Global South

In a time of great shifts, it is of note that the global development financial system is also at a crossroads and in need of reform for reform. From the articles listed below, I observe four developing themes, whether explicitly or implicitly mentioned. I will describe them below and conclude that these are the four main realities that the new development financial system would need to be shaped around.

First, we see the emergence of a new class of “middle class” emerging markets with a greater stake in the multilateral system, greater global economic connections, a greater desire for agency and voice in engaging with the Global North, and a greater ability to navigate the myriad cross-border economic systems that have evolved in the past 60 years. Let’s broadly generalize these as middle-income countries, including ASEAN, countries in Latin America, Central Asia, parts of the Middle East, and perhaps parts of Africa. For these countries, Alldo Januardy aptly comments: “The Global South is no longer waiting to be included. It is building something of its own—shaped by necessity, grounded in local priorities, and driven by the hard lessons of dependency.” Perhaps it is these countries that are most able and well-suited to take advantage of decentralized funding models with greater autonomy and choice. Financial innovations relevant for these groups of countries include multilateral regional development banks (Setser) or programs of public-private financing (Mundy) and require financial liberalization for them to have more access to existing global capital markets. These countries have the foundations of economic activity and are ready to access a more diverse array of funding mechanisms to fund a more diverse array of activities.

Second, we also note a bifurcation in what used to be lumped together as emerging markets. For poor countries vulnerable to debt, especially if they are also vulnerable to climate change and conflict, we observe a slide backwards in their internal economic capacity. These countries have not been able to withstand the pressures of COVID on their own and in some cases have fallen into distress. Further, it seems that the recent shocks may have so stressed their systems that their rates of growth have been dampened in the medium to longer term. These countries need access to immediate financing and fundamental support. IMF President Kristalina Georgieva says that these countries need $440bn in additional financing over 5 years to prevent further crises. Furthermore, these countries face difficulties as funding for the IMF and WB by developed countries retreats. Ms. Georgieva suggests further contribution to the IMF’s PRGT facility, leveraging up the World Bank balance sheet. Personally, I think targeted support of the type described by The Economist in “The Demise of Foreign Aid Offers an Opportunity”—wherein capital is deployed in targeted areas and projects where governments and UN agencies have coordinating power in relation to global crises like climate change and where there exist positive spillover effects—is more relevant. On the other hand, Makhtar Diop described a new securitization model of combining various EM loans and selling them at a higher credit rating. For these assets, I think such an approach is misguided and risks landing existing asset managers with toxic assets in the future. Many of these countries do not have the economic nor governance capacity to participate in financial markets as a normal member.

Third, China has become the largest bilateral creditor to many developing countries with a different model of lending driven by different priorities. Speaking from knowledge derived outside of this class, its early expansion into the Belt and Road Policy more than a decade ago was driven by an opportunity to offload pressure from the accumulation of massive FX reserves and internal spare capacity in primary and infrastructure industries. Now, those priorities have transitioned to a more transactional, targeted approach targeting specific sectors. Furthermore, Chinese creditors often took on projects that would qualify for participation of traditional Paris Club lenders. All that is to say, there is quite a gap between the Chinese and traditional Paris Club lenders that needs to be bridged. Efforts to do this are already underway through the G20 Common Framework for Debt Treatments. The US desires China to become a “responsible creditor” on its own terms (Crebo-Rediker), which China does not desire to do as it has its own model and priorities. A more cohesive global consensus on global lending will require China’s participation and hence the ability of China and the US-led Paris Club to come to some sort of agreement.

Finally, all these realities are underpinned by the backdrop of the globalization, economic development, and innovation of the last 70 years in the Pax Americana. Economic models and industries are now more numerous and diverse than ever before, with many variations of interlinkages, creating a complex and intricate web of economic relationships. Furthermore, within the financial system itself, technologies like electronic trading, online retail participation, new financial products, and blockchain have made capital more transmutable than ever before. It is no surprise that we are at an exciting crossroad and in need of reform. In fact, the Bretton Woods model has done remarkably well to facilitate and accommodate the changes up to this point! I am inspired by the amount of work that has gone into creating this system and hope that the global community will again find its way forward.

The Old Global Arrangement Is Breaking Apart

For decades the world economy rested on a clear arrangement. Wealthy nations consumed, financed innovation and set global standards. Developing nations supplied affordable labour, delivered production capacity and powered the rise of outsourcing. This structure created jobs, raised incomes and guided national strategies across Asia, Africa and Latin America.

