commodity and supply chains in the process (IEA, 2020a). Lower production yields of certain commodities across many developing countries due to economic downturn since 2014 and exacerbated by the price war waged by Russia and Saudi Arabia resulted in plummeting prices for oil at the beginning of March 2020 (Figure 4) (Raval and Sheppard, 2020).

Commodities include items like wheat, grains and agricultural products, to minerals like iron ore and copper, to fossil fuel energy like coal, petroleum/oil and natural gas. This present contribution is primarily concerned with the latter two categories and the interactions of global political economy and internal political structures and institutions. CDDEs are defined by the United Nations as countries dependent on commodities which account for more than 60% of their total merchandise exports in value terms (UNCTAD, 2019a). UNCTAD’s 2019 State of Commodity Dependence report shows CDDEs increased in number from 92 between 1998 and 2002 to 102 between 2013 and 2017. More than half of the world’s countries (102 out of 189) and two-thirds of developing countries are reliant on commodity exports (UNCTAD, 2019a).The paper first provides an overview of the various effects and channels of disruption of the COVID-19 pandemic to longer development challenges associated with commodity dependence that has been made worse over the past two decades in CDDEs at the current conjuncture. The paper offers a more nuanced, historically informed and contingent view of the relevance of commodities in economic structures and implications for in long-term development (Edwards, 2017; Neilson et al., 2020; Perry, 2018; Porter and Watts, 2017; Wright and Czelusta, 2004). In particular, based on current reports and data, I provide an analytical basis to re-evaluate concerns around resource curses beyond price dynamics and supply factors (Figure 1), towards examining long-term challenges of demand, decarbonisation and debt that pose peculiar risks in a financialised global economy. It thus offers policy-relevant analysis for civic groups and workers to use for broad mobilisational efforts to potentially change the trajectory of these economies.

Even before COVID-19, there were several significant vulnerabilities to which these countries were exposed including reduced foreign exchange earnings which are currently drying up with little access to new facilities like dollar liquidity swap lines, lack of investment in long-term production and diversification and volatile exchange rates (Bahaj and Reis, 2020; ECLAC, 2018). The reason for this could be because of their proneness to macro-economic volatility and low confidence among big-dollar investors, not to mention increased risk associated with deep-water activity (Rashid et al., 2020; Watts, 2016). Moreover, specialisation in resource-driven exports also creates exposure to macro-economic instability from international capital and erratic revenue earnings that the COVID-19 pandemic has only exacerbated (Akyüz, 2017; UNDP, 2011). As a result of the pandemic, oil and commodity prices have sharply declined – oil prices have declined by more than 50%, while most metal and mineral prices declined by 20% or more in March and April (Figure 1) (World Bank, 2020a). UNCTAD (2020a) also shows that commodity exports to China could plummet by $15.5bn to$33.1bn in 2020 – a drop of up to 46% compared with annual growth forecasts (Figure 3) (UNCTAD, 2020a). This projected value of such a decline is between $2.9bn and$7.9bn, which would constitute a 9% loss in terms of annual growth rate for CDDEs (UNCTAD, 2020a).

These observations not only highlight the need for urgent and unorthodox public action but underscores critical importance of new scholarly interpretation and inquiry. For this, the paper proposes “rent space” to understand the opportunity structure of CDDEs to mount a sustainable recovery and diversification that lies at the dynamic interplay of national political structures and global economic dynamics (see Figure 2). By considering the interplay of domestic and transnational economic forces in defining how rents are generated, used and deployed in the face of dwindling exports [1], one can map out the ways in which public actors can respond to this triple crisis and what resources and alliances are necessary to ensure a sustainable recovery.

The paper covers three empirical themes which together reveal “triple threat crises” or new realities that have converged ever since the global financial crisis and are negatively convulsing these countries. The first of these converging crises is debt explosion brought about by increased debt burdens characterised by financialisation in the next section. Next, an existential demand crisis appears underway given the rapid fallout in demand for energy-based and certain commodities. Third, the looming spectre of climate change and decarbonisation that require changes to economic frameworks and may upend class configurations in CDDEs will be covered in section four. The article finally parses out some research implications for CDDEs and concludes.

### Rent space

In this paper, rent space refers to as an analytical device to explain changing patterns of rent governance and their contribution to industrial performance within the context of the resource rich economy. The “rent space” refers to complex relationship between the national political structure and the global economy which generates or closes off opportunities for industrial diversification at different spatio-historical conjunctures (Figure 2). In commodity-dependent countries, earning export rents during periods of high commodity prices is a critical source of funds for governments and often generate significant fiscal surpluses, both through taxation or outright ownership of key firms in the extractive sector. These funds can be used to educate and train the workforce, and support efforts to diversify economic activities. In this way, the rent space, following Jessop (2015), under conditions of immense change such as the current economic downturn and COVID-19 pandemic, CDDEs have inherited spatial configurations and their opportunity structures:

[…] where the possibility exist for new social and economic formations that come into contact with varied organizational modes, resources and horizons of action (Jessop, 2015).

In this vein, certain economic interestsoperating to influence to the state like international oil companies, national oil companies, utility providers or financial interests that also provide technologies may succumb to new realities or attempt to adapt political strategies utilizing, exploiting and generating symbolic and material resources that inscribe new strategic capacities for accumulation or rent-seeking (Jessop, 2015, p. 55).

