Home ›› 25 Feb 2022 ›› Editorial
Since the outbreak of Corona virus disease in 2019, millions of people have lost their lives because of the pandemic. On the other hand global economy has contracted by around 4.5 per cent. Millions of jobs have already been lost whereas countless livelihoods are at risk. Furthermore, innumerable people will be living in extreme poverty if the crisis persists. These grim pictures depict the gravity of the crisis. A situation like this reflects the immense challenges and human sufferings from the pandemic. During the height of pandemic often Covid-19 cases were increasing at an alarming rate. For many nations a second or third wave had set in as an unwelcome guest. Much uncertainty remains about how and when various types of pandemic viruses would run its course. Covid-19 has spurred on a number of visible trends, magnifying some obstacles to trade and development. A bird’s eye view gives us an opportunity regarding how the global health emergency developed into a global economic shock. The immediate impact of the pandemic can be seen on global growth, on international trade, and foreign investment and how the crisis has affected global production, employment and ultimately individual livelihoods.
Covid-19 pandemic has greatly hurt the world economy with serious consequences impacting all commodities, individuals and nations. Moving rapidly across borders from its birth place in China Covid-19 along the principal arteries of the global economy, the spread of the virus has been facilitated by the underlying interconnectedness and frailties of globalization, transforming a global health crisis into a global shock that has hit the most vulnerable the hardest. Since, the virus first began to spread and the potential repercussions for development became apparent, various international organizations have been closely monitoring the effects of the global pandemic on trade and development. While the pandemic may be far from over, it has become clear that transforming global approaches to trade and development cannot be avoided when charting a sustainable course of recovery from the pandemic.
A deeper analysis reveals how the disruption caused by Covid-19 has had real and disproportionate consequences on vulnerable and disadvantaged low income households, migrants, workers in the informal sector (particularly women). Especially in the developing countries many of these populations are not protected by social safety nets and are affected by unemployment. The sectors like tourism, hotel, air lines and SMEs suffered due to the pandemic. It is argued that Covid-19 can be a catalyst for more resilient global and regional production networks that support the building of productive capacities for structural transformation, diversifications and sustainability. It is seen that international trade helped transmit shocks originating in major economies quickly to developing economies, leading to disproportionately negative economic shocks in those countries.
How Covid-19 has impacted trade, development and sustainability have been deliberated by various organisations like WHO, WTO, UNCTAD, IMF, World Bank, and many research organisations. From the deliberation of the trade experts a consensus has emerged regarding impact of Covid-19 on trade and development. In line with that the Covid-19 impacted deliberation an analysis has been outlined. How Covid-19 changed global trade forever and encouraged to explore how pandemic has impacted trade. The crisis has impacted different markets and sectors in various ways including globalization and sustainability.
Asian markets present strong opportunities for growth particularly in Malaysia and Vietnam (trade opportunity markets). World’s centre of economic gravity has had a significant shift towards Asia (measured by GDPs). With the growth of Asian markets, economists in 2011 predicted that the centre of gravity would reach somewhere between India and China by 2050. Covid-19 has accelerated this trend, swinging the pendulum towards East more quickly and showing no sign of swinging back to West in either the short or long term.
During the pandemic Asian economies demonstrated greater resilience. Factors such as East Asia’s successful containment of the pandemic are impacting this shift. The region proved relatively resilient against the pandemic due to strict lockdown measures and large scale testing. This might have been supported by large young population having better immunity. Underlying fundamentals are further driving the shift including more rapid economic growth. The recession in most of the Asian economies has been less severe than in the rest of the world due to the successful containment measures and firm fiscal and monetary policies. Now let us talk about opportunities for growth in Asian markets. Economic recovery has started in most of the Asian countries with underlying growth strongest in Vietnam and Malaysia. With economies slowly reopening pent up demand and a recovery in exports will stimulate GDP growth. Regional exceptions include India and Philippines, where the authorities have had to battle prolonged waves of the virus.
Economists identified Malaysia and Vietnam to be promising markets because of the strong pace of GDP recovery in the wake of Covid-19 crisis, a relatively low number of Covid-19 cases (per 100,000 inhabitants) and stable political and institutional conditions. Malaysia offers an attractive business climate, good infrastructure and a skilled workforce. Even though it was in recession in 2020 GDP growth was expected to be at 6.27 per cent at the end of 2021 (final calculation is yet to be made). Its membership with ASEAN as well as strong trade links with neighbouring countries is benefiting the economy. Vietnam also offers similar optimistic picture. It has been one of the bright spots which could avoid recession of 2020, and is expecting a GDP growth of 7.7 per cent in the current fiscal. Vietnam is one of the fastest growing ASEAN economies. Atradius, a famous research organization in a seminar on Trade and Covid-19 undertook a spot survey amongst the participants through online . The survey was about how the participants’ businesses were affected by Covid-19. What emerged was interesting. 50 per cent said that the affect was positive; while 30 per cent said that it was the same and the rest 20 per cent stated that the impact was positive.
Whether they have adopted a change in business to survive: 90 per cent said yes, 9 per cent no, and 1 per cent were not sure.
Whether the change introduced to survive during pandemic will be there even after Covid-19 is over-89 per cent prefer home office, 76 per cent prefer increased digitalization, 51 per cent will have different risk assessment approach, 13 per cent diversified products, 12 per cent changes in customers base and 11 per cent should opt for different supply chains.
