THE REPORT ON: THE POST COVID WORLD ORDER AND INTERNATIONAL INVESTMENT

Updated: 18 hours ago

THE TEAM

Edited and Guided by:

Amal M - Associate Editor, Legit.

Managing Team:

Yash Raj Verma - Associate Editor, Legit.

Charishma Sekhar.K - Associate Editor, Legit.

Graphics: R. Arun Kumar - Managing Editor, Legit.

Written By:

Somesh Saxena - Associate Editor, Legit.

Netra Vasudevan - Junior Associate Editor, Legit.

Deeksha Bhatia - Research Intern.

Samruddhi Patil - Research Intern.


Approved By:

Aryakumari Sailendraja - Editor In Chief, Legit by Internationalism


The unprecedented emergency created globally by infection has not only become a public health crisis but also an economic crisis. Several countries are being pushed back to the total disruption caused by this health crisis which is paving way for an economic crisis, and a collapse in product expenditures, which interact in problematic ways. Apart from these, there is serious anxiety about what the economic geography will look like when we emerge from this COVID-19 impact. Many analysts anticipate that the crisis would transform the global order. The history of plagues has contributed to the rise and fall of great powers. It is very much evident that COVID-19 is already having important geopolitical and macroeconomic consequences. It would endorse accelerating some of the directions that were already starting to appear in the previous period. Several global powerhouses have already started to reconfigure their role in the international system with the changes it might cause in ideology, geo-strategy, trade, technology, influence in global politics, the military field, and security. This analytic report presents deep analysis and a descriptive study of how COVID has impacted geopolitics and the international system and its influence on the functioning of the international organisations and associations, and elucidate how multilateral and bilateral ties on investment markets are revolving around the current reality.

COVID-19 AND GEO-ECONOMICS


What began as a health emergency has turned out to be a driving factor for a challenging international environment expanding into an economic disruption, geopolitical shock and an unprecedented social challenge to global affairs. The greatest shock to the international system after the second world War, COVID-19, has changed the world order, which once was grappled with climate change, poverty, migration, terrorism, nuclear weapons, has now given the centre stage to a health emergency and its ramifications. This unprecedented health crisis has eventually redefined the trade and commerce of international relations, and the role of almost all nation-states have been revised to a new stature. How these nations deal with the crisis will ultimately define their future trajectory of influence of global affairs, whether these immense difficulties, limitations transform into opportunities or further deficiencies, converging the trade, manufacture, service, diaspora, and all which constitute for collective interest.


However, if we are to point covid as the only reason for an anticipated economic power shift in the global order, it is wrong. There were significant changes to the global power equations even before the ongoing pandemic, especially the shift in the centrality of economic power to trans-pacific from the trans-Atlantic, with a more loosened multipolarity. The Asian subcontinent has already started to gain its sovereignty over economic supremacy, like China being the strongholds of power influencing global trade and Indo-Pacific, South Asian rim, Indian Ocean region, gaining enough significance as the global market. With the pandemic, these shifts in geopolitics are furthermore emphasized and reinforced.


With the new trends of advancement imposed by the pandemic, it is vivid that the new global order will be in the hands of those major powers who are going to make use of the acceleration in digital technologies. The ‘galloping globalization’ in the digital space, adoption of Tele-education and telemedicine, and teleconferencing are going to take over the driving force for economic recovery. Therefore, those nation-states with newer technologies of Artificial Intelligence, the Internet of Things, and Big Data will have an upper hand of hegemony in the upcoming economic interactions. One country which is already at the phase of becoming the global leader is undoubtedly China. China has steadily narrowed down the gap with the US and is expected to continue so in the aftermath as well. China is rapidly developing its scientific and technological capabilities, spending more on research and development than most countries, and has accumulated high technology assets like Artificial Intelligence and 5 G telecom networks. Even though COVID-19 erupted in China, it proved to be successful enough to bring it under control. Its leadership believes that the pandemic has provided a chance for China to promote its interests as we witness in its policies like National Security Law in Hong Kong, and coercive actions in the South China Sea, the transgressions on Indo-China borders, and creating a milestone of influence more than that of US. Xi Jinping and the ambitious Belt and Road Initiative will place China in a position to influence the international investment laws as many countries vary on interests regarding the foreign investments in infrastructure from China. Some countries find it very beneficial for them like those in South Asia and South-East Asia, where investments from China are acting as leverage to their development; meanwhile, many other countries find it a disruption to the current market and order and displace some from the influence.


However, China's major concern is the international currency, which is still a denomination of US dollars. Even though China is at a steady rate of overtaking the US in GDP, the foreign investments are still facing a barrier of the Renminbi not being the international currency of trade and commerce. Moreover, those countries which are uncomfortable with China’s rise are leaning towards India as a balance of power, and therefore, India has a better chance to gain investments from many other powers as a balance to check China’s growth. India’s AtmaNirbhar is a beacon for those countries to invest in India for their internal benefits and contain China. However, the pandemic is shaking the basic foundations of the Indian economy and society, causing more wrecks in the rigidity of governance and weakening of power, and the economic recovery in India is still a big question.