Accordingly, the “rent space” is dynamic and is determined at the nexus of institutions, policies and class relations drawn from broader interactions of structural, organisation and socio-political factors. Watts (2004) describes overlapping “governable spaces” in which divergent identities, forms of rule and territory come into play and can invoke generational struggles or certain ethnic and racialised exchanges that occur within the local or national state arena, and the international economy (Porter and Watts, 2017; Watts, 2016, 2004). As Franz (2020) notes the ability to switch sunk investments from one region to another is limited as capitals risk the realisation of future profits; where they do depart, “switching crises” may result for the country or region in question. The rent space thus emerges from the complex relationship varying capitalist, state and social interests within the national political structure and the global economy (transnational economic forces at the structural level) which generate varying opportunities or enclosures for industrialisation based on natural resources. Natural resource activities that produce rents can be transformed into investible resources and a source of inputs for other organisations to expand capabilities in new technology-intensive production (at the technical or organisational level), promote inter-sectoral linkages and transform industries or encourage certain commodity-driven accumulation paths.

In this formulation, the state is the source of rents along with the economic forces operating in the commodity-exporting sectors. Certain transnational economic forces in this respect may block or open up opportunities for new rent creation. Dwindling rents may also be used in the socio-political structure to maintain legitimacy by the state such as through new incomes policies or fiscal safeguards for enterprises in the onshore economy that is the sector that absorbs the taxes and royalties produced by the commodity-producing sector (Best and Levitt, 2009). In the context of reduced income from the exports of surplus commodities, intense battles and struggles for rent may ensue among competing interests to continue flows of profits, while social sectors may lack resources and capacity to mobilise to obtain a greater share of the rent (Ngo, 2016; Perry, 2018). In the final analysis, the economic model of CDDEs are shaped by global forces and national political struggles that ascribe opportunities for rent accumulation that influence the nature of economic policy and diversification pathways in the long run.

#### Debt explosion.

Since the global financial crisis of 2008, and especially after the 2014 commodity price slump, indebtedness has been worsening in CDDEs. Between 2008 and 2017, the external debt of 17 CDDEs increased by more than 25% of GDP(UNCTAD, 2019a). After 2008, interest rates fell close to zero that enabled many commodity exporters to take on additional government debt that increased from 51.1 to 62.1% (between 2008-2019) on average in African commodity exporters and 40.6 to 57.8% in Latin America [2] (Rashid et al., 2020; World Bank, 2020a). Loose monetary policy in advanced economies up to and including during the euro-crisis, especially the USA and Europe encouraged this level of borrowing on the back of downward trending commodity prices. In mineral-exporting Mongolia, as an extreme case, the ratio of debt to GDP skyrocketed from 39 to 245% of GDP. Heavily indebted commodity exporters are likely to be on the front-line of debt-related economic pressures from the spread of the disease, particularly in the face of declining foreign exchange reserves (UNCTAD, 2020b). Angola, Ecuador, Gabon and Zambia – which are primarily oil and cooper producers – will face worsening debt positions and exposure of their public finances (Tröster, 2020).External public debt currently exceeds 100% of GDP in Djibouti, Eritrea, Mozambique, Republic of Congo and Sudan which are major African mineral and oil exporters (UNCTAD, 2019a).

Before the SARS-CoV-2 virus, international currency reserves had been growing at a higher annual rate than short-term debt. In 2017, UNCTAD indicated that debt levels were returning to levels not seen since the 1980s during which time several countries experienced major debt crises in Latin America and the Caribbean and Sub-Saharan Africa (UNCTAD, 2017). After the global financial crisis of 2008, storing up international foreign currency reserves was used a mechanism for self-insurance against downturns and have in effect diverted resources away from basic public goods like health and education, productivity-enhancing public investment and long-term fiscal outlay in diversification projects (Ocampo, 2017; UNCTAD, 2020b). Despite a pick-up since 2016 in these reserves as commodity prices momentarily stabilised, current reserves for these countries are lacking to manage the COVID-19 shock and thus require international support from private creditors and multilateral lenders. Much of growth in reserves has occurred through borrowing rather than through export revenue increases (Rashid et al., 2020; UNCTAD, 2019b).In 2020, emerging markets have witnessed an unprecedented increase in indebtedness, worse even than what occurred after the global financial crisis. The International Institute for Finance has estimated that these countries have raised US$83bn on bond markets, recovering somewhat from the rapid outflow of bond and speculative investors valued US100bn in March 2020 (World Bank, 2020b). Moreover, CDDEs have experienced a rapid build-up of private debt in reserve currencies and increased penetration of their markets by non-resident investors, foreign commercial banks, other financial intermediaries, as well as from allowances to their own residents to invest more freely abroad (Akyüz, 2017; Gkanoutas-Leventis, 2017; UNCTAD, 2020b). There are several mechanisms via which this has been occurring. In the case of Latin American commodity exporters, multilateral and private debt portfolios originating from the USA, Europe and China are worsening (Franz, 2020). The Inter-American Development Bank, which is the largest multilateral creditor to the region, has used a mix of carrot and stick measures to promote a variety of financial and debt instruments (Ahumada, 2019; ECLAC, 2018).The division among debtors is stark, as low income countries owed huge sums to multilateral creditors, private bondholders and Chinese state-owned and policy banks (Kose et al., 2020; Spiegel et al., 2020). According to recent disclosures, as at 2018, poorer countries owed China$104bn, compared to $106bn to the World Bank and$60bn to bondholders (The Economist, 2020a). The United Nations has estimated that 38% of these countries’ external public debt stocks are owed to private creditors while 32% are held in bonds (Spiegel et al., 2020).

