Opinion

Redesigning global supply chains post Covid lockdowns

Dorothy Tembo | Updated on July 21, 2020

The reslience of global supply chains is important for future trade growth. To save them from more crises, stronger buyer-seller partnership and a fairer distribution of risk are needed

When the shutters came down on China, the European Union and the US in the wake of Covid-19 pandemic, the disruptions to global trade were profound. But, within these challenges there laid opportunities for more resilient and inclusive supply chains to arise.

New emerging data shows just how far the impacts of the ‘Great Lockdown’ in the world’s major three supply chain hubs have rippled to developing countries, many of which also went into lockdown. Millions of micro, small and medium-sized enterprises (MSMEs) employing millions of people across the Asia-Pacific, Latin America and the Caribbean and Africa have been affected. As an international community, we have a responsibility to provide a comprehensive response for economic recovery and bolster the resilience of MSMEs against future crises.

Lockdown effects

According to an in-depth survey conducted by the International Trade Centre (ITC) for its just-released SME Competitiveness Outlook 2020, more than half of firms say that they have problems getting hold of the resources they need for production, such as raw materials and equipment, due to lockdowns in other countries. Slower certification processes, temporary trade measures, and logistics problems have also exacerbated these problems.

This has led to a global economic as well as health crisis, as the pandemic has challenged governments with finding the most efficient ways of channelling medical and protective equipment and basic items like food to where they are most needed. The surge in demand for health-related products, supply chain disruptions and logistical constraints have made this a herculean task.

But ITC’s research finds that some governments around the world reacted by imposing trade restrictions in the hope that this would increase access to food and essential goods for their citizens. Export bans and other restrictions now cover 73 per cent of global trade in pandemic-related goods such as personal protective equipment and cleaning products. As many as 93 countries have imposed pandemic-related temporary export measures, including export bans or restrictions for medical products and, occasionally, for food.

In many places, these measures have reduced, not increased, access to essential goods. This has dented confidence in the potential of value chains to deliver what is needed most in times of crisis.

Supply-chain disruptions

Together, China, the EU and the US are responsible for 63 per cent of world supply-chain imports. And 64 per cent of supply-chain exports and lockdowns in these three economies have accounted for the lion’s share of global disruption to manufacturing inputs. ITC estimates the amount of this disruption could be as high as $126 billion.

In Africa, for instance, exporters are set to lose more than $2.4 billion in global industrial supply chain exports due to the shock from factory shutdowns in China, the EU and the US. More than 70 per cent of this loss is caused by the temporary disruption of the supply-chain linkages with the EU alone.

India has projected that exports of chemicals to China, the EU and US worth $813 million will be lost in 2020. There are above-average numbers of women working in this supply chain.

ITC’s analysis suggests that effects in global regions may be driven by just a few product lines and in a small number of countries. For instance, Morocco’s losses in exports of wiring sets for vehicles to the EU are projected at close to $300 million — a sizeable 15-20 per cent of Africa’s entire exports to the EU.

Sometimes, reduced demand in value chains takes the form of lead firms not paying suppliers or cancelling existing contracts, often causing significant hardship on businesses in developing countries. It’s not hard to see how these factors endanger livelihoods.

Facilitating recovery

What are the lessons that we can learn from the Great Lockdown?

First, there are opportunities for global supply chains in medical and sanitary products to be reorganised, particularly in developing countries that have historically not exploited productive capacities in these areas. For example, just five countries — China, Germany, Ireland, Switzerland, and the US — account for half of the world exports of products like disinfectants, gloves and masks with filters, while countries in Africa, the Americas and the Pacific export a significant share of inputs for these products. This scenario opens up opportunities to develop regional supply chains and help diversify the global supply of such goods.

Second, business support organisations like chambers of commerce, sector associations, trade and investment support institutions, and cooperatives have the opportunity to step up. They can bring firms together, match business opportunities with a shared offer or common need, and test the willingness to cooperate in ways that are fair and respect commercial sensitivities. Businesses working together can reduce costs through shared procurement, create economies of scale and access new opportunities by sharing knowledge and resources.

Third, the importance of supply chains in international trade means that their resilience will matter significantly for the future of trade. Lead firms often have a significant role in directing supply chains, making decisions about production practices, branding, sourcing and sales.

ITC supports multiagency and partner platforms that advocate for stronger partnerships between major buyers and suppliers — and a fairer distribution of risks between different players.

For example, brands and retailers could commit to a range of actions to limit the deleterious effects of Covid-19 and any future crises on their supply chains, including:

Paying manufacturers for finished goods and goods in production; and maintaining quick and effective open lines of communication with supply-chain partners about the status of business operations and future planning

Resilient supply chains can transmit knowledge, provide stability and generate agility. There are proposals on linking supply-chain players to the multilateral trading system, for instance, by creating supply-chain councils.

The post-pandemic period presents a unique opportunity to embrace new concepts, fields of work and partnerships. Implementing some of these proposals could strengthen the multilateral trading system and help it regain its power to build prosperity in a changed world and achieve the United Nations Sustainable Development Goals.

The writer is acting Executive Director, International Trade Centre

Published on July 21, 2020

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