COVID-19 is one of the most crucial times for the world, as there is a massive challenge in many countries’ domestic political system. Managing the pandemic situation is a key issue that destroys domestic politics and international politics among nations’ relations. US President Donald Trump is blaming China and World Health Organisation for the coronavirus as the first case was detected in Wuhan in China in December 2019.

The US and China conflict, the conflict between the two most powerful nations is not a good sign for the entire world as both countries have the capacity. However, out of the two, only China is showing a positive sign of recovery; meanwhile, many top countries face challenges to boost their economy again in the market. ‘My Country First’ attitude in many countries make it difficult for small developing countries where they lack health resources and infrastructure, at the same time, United Nations and World Health Organisation still find it difficult to create impacts to helped them to make a proper infrastructure to control the pandemic and aim for a recovery; which in turn creates a high wave of political unrest, both domestic and international, in many of these developing nations.

INFLUENCE ON INTERNATIONAL ORGANIZATIONS

The escalating COVID 19 pandemic has presented us with enormous social, economic, and political challenges. Regardless of terrifying human damage, latent consequences are also present about the colossal economic disruption followed through each wave of this pandemic. It has shaken the edge of global orders and worked on a multilateral perspective, which has resulted in a worldwide response call in terms of international cooperation.

The chaotic disorder between challenges and opportunities may reflect different countries' attitudes and strategies to eradicate the catastrophe and reach plausible ends. A sudden reflection always sustains initiation by way of a reaction. The world was II portrays a pertinent approach towards this initiation. As the aftermath of war resulted in the formation of various International organizations like the United Nations, World Bank, International Monetary Funds, etc. By following the same lucrative paradigm of reflection, the need for a more defined and resilient post-COVID order is now! The temptation for normality may guide the wave for change.


The calamity has also been followed by a question mark of anticipation, whether this pandemic can be predicted or not. As per the National Intelligence Council’s report, published in December 2004 ' Mapping the Global Future Report of NIC's 2020’, the process of globalization, however powerful, can be substantially slowed down or stopped. Apart from a major conflict, which we consider unlikely, another large- scale event that we believe could stop globalization would be a pandemic.


The asymmetrical effect of the pandemic has put the strategies of international organizations in a bizarre condition. The amalgamation of national isolation and International cooperation on diverse aspects is still a matter of prime concern. Subsequent variations can be noticed in the functioning of political organizations that of economic ones. The response of the European Union's political bodies and the commission was deemed more contentious than that of the European Central Bank. However, it was not sufficient initially but later improvised. This can be drawn from their crises that the functional and technical corporation has proven to be more resilient than a political one. As a condition of the UN reflects the same controversial draught. In April 2020, a resolution was also adopted by the UN General Assembly to ask for “intensified international cooperation” and tasked Secretary-General AntónioGuterres to conduct the endeavour. However, lucrative actions have taken in the past against HIV/AIDS or Ebola epidemics. Now political turmoil has risen from its most dominant members, China and the United States. China draws its concern primarily towards the traditional threats ongoing in the world.

On the other hand, the United States focuses on the source of coronavirus and other pertinent prospective. Other marginalized steps have also been taken by the UN to maintain an adaptable environment after the pandemic. A $2 billion global humanitarian response plan has also been launched by the UN together with UNICEF and WHO.


The post-apocalyptic condition demands an efficient framework for its economic development. The scheme of the social economy has been noticed to improvise social issues. However, the social economy demonstrates a massive impact on the post-COVID phase to adjure challenges to a much wise prerogative and sustainable economy. Even measures achieved under the Sustainable Development Goals (SDGs) are also under threat. Other major steps have also been taken into consideration in the light of sweeping COVID 19. An initiative of launching a series of facilities, including extending its swap lines to several other advanced central economies, has also been taken by the United States Federal Reserves. A proposal has also been put forward for a crucial circulation of the IMF's special drawing rights (SDRs) as a gigantic step to support the developing countries from financial fallouts. The SDR reflects the issuance of at least $500 billion for the support of purported crises.


Again we have to identify the world as one and many simultaneously by considering their development status. As the pandemic has affected both developed and developing countries' roots from the financial facets, their social-economic structure entails a proportionate amount of funding to maintain their order. Development banks play a major role in this part of the undertaking. Leverage of one nation's public resources can be used to guard their economic interests, decline their fallout, and maintain a financial structure throughout the timeline of the crisis. On the scale of a tendency to finance, these institutions exist from being the most global (World Bank) to a local branch. However, approaching these banks results in a threefold approach of transparency, availability, and security in its functionality. If developed banks' activities get increased by 20 Percent, mobilization of $400 billion could be done single-handedly by them this year alone. Moreover, because these institutions channel their funds and catalyze private finance, the amount available for economic recovery could at least double, implying $800 billion or more of additional financing this year. Their notable lending can give a push forward to maintain a rebalancing situation in the aftermath of apocalyptic conditions.