Demand for emerging market and developing country debts is also an important facet of the current “debt wave” as investors seek higher-yielding returns on their investments (World Bank, 2020c). Latin American and African commodity exporters have borrowed considerably from China, in particular oil-producing Angola that owes over $20bn, Ecuador that racked up$13.8bn and Djibouti that owes more than 70% of GDP (Mihalyi et al., 2020). There has also been a strong shift in the ownership of central government debt, including public external debt, from official to private creditors and several commodity index traders that became more prominent after 2008 (Gkanoutas-Leventis and Nesvetailova, 2015; Mayer, 2012; Pradhananga, 2016). Given low interest rates and changing structure of debt markets to an expansive nonbank financial sector, the possibility of expanding rent space to meet long-term projects is dim as fiscal resources are used up to respond to the current COVID-19 crisis. Increasing debt has a direct relationship to the amount of available rent to invest in public services, particularly to meet the health, income and other needs of their populations and achieve productive development projects. These trends worsen developing countries’ external vulnerabilities and involve large transfers of resources to advanced economies and Wall Street investors through various financial channels.

In response, the International Monetary Fund, World Bank and G20 countries have implemented measures that include some form of debt standstill under a debt service suspension initiative (DSSI), Rapid Financing Instruments (RFI) and Rapid Credit Facility (RCF) of no-interest loans for the most at risk countries that allow them to free up resources to respond to the social and economic consequences of the public health crisis. The World Bank and IMF have agreed to suspend payments for six months for 25 countries owing about $9bn, which equate to less than 1% of total debt payments (Romero, 2020). However, private creditors have been less willing to respond to calls by the G20 for some form of relief for low-income countries and have failed to coordinate debt portfolios. They have offered an alternative path, including new lines of credit and liquidity ($85bn in new bonds in May 2020). After initially supporting the DSSI, they distanced themselves and opted for a more convoluted, possibly lengthier process that is a voluntary and case-by-case arrangement between sovereign debtors and private creditors which may be potentially more harmful to debtor countries (Bolton et al., 2020).Given the power dynamics at the multilateral institutions, where the USA and China have significant voting power, the IMF has been so far unwilling to take action such as issuing new tranche of Special Drawing Rights. The increased power of private creditors has changed the debt scenario and rules of the game altogether that would in the short and medium term increase debt obligations and complicate the ability of commodity exporting nations to achieve recovery from the current crisis (Musthaq, 2020). This increased role of private creditors and financial interests raise concerns about financialisation in CDDEs. Financialisation affects these countries through its impact on destabilising the exchange rate and the composition and structure of debt and the diversity of financial instruments and creditors especially the bond markets (Akyüz, 2017; Gabor, 2018; Kaltenbrunner and Painceira, 2018; Musthaq, 2020) The short-termist financial inflows and the capacity of the state through fiscal buffers and monetary policy (Karwowski, 2019), including the expansion of dollar-denominated debt and subordination in international capital markets exacerbate the impacts of financialisation on the productive sectors that worsen the fiscal situation (Bonizzi et al., 2019). While the productive capacity of these countries further shrink during the COVID-19, debt continues to accumulate which leave few opportunities to expand industrial capacity from current rents. These dynamics show the increased power of financial interests that extract financial rents and in turn in impact productive expansion and thus the rent space in CDDEs.

#### Demand crisis.

An additional concern that has arisen over the past decade, and which COVID-19 has revealed more conspicuously is that the demand for hard commodities over time is going to differ sharply from before. Demand for oil has evaporated almost overnight due to rapid lockdown and containment measures to stem to spread of the coronavirus and due to shifts in economic activity from workplaces, restaurants and other areas to the home (IEA, 2020a; World Bank, 2020a). According to the International Energy Agency (IEA), demand is forecast to shrink by 2.1 million barrels per day (mb/d) for the first half of 2020, 29 mb/d lower than a year ago in April alone, and a record 9.3 mb/d lower in 2020 compared to 2019 (IEA, 2020b). Before now, the IEA had anticipated that global oil demand, which had risen on average by 1.5 mb/d each year in the past decade and expected to reach 100 mb/d in 2019, would start to drop from 2025 onwards (IEA, 2020a).

Since the Second World War, energy demand is projected to have the largest decline in of about 6% during the current crisis – the entire demand equivalent of the Indian economy – or seven times the decline after the 2008 global financial crisis (IEA, 2020a). While economic activity have switched to indoors, and in some cases to renewable energy, especially in countries like Germany and across parts of continental Europe; the unevenness in access to modern energy services, and installed energy capacity in renewables across rich industrialised countries and the rest remain stark (IEA, 2018). Countries with already large investments and almost completed projects would benefit from such a shift but those countries that depend on demand in China, which make up around 10% of global demand and from other advanced economies would witness major decline in commodity exports (Hosseini, 2020; The Economist, 2020b; UNCTAD, 2020a).

Based on these observations, it appears that we have entered a period of an existential demand crisis for certain hard commodities, especially for fossil fuels, thereby reducing considerably the rent space for fossil fuel exporters to expand production capability and long-term investments in diversification. These patterns will be different for various countries depending on the structure of their commodity sectors (Ocampo, 2017). Countries that rely on fossil fuels, as compared to minerals like lithium or iron ore for instance, may continue to experience downward demand trends taking into account how volatile capital flows and financialisation through the exchange rate that have affected their capital and institutional structure (Allami and Cibils, 2018). In other words, those countries that continue to integrate with global financial systems and architecture or which have reached a point of “intensive integration” would continue to experience this worsening scenario (Akyüz and Akyüz, 2020). The consistent demand uptick we saw during the 2000sand up to the major slump of 2014 is unlikely to return to the levels witnessed in that period (Castañeda et al., 2020; Jepson, 2020).This super-cycle period undoubtedly offered commodity reliant countries an opportunity to expand their fiscal revenue base by increasing increase tax and royalty hauls, investments in their national oil and mining companies and through new bargaining power of such states (Castañeda et al., 2020; Massi and Singh, 2018).