That system is now weakening. Wage gaps that once justified outsourcing are closing rapidly. Factory wages in China have more than doubled over the past decade. Salaries in Vietnam, Bangladesh, Mexico and Eastern Europe have risen as these economies matured. Service wages in the Philippines and several African nations have also increased enough to erode the advantage that global firms once assumed was permanent. The global labour discount is disappearing and honestly the logic of offshoring is losing strength faster than many expected.

The New Producer Is Not a Country

Artificial intelligence is accelerating this shift. AI systems now complete tasks that once required large numbers of workers in the Global South. Customer support, document processing, routine software maintenance, claims handling, financial verification and data entry are already moving to automated systems that operate at scale with high accuracy and very low marginal cost.

This is not simply a productivity gain. It represents a substitution of labour itself. The International Monetary Fund estimates that about forty percent of global jobs contain tasks that can be automated. Surveys show that nearly thirty percent of companies plan to replace entire categories of work with AI within a year. These numbers are not abstract. They reflect changes that are already underway inside Western corporations, and many leaders barely talk about it publicly yet.

The Global North is becoming a producer again, but the production now happens through models rather than offshore workers. When a system can perform a task at a fraction of the cost of a remote employee and without coordination risk or geopolitical uncertainty, outsourcing collapses quickly and sometimes silently.

A New Global Divide Is Emerging

The world once divided neatly into high income consumers and low income producers. That divide is being replaced by a new line of separation. The decisive factor now is control over compute infrastructure and ownership of data and advanced models.

Compute is becoming the new labour force. Data is becoming the new export commodity. Intellectual property is becoming the new foundation of national power.

Research shows that developing countries face the highest automation exposure because they supply the kind of predictable and repetitive work that AI can absorb easily. Scholars describe this as a dual vulnerability because these nations depend heavily on sectors with high substitution risk while lacking the resources to adopt advanced technology at an equal pace. The risk is clear but the response has been slow.

The Global South Faces a Narrow Window

The consequences are immediate. The Philippines depends heavily on outsourced services. Bangladesh and Vietnam rely on labour intensive manufacturing. Kenya, Rwanda and several West African nations have built emerging digital service sectors under the assumption that global firms would continue sending work for decades.

An African regional analysis warns that up to forty percent of tasks in outsourcing roles could be automated by the year twenty thirty, with women and low income workers facing the highest risk. If Western companies reduce labour demand sharply, millions of workers across the Global South will face disrupted futures at the same moment and many governments are not prepared for that scale of change.

What The Global South Can Still Do

AI does not remove opportunity. It moves opportunity. Developing nations can remain competitive if they shift quickly.

They can strengthen their position in rare earth minerals and strategic metals that power batteries, servers and large data centres. By building refining and processing capacity instead of exporting raw ore they can capture higher value in the AI supply chain. They can also use their geography to become low cost energy hubs that attract global compute infrastructure, something that is slowly becoming a huge competitive advantage.

Nations can treat local data as a strategic national asset. Agricultural data, healthcare records and cultural archives can be structured into national datasets that foreign firms must license. This turns data into a renewable export product and helps retain control over how information is used.

They can also specialise in scientific and technical niches where talent matters more than capital, such as precision agriculture, advanced materials or climate analytics. Countries do not need to dominate entire industries. They just need one area that the world depends on.

Finally they must adopt AI internally to raise productivity. Early adoption helps nations move workers into higher skill roles before the full force of automation arrives, and without waiting for external pressure.

Reinvention Is the Only Path Forward

Competing on price alone is now impossible. Humans cannot become cheaper than algorithms that operate at almost zero cost. Developing nations must move beyond labour based strategies. They must build value in areas that reward expertise, judgement, culture and creativity. They must invest in local compute, protect intellectual property and build their own data resources.

The choice is not between the old model and the new model. The old model is ending on its own. The only choice is what must replace it, and that decision cannot be delayed much longer.

A New Chapter in Globalisation

Globalisation is not disappearing. It is shifting into a new form. The earlier version relied on inexpensive labour in developing nations. The new version relies on intelligent systems concentrated in wealthier nations. The global consumer now has a new producer that is faster, cheaper and infinitely scalable.

Countries that once supplied the workforce must now decide whether they will redefine their place in the global economy or allow their relevance to decline. Some countries may adapt. Many might not.

A new chapter has begun. The nations that understand this shift will shape their future. The nations that do not will be written out of the story far quicker than they realise.