Sector wise negatively impacted ones and new sectors having trade opportunities are discussed below. Sectors hit hard by Covid-19 economic crisis are non-food traditional retails i.e. retailers without an online presence, travel, tourism, and hospitality. More than 40 airlines collapsed and a number of others are hanging on international tourism rates by 4 per cent during 2020 with a loss of revenue of US$ 910 billion to $12 trillion. Fashion industry has seen a dramatic drop in profit year on year with a reduction close to 90 per cent.
On the other hand there are several sectors that experienced growth due to Covid-19 driven changes. Earlier we have been presented with a bleak picture, which is not the whole story. With stay at home orders enacted in markets throughout the world, millions of people went online to work at home, shop, socialize and access entertainment. As a result many businesses in sectors such as online payments, cloud computing, and home entertainment saw significant growth in market value. The first six months of 2020 saw an increase in on line sale equal to that of the previous ten years. Other sectors saw gains include consumer durables, hand sanitisers, soaps, toilet items, gloves and masks, washing machine etc. Sector wise trade opportunities opened up such as streaming services, online video conferencing and electric vehicles. For many consumers adoption of new technology will be permanent. Consumers are unlikely to return to their previous products. Changes that are likely to be permanent include development and production practices within pharmaceuticals. The development and roll out of the vaccines has been at a speed and involved technological and medical advances that have never been seen.
Acceleration towards sustainability during pandemic is worth evaluating. During Covid-19 pandemic, a cultural value shift has taken place towards greater sustainability. Governments are increasingly adopting climate change measures and consumers are buying greener products. Businesses are driving a green revolution The Business 20 group, the Businesses voice of G20 have agreed that they have to work together and take responsibility for inequality and climate change. Government and businesses have to collaborate and invest in technology in order to move towards more sustainability. Businesses are scrutinizing their supply chains and choosing social and climate sustainability.
During the Covid-19 pandemic questions have been raised about de-globalization versus globalization’s acceptance and which we should we move. For many experts, Covid-19 represents significant steps towards de-globalization, evidenced by trade wars and increasingly nationalistic politics. They point towards protectionism, reduction in global travel and steps to cut supply chains and sourcing raw materials close to home.
On the other hand, Professor of Globalization and Development at Oxford University Dr. Ian Goldin opined that Covid-19 has accelerated globalization. He asserted that during Covid-19 pandemic individuals and companies move online to communicate, collaborate and trade. As a result national borders become less relevant. As virtual meetings replace physical meetings, their greater efficiency could lead to higher level of engagement and increases the flow of ideas. Successful globalization can be seen in the Bio-Pharma sector, where cross border collaboration took place at a scientific level for the benefits of rapid advances in science and technology. Indeed, the race to develop a vaccine against Covid-19 resulted in and exceptional example of international collaboration resulting in the development of vaccines in six to seven months which would normally take around ten years. Of course globalization presents problems. In fact the global pandemic itself spread through global travel along trade and tourism routes is an example of problem that globalization can cause. However, the pandemic has shown that we need more globalization to fight challenges posed by Covid-19. Covid-19 is a global problem and the only way to solve a global problem is to work together.
Many supply chains have been disrupted during the pandemic. This can be seen in shipping where container prices are soaring. Quarantines, lack of personnel at ports and cancellation of orders by non-essential retailers have caused chaos, from backing up container ships at ports, to a lack of ships where they are needed. So businesses are looking for alternatives. For many ‘just in time’ deliveries became a thing of the past and for others some inventories had risen. Business will source supply chains closer to home. Many might switch to automation and robotics. Now time has come to restructuring of global supply chain. Businesses seek to restructure their global supply chain to make their procurement network more resilient to shock and become more sustainable. As such localized logistics hubs are on the rise. A trend towards automation might result in manufacturing closer to the consumer markets. Volatility and uncertainty in the supply chains are expected to continue. New strategies have evolved by businesses to protect themselves against supply chain risks by moving closer to suppliers at every tier. One of the strategies is to increase market intelligence and develop risk data base.
Governments across world have responded to the economic shocks of Covid-19 as per their economic capabilities. Even with a variety of migration packages, people swung back to government for support to meet the Covid-19 challenges. They would like to have tax cuts, cash rewards for vaccination and request for a moratorium against dismissal and termination as well as support to avoid business failure. Further, people may like to have a change even for some temporary period in Insolvency Law and free medical facilities for the most vulnerable. Businesses can protect themselves against Covid-19 risks by careful credit management, portfolio diversification, and close relation with customers and suppliers.
Covid-19 has shaken the trade and development landscape. The unprecedented global shock triggered by Covid-19 would have been unimaginable. Covid-19 poses an enormous challenge to the development aspiration. It is a stark reminder of shared vulnerability and demonstrates the need for real change. It can also be an inflection point to alter courses and build a more resilient new normal. However, much will depend on the policies adopted and the ability to coordinate both at the international and national levels. Thus despite the grim outlook, it is still possible to turn Covid-19 into the finest hour of human race in the twenty first century and build a more inclusive , resilient and sustainable future. This pandemic has demonstrated that being agile is vital for future success.
The writer is former Director General, Export Promotion Bureau. He can be contacted at hassan.youngconsultants@gmail.com