Policy makers and national oil and mining companies to a certain degree captured a greater share of the commodity rents to generate more employment and make new public investments (Haslam and Heidrich, 2016). The “rent space” which refers to complex relationship between the national political structure and the global economy can be expanded or narrowed, in terms of the policy scope to engender new accumulation, was therefore shifted to meeting broad social goals. In this vein, for instance social classes and factions at the margins in Bolivia competed for tax and royalty rents from major private sector players from nonrenewable resources to be invested in educational, informal work schemes and expanding the urban sector (McNelly, 2020). This period also created new relations and dependencies of social groups in Latin American countries on the state to meet their basic needs, as well as precarious employment and limited industrialisation (Loureiro and Saad-Filho, 2019; McNelly, 2020).

Simultaneously, however, the integration of commodities in international financial markets that disconnected production yields from their market prices and the financial gains thereof posed major challenges and new vulnerabilities to external shocks like COVID-19 (Gkanoutas-Leventis and Nesvetailova, 2015; Pradhananga, 2016). These relationships struck over a shorter period of time since the 1990s in the Latin American region and thereafter created uncertainties in commodity markets and increased speculation (Allami and Cibils, 2018). During the current crisis, oil- and gas-based economies in particular can thus brace for much lower demand for this reason and potentially until economies begin to recover, particularly because of trends prior to and since COVID-19.

Some scholars have for some time discussed the idea of “peak oil demand” as an empirical construction of the lives of commodity-dependent countries (Pargman et al., 2017). Unlike this idea that was coined by Marion Hubert, which represents a bell curve of rising production and period of maximum extraction point of petroleum, after which a terminal decline sets in, this paper complicates this idea a bit more (Kennedy, 2014). Instead, we suggest that an existential demand crisis especially in mature oil and gas sectors may now have set in especially in Latin America and the Middle East regions and spaces dependent on hydrocarbon resources; this is not due to an abstract consideration of oil’s reaching a terminal supply point, but is due to the interaction of global political economic events and structures (Thirlwall, 2013). The slowdown in global aggregate demand and growth in many advanced economies and China, and shifts in economic activity towards greater share of energy from renewable sources in China will also play a role. These forces include increased activism of climate movements calling for divestment from fossil fuels and decarbonisation imperatives on the one hand (Sovacool et al., 2019). On the other hand, the exhaustion of policy maneuvers in terms of expanding demand to new segments of export markets, as well as internal contestation among elites and domestic social actors to maximise the remaining rents at an even faster rate that pose a significant challenge to a shrinking rent space.

As a consequence, this “rent space” for fossil fuels is narrowing to some degree while for other minerals will go through a more dynamic period of increased dependence and extractivism over time. In other words, the demand crisis facing fossil fuel exporters especially oil exports appear more determinant while for other minerals found in Sub-Saharan and Latin American countries, needed for production in electric vehicles for instance is much more contingent on the pace of expansion of renewable energy products. It also reveals a deepening challenge of deeper extractive capitalism in which transnational corporations, financial elites and policy imperatives in the global North help constrain the productive potential for these countries (Perry, 2020; UNCTAD, 2019b). This paper therefore suggests commodity exporters are particularly concerned with the current slump in demand for the fact that the challenges are structural in nature and worsened by the COVID-19 situation. As a commentator has suggested:

For now, though, the greatest source of uncertainty for oil producers is structural in nature, not cyclical […] It would be enough to see oil demand permanently dropping by 5 million barrels per day (5 % below the pre-coronavirus global demand), due to changed transportation habits, to force a drastic supply adjustment (Campanella, 2020).

The ability of developing countries to use industrial policies to expand in new industrial sectors, especially green industries appears limited to the sunk investments, institutional capacity and the global governance rules that are currently not entirely in their favour (Chang and Andreoni, 2020). A focus on new sets of policies within the current global constraints offer little reprieve without the conditions to implement policies towards diversification.

#### Decarbonisation.

The situation of rapid change of existential demand crisis for fossil fuels and minerals is inevitably linked to and further compounded by the climate crisis and the requirement to meet global mitigation targets up to 2030 demanded by global institutions (IPCC, 2018). The United Nations Environment Programme has suggested in a 2019 report, that mineral and hydrocarbon extraction would have to radically change to secure the below 1.5-degree target of temperature increase under the United Nations Framework for Climate Change (UN Environment, 2019). What does this mean for CDDEs especially oil and gas and mineral-based economies? The impact of climate mitigation strategies could represent long-term tendencies in terms of demand shifts but also in terms of the forces of global policy discussions like the global Green New Deal (UNCTAD, 2019b). For countries that rely on commodities, in particular in the oil and gas category, there may be major political and economic disruption on account of shifts towards renewable energy that climate activists and major international financial institutions are demanding (Sovacool et al., 2019).

The recent Energy Outlook produced by BP – one of the biggest energy players – have pointed to signs of these major changes due to the pandemic, according to its analysis, which envisages demand for oil, if prices recover, may plateau at 2019 levels well into the 2020s (BP, 2020). However, overall the company believes this will reach peak by 2035. As such, the company envisaged a greater share of renewables in electricity provisioning, especially windfarms, solar panels and hydropower leading to a fundamental restructuring in the global energy system (BP, 2020). Its corporate strategy will be to reduce fossil fuel production by 40% over the next 10 years and rapidly increase investments in renewable energy supplies. This outlook shows increasing concern for global oil markets, especially oil-producing countries in the Global South where BP and other major players who have lost significant market value over the current crisis.

