CEO INSIGHTS: The Coronavirus crisis has undoubtedly impacted the way goods and services are exchanged around the world. Following the results of the COVID-19 Impact on Business and Trade in Africa survey, we revisit the underlying forces of globalisation and international trade. Are measures taken in the wake of worldwide supply chain disruption temporary, or are people, countries, regions, and the world, changing their mindsets entirely? Are governments and institutions today thinking about food security differently?

Globalisation reversal to confront the Coronavirus – A Paradigm Shift in international trade?

In continuing our efforts to assess the extent of disruptions to international trade from the coronavirus pandemic, International Economics Consulting Ltd (IEC) carried out a second comprehensive survey on the COVID-19 Impact on Business and Trade in Africa in collaboration with the United Nations Economic Commission for Africa (ECA). The survey was conducted from mid-June to mid-July 2020.

An important result from the survey was that 56% of companies surveyed were facing supply shortages, the main reasons being:

  • Border Closure;
  • High Freight Cost; and
  • Shipment Delay.

Further, businesses switched suppliers to favour national sources over non-African or even African ones. However, even if in 56% of the cases, equivalent products had been found, 87% of respondents indicated that they would switch back to original suppliers once feasible, mostly due to higher prices being charged by the new suppliers.

If advancing globalisation and further regional integration had been a primary goal before the pandemic, ensuing national containment policies countered these very forces – does this mean we are witnessing a paradigm shift through a Globalisation reversal? The conclusion is not so simple.

Inherent in globalisation is the ability to produce goods and services in different parts of the world at lower marginal costs. The rise of fragmented production through global production networks leads to a number of risks, which can often be managed or mitigated against, such as those risks linked to transportation, climatic conditions, exchange rates, labour strikes, energy shortages, changes in policies, etc. The current trading environment however invites an additional set of risks into the equation, such as the possibility of additional waves of the pandemic affecting demand, border closures, and disruptions in supply channels at a systemic globalised level.  Even prior to the coronavirus crisis, evidence suggested that the “likelihood of pandemics has increased over the past century because of increased global travel and integration, urbanisation, changes in land use, and greater exploitation of the natural environment” (Madhav et al., 2017).[1] These risks can imply higher costs of production, impacting the supply chain, and thus profitability and economic growth. As such, the cost-benefit metrics of globalisation may have to be reflected upon differently, if it’s not already the case.

Disruption to food supply chains translates into direct threats to food security. Prior to the Great Lockdown, food security in Africa had long been an important concern. The recent supply shocks have in fact intensified such threats. As the Director of the Division for Africa, Least Developed Countries and Special Programme at UNCTAD, pointed out: “From 2016 to 2018, Africa imported about 85% of its food from outside the continent, leading to an annual food import bill of $35 billion, which is forecast to reach $110 billion by 2025. This heavy reliance on world markets is detrimental to food security, especially at a time of acute crisis.” (Akiwumi, 2020).[2]

While governments have necessarily focused their efforts on handling short-term effects, plans for sustainability in the long term are equally timely. In a roundtable discussion on the question of food security (COVID-19’s impact on food security in Africa), it was noted that, “In the longer term,  it is important for countries to support their agricultural sector, diversifying their agricultural base. This can be done through subsidies, which would allow the sector to stay afloat in these difficult times. Some countries are also exploring stockpiling to ensure that they have supplies for a longer period of time.” [3]

Governments across Africa, and countries all over the rest of the world for that matter, are indeed being driven to devise sustainable strategic plans to achieve food security. The World Bank Group for example, is working with governments and international partners to ensure that food systems continue to function in times of crisis, keeping agriculture running as an essential business.[4] These measures have an element of local sourcing, or at least a degree of comfort that food supplies do not run low as a result of exogenous shocks.

