News / National
Africa's supply chain remains under pressure despite ease of lockdowns
10 Nov 2020 at 06:33hrs | Views
The measures that countries have adopted around the world in response to the COVID-19 pandemic have had an unprecedented effect on trade this year as a result of a unique combination of shocks to both global trade supply and demand.
According to the latest data published by UNCTAD, the pandemic cut global trade values by 27 % in the second quarter of 2020 and this decrease is estimated to however decelerate to a decline of 18 % in the third quarter. Africa is expected to be severely impacted by this slowdown.
In 2017, the share of trade in the continent's GDP was 56 % while the share of its exports to the rest of the world ranged from 80 to 90 %, indicating that the continent is both heavily dependent on trade and, specifically, trading outside of Africa.
Yet, it is these external trading partners that have been the most impacted by the pandemic to date. Studies conducted by the OECD now predicted that the trade effect of the pandemic was felt in three successive waves across Africa: Firstly, from China, secondly from western states (particularly the EU) and, finally, from within, as Africa locked down.
External shock from China and the impact from the commodity price drop Looking at the first wave, many African states are heavily dependent on trade with China for their economic survival. Despite China being on a growth trajectory, it has looked inside for it's solutions as a way of stimulating the economy and shielding citizens from the negative effects of the pandemic. This has made Africa's trade recovery to pre-pandemic levels a high hill to climb.
In the first quarter of 2020, China's GDP contracted by 6.8% from the previous year, the largest decline since official quarterly GDP records began in the early 1990s resulting in a 14 % drop in African trade with China over this period.
In some countries, the reliance on trade with China is disproportionately high and these states - almost all of which are least developed countries (LDCs) - do not have viable alternative sources of revenue rendering them highly vulnerable to this exogenous shock that is set to deepen if the second wave hits in the fourth quarter. The above decline has been exacerbated by the drop in commodity prices across all commodities - with the exception of gold - this year.
The other shock to African trade is endogenous and has been caused by the implementation of its own continental lockdowns. In response to the pandemic, most African countries moved swiftly to contain the virus by enacting a state of emergency (at least 17 states), imposing a lockdown or curfew (at least 27 states), closing borders (at least 41 states) and implementing travel bans (at least 42 states).
These measures ground most economic activity to a halt, cutting off African trade to global and regional trading partners. While the share of intra-African trade is low compared to other regions (recalling here that 80-90 % of African exports venture outside of the continent), it is a growing and important economic activity.
Indeed, the majority of intra-African trade is informal and contributes to the income of some 43% of Africa's entire population through the trade in agricultural goods and other primary products.
In Zimbabwe, for example, this type of trade accounts for between 15 and 30% of exports. While some freight is still being allowed to cross borders in Africa, the regulations were cumbersome, and allowance was often made for agricultural and food products only.
The second most traded good within the continent is manufactured goods. In fact, they make up a much higher proportion of regional exports than those leaving the continent, 41.9% compared to 14.8% in 2014. As such, intra-regional trade in manufactured goods across the continent is also expected to be impacted this year.
Finally, perhaps the biggest casualty from COVID-19's impact on African trade has been the halt in the African Continental Free Trade Agreement (AfCFTA) which was due to establish a continent-wide free movement of goods starting on 1 July 2020. The African Union Commission has now proposed postponing the launch until 1 January 2021.
According to the latest data published by UNCTAD, the pandemic cut global trade values by 27 % in the second quarter of 2020 and this decrease is estimated to however decelerate to a decline of 18 % in the third quarter. Africa is expected to be severely impacted by this slowdown.
In 2017, the share of trade in the continent's GDP was 56 % while the share of its exports to the rest of the world ranged from 80 to 90 %, indicating that the continent is both heavily dependent on trade and, specifically, trading outside of Africa.
Yet, it is these external trading partners that have been the most impacted by the pandemic to date. Studies conducted by the OECD now predicted that the trade effect of the pandemic was felt in three successive waves across Africa: Firstly, from China, secondly from western states (particularly the EU) and, finally, from within, as Africa locked down.
External shock from China and the impact from the commodity price drop Looking at the first wave, many African states are heavily dependent on trade with China for their economic survival. Despite China being on a growth trajectory, it has looked inside for it's solutions as a way of stimulating the economy and shielding citizens from the negative effects of the pandemic. This has made Africa's trade recovery to pre-pandemic levels a high hill to climb.
In the first quarter of 2020, China's GDP contracted by 6.8% from the previous year, the largest decline since official quarterly GDP records began in the early 1990s resulting in a 14 % drop in African trade with China over this period.
In some countries, the reliance on trade with China is disproportionately high and these states - almost all of which are least developed countries (LDCs) - do not have viable alternative sources of revenue rendering them highly vulnerable to this exogenous shock that is set to deepen if the second wave hits in the fourth quarter. The above decline has been exacerbated by the drop in commodity prices across all commodities - with the exception of gold - this year.
The other shock to African trade is endogenous and has been caused by the implementation of its own continental lockdowns. In response to the pandemic, most African countries moved swiftly to contain the virus by enacting a state of emergency (at least 17 states), imposing a lockdown or curfew (at least 27 states), closing borders (at least 41 states) and implementing travel bans (at least 42 states).
These measures ground most economic activity to a halt, cutting off African trade to global and regional trading partners. While the share of intra-African trade is low compared to other regions (recalling here that 80-90 % of African exports venture outside of the continent), it is a growing and important economic activity.
Indeed, the majority of intra-African trade is informal and contributes to the income of some 43% of Africa's entire population through the trade in agricultural goods and other primary products.
In Zimbabwe, for example, this type of trade accounts for between 15 and 30% of exports. While some freight is still being allowed to cross borders in Africa, the regulations were cumbersome, and allowance was often made for agricultural and food products only.
The second most traded good within the continent is manufactured goods. In fact, they make up a much higher proportion of regional exports than those leaving the continent, 41.9% compared to 14.8% in 2014. As such, intra-regional trade in manufactured goods across the continent is also expected to be impacted this year.
Finally, perhaps the biggest casualty from COVID-19's impact on African trade has been the halt in the African Continental Free Trade Agreement (AfCFTA) which was due to establish a continent-wide free movement of goods starting on 1 July 2020. The African Union Commission has now proposed postponing the launch until 1 January 2021.
Source - finx