The pandemic has made several realizations about the world's global order, how the chain of demand and supply are interconnected with the nation's basic economic structure. Role in International Organizations and other investments and loans also play a vital role in the flow of goods and services. Disturbance inflow of Foreign Direct Investment (FDI) has created economic hardship for a nation. In late March, the International Monetary Fund announced that investors had removed 83 billion US$ from developing countries since the beginning of the COVID-19 crisis, the largest capital outflow ever recorded. A surge of 30% to 40% can be expected in the flow of FDI in the financial year of 2020-21 as per the UN Conference on Trade and Development (UNCTAD). All sectors will be affected, but sharp contractions in FDI are especially evident in cyclical consumers, such as airlines, hotels, restaurants, leisure, manufacturing industries, and the energy sector.


The scrounge of COVID-19 has been devastating for the entire world, but the contraction in FDI would hit the developing countries at a massive economic crisis level. As the sudden drop in inflows of FDI would severely impact the sectors which are already at a collapsing edge because of the ongoing internal pandemic situation. This is also notable from the last few decades as developing countries are becoming a larger contingent to the FDIs. FDI inflows to developing countries increased from 14 billion to 690 billion US$ (current prices) between 1985 and 2017. This represents an increase from 25 percent to 46 percent as a share of world FDI inflows. Therefore a sudden fall in FDIs of developing countries would result in more extreme COVID 19 circumstances.


Trade orders also portray a dramatic story in the International market. In 2008, the extent of international trade accounted for 59.4% of world GDP. If we consider previous year figures, around 60% of world GDP was defined in the name of international trade. However, amid the pandemic, some controversial figures can be expected. As per WTO, the pandemic has created a loss on the scale of 13% to 30% already in international trade.

An immediate and intense supply at the commotion of demand and supply has been put on a global stake. The loathing responses towards restricting and imposing several 'geo-blocks' has created a pigeonhole for further business, contracts, and purchases. The IMF also projected a severe recession by articulating a steep contraction in GDP of 3% this year.

To recoup post-COVID-19, the world—and creating nations specifically—will require a critical inundation of assets. FDI inflows can acquire a portion of those assets, yet governments should set up conditions to help draw in and hold beneficial speculations and, all the more significantly, to expand their improvement benefits. This emergency may offer governments an open the door to rethinking their ways to deal with venture fascination and maintenance and expand the emboldens of FDI inside their nearby economies.

UN secretary-general Antonio Guterres stated that the pandemic has knocked down the global economy by $375 billion each month. The international organizations can see a remarkable response by launching several recommendations and policy briefs dealing with various disciplines affected in these nine months. An approach of multilateral action has been suggested under the UN; this emergency shouts out for authority, solidarity, straightforwardness, trust, and collaboration. This is no ideal opportunity for personal responsibility, control, muddling, or politicization—the tone set by pioneers at the public also, nearby level issues. While transitory outskirt terminations, travel boycotts, or cut-off points on the offer of basic supplies might be justified temporarily, such public level estimates must not hinder a worldwide meeting up and worldwide answer for all. The hard truth is that we might have been something more arranged for this emergency. The MDGs and the SDGs could have put us on target towards a world with admittance to all-inclusive well-being inclusion and quality medical care and more comprehensive and manageable economies together and a worldwide answer for all. Political organizations and economic organizations are also making efforts to eradicate the drastic situation and make a safe space for post COVID world order.


The World Bank Group is taking expansive, quick activity to help create nations reinforce their pandemic reaction, increment infection reconnaissance, improve general well-being intercessions, and help the private area proceed to work and continue occupations. In more than 15 months, the World Bank Group will give up to $160 billion in financing customized to the well-being, monetary and social stuns nations are confronting, including $50 billion of IDA assets on the award and profoundly concessional terms. On April 2, the principal gathering of activities utilizing the committed COVID-19 Fast-Track Facility, adding up to $1.9 billion and helping 25 nations, was turned out. The World Bank is also working worldwide to redeploy assets in existing World Bank-financed ventures, including through rebuilding and utilization of undertakings’ crisis parts just as unexpected financing instruments intended for disasters, including pandemics. On May 19, the Bank Group reported its crisis tasks to battle COVID-19 have arrived at 100, creating nations – home to 70% of the total populace. The COVID-19 pandemic is in excess of a well-being emergency; it is a financial emergency, a security emergency, and a common freedoms emergency. This emergency has featured serious fragilities and disparities inside and among countries. Emerging from this emergency will require an entire of-society, entire of-government, and entire of-the-world methodology driven by empathy and solidarity.


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