As a consequence, the impact of these tends towards renewables and increased climate mitigation means that CDDEs would need to abandon current plans to exploit these resources – up to 80% of proven reserves that reside in these regions (Ansari and Holz, 2020; Bos and Gupta, 2018). These changes over time would potentially mean a rapid loss in economic output, further loss of autonomy to produce economic goods for exports, and dislocation leading to social and political dislocation especially in fossil fuel-dependent societies (Armstrong, 2019).

During the COVID-19 crisis, the International Energy Agency estimates that renewable energy could make up to 40% of global electricity generation in 2020 and have a positive effect of reducing CO2 emissions by as much as eight per cent (IEA, 2020a). Global demand of renewable energy in all sectors increased by about 1.5% in the first quarter of 2020 year-on-year (IEA, 2020b). Renewable electricity generation increased by almost 3% owing to completed wind and solar PV projects in the past year. It is uncertain whether these trends would endure very much into the future. Another perspective, the more pessimistic view suggests that COVID-19 would lead to austerity in many countries and delay implementation of new renewable energy projects (Hosseini, 2020). Hosseini (2020) predicts that developing countries may switch to lower-cost energy products; yet this situation remains highly uncertain.

However, the changes in global policy discussions for a Green New Deal especially in the USA and Europe, which has immense power in terms of restructuring demand for commodities and for finance (Chomsky and Pollin, 2020; European Commission, 2019). The European Union 27 have put together a number of laws, regulations, and financing arrangements to help its member countries’ transition by increasing offshore wind production and increase the EU’s greenhouse gas emission reductions target for 2030 to at least 50% and towards 55% compared with 1990 levels (European Commission, 2019) China’s recent renewable energy policy also states that by 2020, the Communist Party will have the installed wind turbine capacity to account for 15% of the total electricity capacity and by 2050 renewable energy supply will account for 50% of the total energy consumption (Zhenmin and Gehua, 2020). China is already the world’s largest producer of wind energy, with as much as twice the capacity than the USA, as well as one-third of the world’s solar-generation capacity, having built more systems last year than any other country (See Figure 5) (O’Meara, 2020). Commodity exporters, especially coal and oil exporters are found in a complicated predicament where as much 60 or up to 80% or more of government revenues come from commodities exports may have to abandon these assets (Ansari and Holz, 2020).

Climate activists and those calling for major shifts away from fossil fuels have not considered how these demands for rapid changes by the green new deal and other such policies would affect fossil fuel exporters, many of which are considered middle income countries and have large swathes of poor people owing to environmental degradation, resource overexploitation and the structure of their economies. The displacement that would result from rapid decarbonisation may cause untold economic and social damage as the export-driven model for CDDEs are built on vulnerable grounds. Therefore, the rent space is further compromised to address the long recovery of the pandemic as well as expanding new economic possibilities under conditions of intense adjustment in the global economy.

Given socio-political structures, sunk investments in extractive operations, limited manufacturing capacity, institutional infrastructures, reduced fiscal policy space, commodity exporting nations themselves have been unable to instigate an energy transition beyond oil and gas production. They have had to rely in cases like Chile, Ecuador and South Africa on speculative foreign investments that have not generated a beneficial expansion in green employment (Baker, 2015; Lyall and Valdivia, 2019). Many CDDEs, because of their increasing integration into global financial architecture, especially in Latin America and the Caribbean have experienced deindustrialisation that would paralyze their ability to participate effectively in green sectors especially in economically advantageous segments of global value chains (Levy and Bustamante, 2018). The current reality also shows that large existing investments are skewed in favor of a handful of countries (Figure 5). In 2018, that China led global investments at US $91.2bn, followed by Europe at US$61.2bn, the USA at US$48.5bn, Asia-Pacific region (excluding China and India) at US$44.2bn, Middle East and Africa at US$15.4bn. In the Americas (excluding Brazil and the USA), investment was at meagre US$9.8bn (IEA, 2018).

Despite the fact that CDDEs have contributed negligibly to climate change and greenhouse gas emissions many, they are found in a situation where they must increase their ambitions for climate mitigation without a global safety net or mechanism for financial transfers that help them achieve their energy transition. CDDEs economic history and insertion in the global economic arrangements have been based on resource-based extractivism and have been by and large in many cases unable to build manufacturing capacity that can enable them to adjust their economic models and to build new green sectors. Increasingly, the subordination in monetary, financial and other institutional networks has created vulnerabilities and restricted domestic capital mobilisation, critical governance capabilities and enabling financial systems for renewable energy investments.

#### Conclusions and research implications.

The COVID-19 pandemic increases vulnerabilities on several fronts, in particular as shown above in terms of debt, demand and decarbonisation that have severe consequences and spur uncertainties for CDDEs. These vulnerabilities show the changing dynamics of rent structures, or the rent space, for commodity-based development and growth recovery has rapidly shifted. In spite of the fact that this crisis has exogenous origins, the ability to respond has clearly been starkly different and mediated by ongoing disparities in institutional capacity and position that countries occupy in the world economy. CDDEs’ whose debts are increasing at phenomenal rates are in greater vulnerability given dwindling demand for exports and rents to meet basic social and productive needs. The countries that assume a more central position in the international financial system have thus been able to deploy financial resources including additional debt without a systemic effect on their sovereign debt positions, their future viability or exchange rate.

CDDEs continue to depend on this narrow set of goods and must continue investments in the sector and spend through borrowing. The opportunity structure, i.e. the rent space in which these countries operate to be able to effect a recovery in a sustainable fashion is extremely limited. In future work, it would be necessary to explore the potential long-term of effects on these crises on macroeconomic variables such as growth, employment and investment. In addition, the impacts on the social sector and ability to respond to social crises through sustaining investment would be an important research area. In addition, demands by movements in the Global North and the increased need for climate mitigation pose severe demand challenges as oil majors increase their investments into renewables. To recover and sustain effort to build new green industries would require a great amount of institutional flexibility, massive reform of international finance and economic models. A research programme that combines these institutional and financial aspects can yield important insights.