Also, the implementation of the African Continental Free Trade Area (AfCFTA), scheduled to kick-off with free trading on 1 July 2020, has been postponed to early 2021, as a result of disruptions caused by COVID-19. While on the face of it this might come across as dampened ambitions for international trade, the decision, announced by AfCFTA Secretary-General Wamkele Mene, was actually a matter of logistics,[5]qualified as the “responsible thing to do,” giving space to governments to handle the health crisis.[6]

In fact, the AfCFTA is being seen as the solution to mitigate Africa’s overdependence on imports, and as such expected to make African economies less vulnerable to demand and supply-side shocks. “The ongoing COVID-19 crisis has ravaged global economic activity, has severely disrupted trade and global supply chains, and of course, has had a negative effect on global public health,” said the AfCFTA Secretary-General at the official handover and commissioning of the AfCFTA secretariat building in Ghana on 17 August 2020. “Africa should not despair and fall into despondency – from a trade perspective, we should see this crisis as an opportunity.”[7]

 From a continental perspective however, the AfCFTA, the largest Free Trade Area in the world (by number of countries) with a consumer base of 1.3 billion and representing a $3.3 trillion market, is an expression of support for trade but on a regional, as opposed to global scale. As stated by Veepin Bhowon, Senior Associate at IEC: “as countries worldwide reel from the effects of a global recession, we can expect a change in consumer habits, in demand and supply, and in national economic policies. Countries are already leaning towards reshoring part of their economic activities to decrease their dependency on foreign suppliers. Africa should also look towards developing more value-added activities to build up its capacities and reduce its dependence on increasing imports. [5]

It is a given that the world is in constant flux and pathways are, at times, drastically shaken by black swan events such as the coronavirus pandemic. It is ever more so important for governments, the private sector and other institutions to stay ahead of changing trends and forces. To this end, being equipped with relevant on-the-ground information will be crucial.

Paul Baker
CEO INSIGHTS

International Economics Consulting Ltd is an independent international management consultancy firm, specialised in providing strategic advisory services in the field of trade, investment and public policy. The company is a partner of the United Nations Economic Commission for Africa (ECA) working on pan-African AfCFTA strategies, as well as analysing the impact of COVID-19 on African economies. IEC is also engaged with the World Bank in finding solutions for COVID-19 recovery through trade.

References:

[1] Madhav, N. et al. “Disease Control Priorities: Improving Health and Reducing Poverty. 3rd edition.” ncbi.nlm.nih.gov. 27 November 2017. Web. Retrieved on 9 September 2020. <https://www.ncbi.nlm.nih.gov/books/NBK525302/#top>

[2] Akiwumi, P. “COVID-19: A threat to food security in Africa.” unctad.org. 11 August 2020,.Web. Retrieved on 9 September 2020. <https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2450>

[3] Baker, P. “COVID-19’s impact on food security in Africa.” tradeeconomics.com. 2020. Web. Retrieved on 9 September 2020. <https://www.tradeeconomics.com/iec_publication/monitoring-covid-19-in-tourist-islands-2/>

[4] World Bank “Food Security and COVID-19.” worldbank.org. 31 August 2020. Web. Retrieved on 9 September 2020. <https://www.worldbank.org/en/topic/agriculture/brief/food-security-and-covid-19>

[5] Edoobaccus, N. “Will the AfCFTA offer Africa the best chance to mitigate the economic effect of COVID-19 (and future pandemics)?” International Economics. 2020. Web. Retrieved on 9 September 2020. <https://www.tradeeconomics.com/iec_publication/afcfta-africa-mitigate-economic-effect-of-covid-19-regional-integration/>

[6] Tralac. “Daily News Selection.” tralac.org. 7 May 2020. Web. Retrieved on 9 September 2020. <https://www.tralac.org/news/article/14578-tralac-s-daily-news-selection-thursday-7-may-2020.html>

[7] AT Editor. “AfCFTA Secretariat ceremony held in Ghana.” africatimes.com. 18 August 2020. Web.  Retrieved on 9 September 2020. <https://africatimes.com/2020/08/18/afcfta-secretariat-ceremony-held-in-ghana/>