Fiscal and Structural Reform Inclusive Growth International Financial Institutions
Econographics February 1, 2024

Why 2024 will be a big year for positive economic statecraft

By Nicole Goldin

As geopolitics cast a shadow on the global economy, leaders are looking for policies, programs, and partnerships that can help build resilience, advance inclusive growth, and promote stability and security. In 2024, they are increasingly turning to positive economic statecraft (PES) tools—the use of economic policy and non-punitive measures to induce or reward desired policies or behaviors by recipient governments. The PES toolkit includes development or humanitarian grants and lending, technical assistance, capacity building, and preferential trade. PES is well-suited to address the fragmentation, inequality, and high debt that have come to characterize the global world. And three January events already showcase that PES approaches are clearly in effect this year.

PES was central to the agenda in principle if not in name at last month’s World Economic Forum in Davos, featuring in both official and unofficial conversations and convenings. New announcements and commitments echo this sentiment and especially illustrate how the private sector, in partnership with governments, can and should play a role in advancing PES. For example, more than twenty Ministers and CEOs came together in a WEF alliance to mobilize financing for the clean energy transition in the Global South. The Network to Mobilize Clean Energy Investment for the Global South will amplify the investment needs of developing nations and advance actionable solutions to increase green energy capital flows globally. Comprising Ministers from Colombia, Egypt, India, Japan, Malaysia, Morocco, Namibia, Nigeria, Norway, Kenya, South Africa, and ten other countries, the Network to Mobilize Clean Energy Investment for the Global South “will provide a collaborative space for its members to accelerate clean energy capital solutions in emerging market contexts—through innovative policies, new business models, de-risking tools and finance mechanisms—and exchange best practices for attracting sustainable flows of clean energy capital.”

Also this month, the US Millennium Challenge Corporation marked the 20th anniversary of its founding, bringing to light its two decades of economic growth and poverty alleviation investments whose model and eligibility requirements—including democratic rights and control of corruption ‘hard hurdles’—have unlocked policy reforms, unleashing the “MCC effect” in numerous countries. To date, MCC has invested over $17 billion in infrastructure and policy reforms in health, education, power, agriculture, and transport in forty-seven countries, benefiting over 300 million individuals worldwide. This year, Cabo Verde was selected for development of a new regional compact “as a result of its strong commitment to democracy, its economic development needs and lingering poverty, and the potential opportunities to strengthen regional economic integration and trade in West Africa with a committed and engaged former MCC partner”; while Tanzania and Philippines can begin developing threshold programs to advance the rule of law in support of compact eligibility after selection by the Board in December 2023.

A third illustration, the European Commission and the Africa Development Bank signing of a Financial Framework Partnership Agreement on January 29 to boost energy, digital, transport infrastructure investments across the continent with co-financing. The agreement falls under the EU’s values-driven Global Gateway initiative which prioritizes advancing rule of law, human rights, and international norms and standards alongside inclusive economic growth, health and education in its cooperating countries: its 2021-2027 package with Africa will support investments worth €150 billion.

Where else might we see PES this year? Here’s a few things worth watching.

While PES has been more complicated to enact in multilateral contexts, this year’s G20 has potential beyond the strength in numbers alone. The members of the G20 represent around 85 percent of the world’s GDP, and more than 75 percent of world trade. Brazil took the reins of the G20 Presidency in November 2023, and has put development front and center on the agenda, opening the door to a robust PES orientation: its three key priorities comprise combating hunger, poverty, and inequality; advancing the three dimensions of sustainable development (economic, social, and environmental); and reforming global governance. Indeed, in the run up to the Leader’s summit in November, the Sherpa’s Development Working Group will convene again in March and May to further public policies to reduce inequality, trilateral development cooperation (grants, technical assistance, lending) and more specifically investments in water and sanitation. At the same time, PES will take center stage as the work of the Finance track gets underway next month when Ministers and central Bankers will convene and deliberate how preferential trade and fiscal incentives might be deployed to address fragmentation and debt challenges of lower middle-income countries.

As it relates to conflict response, we see PES as a frame for continued and specific bilateral and multilateral support to Ukraine’s economic recovery as well as EU expansion—with aid and membership contingent on and related to reforms which capacity building, technical, and financial assistance will be targeted to advance. A €50 billion ‘Facility’ from the EU has just gained unanimous approval, and we could see other moves such as extending Ukraine access to the Single Euro Payments Area (SEPA). The United States Agency for international Development (USAID) Ukraine Mission has forecast awarding this year a new flagship trade and competitiveness project to encourage business enabling reforms, support industries and firms, further job creation, and increase exports.

Similarly, as war rages in Israel and Gaza, fomenting humanitarian crisis, we are likely to see PES incentives. Those could include development grants and economic aid to encourage neighboring countries Egypt and Jordan to increase their intake of refugees and facilitate logistical humanitarian support, as well as to Gaza and the West Bank themselves for economic recovery and reconstruction alongside promotion of rule of law and peacebuilding.

On trade, as fragmentation threatens supply chains, including for critical minerals, new and improved preferential trade and finance mechanisms that reduce dependence on China or bolster regional ties will be on the table. The US African Growth and Opportunity Act is up for reauthorization. First passed in 2000, The African Growth and Opportunity Act (AGOA), which makes preferential terms of trade and investment support dependent upon favorable annual reviews of a country’s economic policies, governance, worker rights, human rights, and other conditions, was last reauthorized in 2020 and is set to expire in 2025. With US Senator Coons releasing a discussion draft of reauthorizing legislation in November 2023, that in part incorporates AGOA with the nascent African Continental Free Trade Agreement, we can expect to see robust, and perhaps unusually bipartisan, discussion this year.

Finally, this year marks the 80th anniversary of the Bretton Woods Conference that launched the World Bank (then IBRD) and International Monetary Fund (IMF) as the nature and direction of global economic governance continues to evolve, creating an important entrée for PES. Over the past decade, developing countries’ options for financing have increased as China and others have increased their global footprint giving way to more strategic competition. At the same time, as their fiscal space tightens and liquidity constrained, the case for using positive economic statecraft tools is clear and all signs point toward seeing more of it than before in 2024. It will be important to monitor impact and learn from effectiveness (or not) of these solutions in real time as well as over time as resulting policy reforms and investments take hold and bear fruit.

Nicole Goldin is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Image: Asmara, Eritrea, November 01, 2029: Local People on the Grain Market in Asmara/iStock