The economic crisis resulting from COVID-19 is likely to spread due to the financial and global interlinkages from advanced economies to emerging markets that reflect a broader global unevenness and has ghostlike echoes of the 2008 crisis. CDDEs are left in increasingly vulnerable situation, especially as multilateral agencies like the World Bank and IMF, blocked by major shareholding governments, are unable to offer new liquidity and special drawing rights. Unbridled debt and increasing austerity will further paralyse CDDEs’ ability to advance their economic transition. Assuring a more sustainable recovery and addressing the fallout of massive debt, ongoing demand difficulties and decarbonisation given the uneven effects of and responsibility for the climate crisis would require and draw upon policy levers, state capabilities and new political reconfigurations. Domestic and transnational social movements must join up and demand support for these countries to transition through a global financial transfer mechanism and new policy tools to radically transform reliance on declining commodity sectors or reduce extractivism.

## Figures

### Figure 1.

Monthly Commodity Price indices (nominal US dollars, 2010 = 100) June 2019 to 2020

### Figure 2.

Defining the rent space

### Figure 3.

Year-on-year growth of oil demand among OECD member and non-member countries (2000-2019)

### Figure 4.

Oil demand declines since 1965 (in %)

### Figure 5.

Global trends in Renewable Energy Investment US\$bn

## Notes

1.

Rents are defined as incomes or returns to a factor of production compared to its next best use that are gained through collective ownership and exploitation of nonrenewable resources can provide critical resources for investment.

2.

Debt levels were uneven from one country to another, from less than 25% of GDP at the end of 2019 in oil-exporting Peru to much higher figures in soybean exporter Argentina, 75.8% in oil and gas-exporter Brazil.

## References

Ahumada, J.M. (2019), The Political Economy of Peripheral Growth: Chile in the Global Economy, Springer.

Akyüz, Y. (2017), Playing with Fire: Deepened Financial Integration and Changing Vulnerabilities of the Global South, Oxford University Press, (accessed 19 January 2020).

Akyüz, Y. and Akyüz, Y. (2020), “The commodity-finance nexus: twin boom and double whammy”, Revista de Economia Contemporânea, Vol. 24 No. 1, available at: https://doi.org/10.1590/198055272418

Allami, C. and Cibils, A. (2018), “Financialization and development: issues and perspectives”, Handbook on Development and Social Change, Edward Elgar Publishing, (accessed 14 July 2020).

Ansari, D. and Holz, F. (2020), “Between stranded assets and green transformation: fossil-fuel-producing developing countries towards 2055”, World Development, Vol. 130, p. 104947.

Armstrong, C. (2019), “Decarbonisation and world poverty: a just transition for fossil fuel exporting countries?”, Political Studies, SAGE Publications Ltd., p. 0032321719868214.

Bahaj, S. and Reis, R. (2020), “Central bank swap lines during the Covid-19 pandemic”, Covid Economics, available at: http://eprints.lse.ac.uk/104314/ (accessed 10 June 2020).

Baker, L. (2015), “The evolving role of finance in South Africa’s renewable energy sector”, Geoforum, Vol. 64, pp. 146-156.

Best, L. and Levitt, K. (2009), Essays on the Theory of Plantation Economy: A Historical and Institutional Approach to Caribbean Economic Development, University of West Indies Press.

Bolton, P., Buchheit, L., Gourinchas, P.O., Gulati, M., Hsieh, C.-T., Panizza, U. and Mauro, B.W. (2020), “Sovereign debt standstills: an update”, VoxEU.Org, 28 May, (accessed 5 July 2020).

Bonizzi, B., Kaltenbrunner, A. and Powell, J. (2019), Subordinate Financialization in Emerging Capitalist Economies, No. 23044, Greenwich Papers in Political Economy, University of Greenwich, Greenwich Political Economy Research Centre, available at: https://ideas.repec.org/p/gpe/wpaper/23044.html (accessed 25 March 2020).

Bos, K. and Gupta, J. (2018), “Climate change: the risks of stranded fossil fuel assets and resources to the developing world”, Third World Quarterly, Vol. 39 No. 3, pp. 436-453.

BP (2020), “Energy outlook 2020 edition”, BP, London,

Campanella, E. (2020), “After decades of wrong predictions, oil may finally be peaking”, Foreign Policy, (accessed 14 July 2020),

Castañeda, F., Barría, D. and Carpentier, J.B. (2020), “State-owned enterprises and industrial development in Latin America”, in Bernier, L., Florio, M. and Bance, P. (Eds), The Routledge Handbook of State- Owned Enterprises, Routledge, New York, NY, pp. 164-178.

Chang, H.-J. and Andreoni, A. (2020), “Industrial policy in the 21st century”, Development and Change, Vol. 51 No. 2, pp. 164-178.

Chomsky, N. and Pollin, R. (2020), Climate Crisis and the Global Green New Deal: The Political Economy of Saving the Planet, Verso Books.

ECLAC (2018), “Resilience and Capital flows in the Caribbean”, CEPAL, (accessed 17 December 2019).

European Commission (2019), “The European green new deal”, European Commission, Brussels,

Franz, T. (2020), “Spatial fixes and switching crises in the times of COVID-19: implications for commodity-producing economies in Latin America”, Canadian Journal of Development Studies/Revue Canadienne D’études Du Développement, pp. 1-13.

Gabor, D. (2018), “Goodbye (Chinese) shadow banking, hello market‐based finance”, Development and Change, Vol. 49 No. 2, pp. 394-419.

Gkanoutas-Leventis, A. (2017), “Oil shocks as barometers of the financialisation process”, in Gkanoutas-Leventis, A. (Ed.), Spikes and Shocks: The Financialisation of the Oil Market from 1980 to the Present Day, Palgrave Macmillan, London, pp. 69-75.

Gkanoutas-Leventis, A. and Nesvetailova, A. (2015), “Financialisation, oil and the great recession”, Energy Policy, Vol. 86, pp. 891-902.

Haslam, P.A. and Heidrich, P. (2016), “From neoliberalism to resource nationalism: states, firms and development”, The Political Economy of Natural Resources and Development: From Neoliberalism to Resource Nationalism, Routledge, pp. 1-32.

Hosseini, S.E. (2020), “An outlook on the global development of renewable and sustainable energy at the time of COVID-19”, Energy Research and Social Science, Vol. 68, p. 101633.

IEA (2018), World Energy Outlook Special Report: Outlook for Producer Economies 2018, International Energy Agency, Paris,

IEA (2020a), Global Energy Review 2020: The Impacts of the COVID-19 Crisis on Global Energy Demand and CO2 Emissions, International Energy Agency, Paris, available at: www.iea.org/reports/global-energy-review-2020 (accessed 8 May 2020).

IEA (2020b), “Oil market Report – April 2020”, International Energy Agency, Paris, available at: www.iea.org/reports/oil-market-report-april-2020 (accessed 8 May 2020).

IPCC (2018), Global Warming of 1.5°C: An IPCC Special Report on the Impacts of Global Warming of 1.5°C above Pre-Industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty, Intergovernmental Panel on Climate Change.

Jepson, N. (2020), In China’s Wake: How the Commodity Boom Transformed Development Strategies in The Global South, Columbia University Press.

Jessop, B. (2015), The State: Past, Present, Future, Wiley.

Kaltenbrunner, A. and Painceira, J.P. (2018), “Subordinated financial integration and financialisation in emerging capitalist economies: the Brazilian experience”, New Political Economy, Vol. 23 No. 3, pp. 290-313.

Karwowski, E. (2019), “Towards (de-)financialisation: the role of the state”, Cambridge Journal of Economics, Vol. 43 No. 4, pp. 1001-1027.

Kennedy, E. (2014), “From Petro-States to ‘new realities’: perspectives on the geographies of oil”, Geography Compass, Vol. 8 No. 4, pp. 262-276.

Kose, M.A., Ohnsorge, F., Nagle, P. and Sugawara, N. (2020), “Caught by the cresting debt wave”, Finance and Development, Vol. 57 No. 2, (accessed 7 July 2020).

Levy, N. and Bustamante, J. (2018), Financialisation in Latin America: Challenges of the Export-Led Growth Model, Routledge.

Loureiro, P.M. and Saad-Filho, A. (2019), “The limits of pragmatism: the rise and fall of the Brazilian workers’ party (2002-2016)”, Latin American Perspectives, Vol. 46 No. 1, pp. 66-84.

Lyall, A. and Valdivia, G. (2019), “The speculative petro-state: volatile oil prices and resource populism in Ecuador”, Annals of the American Association of Geographers, Vol. 109 No. 2, pp. 349-360.

McNelly, A. (2020), “Neostructuralism and its class character in the political economy of Bolivia under evo morales”, New Political Economy, Vol. 25 No. 3, pp. 419-438.

Massi, E. and Singh, J.N. (2018), “Industrial policy and state-making: Brazil’s attempt at oil-based industrial development”, Third World Quarterly, Vol. 39 No. 6, pp. 1133-1150.

Mayer, J. (2012), “The growing financialisation of commodity markets: divergences between index investors and money managers”, Journal of Development Studies, Vol. 48 No. 6, pp. 751-767.

Mihalyi, D., Adam, A. and Hwang, J. (2020), Resource-Backed Loans: Pitfalls and Potential, Natural Resource Governance Institute, London, (accessed 5 July 2020).

Musthaq, F. (2020), “Development finance or financial accumulation for asset managers? The perils of the global shadow banking system in developing countries”, New Political Economy, pp. 1-20.

Neilson, J., Dwiartama, A., Fold, N. and Permadi, D. (2020), “Resource-based industrial policy in an era of global production networks: strategic coupling in the Indonesian cocoa sector”, World Development, Vol. 135, p. 105045.

Ngo, C.N. (2016), “Developmental rent management analysis: learning, upgrading, and innovation”, Journal of Economic Issues, Vol. 50 No. 4, pp. 1045-1068.

Ocampo, J.A. (2017), “Commodity-Led development in Latin America”, International Development Policy | Revue Internationale de Politique de Développement, Vol. 9 No. 9, pp. 51-76.

O’Meara, S. (2020), “China’s plan to cut coal and boost green growth”, Nature, Vol. 584 No. 7822, pp. S1-S3.

Pargman, D., Eriksson, E., Höök, M., Tanenbaum, J., Pufal, M. and Wangel, J. (2017), “What if there had only been half the oil? Rewriting history to envision the consequences of peak oil”, Energy Research and Social Science, Vol. 31, pp. 170-178.

Perry, K.K. (2018), “The dynamics of industrial development in a resource-rich developing society: a political economy analysis”, Journal of Developing Societies, Vol. 34 No. 3, pp. 264-296.

Perry, K.K. (2020), “The ‘green’ new deal should not be a new imperial masterplan”, Al-Jazeera, 4 June, (accessed 10 June 2020).

Porter, D. and Watts, M. (2017), “Righting the resource curse: institutional politics and state capabilities in Edo state, Nigeria”, The Journal of Development Studies, Vol. 53 No. 2, pp. 249-263.

Pradhananga, M. (2016), “Financialization and the rise in co-movement of commodity prices”, International Review of Applied Economics, Vol. 30 No. 5, pp. 547-566.

Rashid, H., Vergara, S., Afonso, H. and Pitterle, I. (2020), Commodity Exporters Face Mounting Economic Challenges as Pandemic Spreads, No. UN/DESA Policy Brief #60, New York, NY,

Raval, A. and Sheppard, D. (2020), “Oil crash: why Saudi Arabia has started a global crude price war”, Financial Times, London, 9 March, (accessed 29 March 2020).

Romero, M.J. (2020), “Bretton woods institutions challenged by the outbreak of Covid-19”, SOAS Blog, 4 May, (accessed 5 July 2020).

Sovacool, B.K., Martiskainen, M., Hook, A. and Baker, L. (2019), “Decarbonization and its discontents: a critical energy justice perspective on four low-carbon transitions”, Climatic Change, Vol. 155 No. 4, available at: https://doi.org/10.1007/s10584-019-02521-7

Spiegel, S., Schwank, O. and Obaidy, M. (2020), “COVID-19 and sovereign debt”, United Nations department of economic and social affairs, May, (accessed 4 July 2020).

The Economist (2020), “The poorest countries may owe less to China than first thought”, The Economist, (accessed 4 July 2020).

The Economist (2020b), “Commodity economies face their own reckoning due to Covid-19”, The Economist, (accessed 10 June 2020).

Thirlwall, A.P. (2013), Economic Growth in an Open Developing Economy: The Role of Structure and Demand, Edward Elgar Publishing.

Tröster, B. (2020), “Commodity-Dependent countries in the COVID-19 crisis”, No. 25, Briefing Papers, Österreichische Forschungsstiftung für Internationale Entwicklung (ÖFSE)/Austrian Foundation for Development Research, available at: https://ideas.repec.org/p/zbw/oefseb/25.html (accessed 10 June 2020).

UN Environment (2019), “Global resources outlook 2019: natural resources for the future we want”, No. DTI/2226/NA, International Resource Panel, available at: https://wedocs.unep.org/handle/20.500.11822/27517

UNCTAD (2017), “Beyond austerity: towards a global new deal”, United Nations, New York, NY and Geneva,

UNCTAD (2019a), “State of commodity dependence 2019”, United Nations, Geneva, (accessed 12 October 2019).

UNCTAD (2019b), “Trade and development report 2019: financing a green new deal”, United Nations, Geneva,

UNCTAD (2020a), “Impact of the COVID-19 pandemic on commodities exports to China”, No. UNCTAD Research Paper No. 44, United Nations, Geneva, (accessed 10 June 2020).

UNCTAD (2020b), “The coronavirus shock: a story of another global crisis foretold and what policymakers should doing about it”, Trade and Development Report Update, United Nations, Geneva, (accessed 8 May 2020).

UNDP (2011), “Commodity dependence and international commodity prices”, Towards Human Resilience: Sustaining MDG Progress in a State of Economic Uncertainty, United Nations, New York, NY,

Watts, M. (2016), “Accumulating insecurity and manufacturing risk along the energy frontier”, Risking Capitalism, Vol. 31, Emerald Group Publishing Limited, pp. 197-236.

Watts, M.J. (2004), “Antinomies of community: some thoughts on geography, resources and empire”, Transactions of the Institute of British Geographers, Vol. 29 No. 2, pp. 195-216.

World Bank (2020a), “A shock like no other: Coronavirus rattles commodity markets”, World Bank, 23 April, (accessed 10 June 2020).

World Bank (2020b), Global Economic Prospects, June 2020, World Bank Group, Washington, DC, (accessed 18 June 2020).

World Bank (2020c), Global Waves of Debt: Causes and Consequences, World Bank Publications.

Wright, G. and Czelusta, J. (2004), “WHY ECONOMIES SLOW: the myth of the resource curse”, Challenge, Vol. 47 No. 2, pp. 6-38.

Zhenmin, Z. and Gehua, W. (2020), “China national energy strategy and policy 2020”, (accessed 6 November 2020).

IRENA (2019), Renewable Energy and Jobs Annual Review 2019, International Renewable Energy Agency, Abu Dhabi, (accessed 9 May 2020).

Gallagher, K.P. and Kozul-Wright, R. (2019), “A new multilateralism: Geneva principles for a global green new deal for shared prosperity”, Global Development Policy Center, (accessed 7 February 2020).

ILO (2018), “World employment social outlook: greening with jobs”, International Labour Organisation, Geneva,

United Nations (2018), “Accelerating SDG7 achievement: policy brief 13 interlinkages between energy and jobs”, United Nations Department of Social and Economic Affairs, New York, NY, (accessed 9 May 2020).

## Acknowledgements

This paper has benefitted from discussions with colleagues and attendees at the “Economics of COVID-19” Seminar Series at the Department of Economics, SOAS University of London. The author thank the Department for the invitation to participate and members of the Open Economics Forum at SOAS as well as the attendees and supporters for their engagement and interest in this paper. He appreciates the unwavering support and encouragement of family, colleagues and friends, especially Jevon, Danielle, Zophia, Janelle, Kamilah, Joannah, Richard, Jenna, Shantelle, Ben and Stacy-Ann, all of whom in one way or another have kept him sane during 2020. All omissions and errors are the sole responsibility of the author.

## Corresponding author

Keston K. Perry can be contacted at: keston.perry@uwe.ac.uk