tralac’s Daily News selection
COVID-19 and trade in SSA: impacts and policy response (World Bank)
Measures taken to curtail the spread of COVID-19 have led to a sharp contraction of the global economy and an even larger decline in trade, with significant implications on the livelihoods of people in Africa. Despite the relatively low number of cases, the region’s economy would be hard hit due to its high reliance on trade, heavy dependence on commodities, a fragile food system, and limited fiscal capacity to respond. This reinforces the region’s inherent vulnerabilities, posing risks of wiping out the gains made in poverty reduction. Extract:
Though Africa accounts for a very small share of global trade (3%), the share of trade in the national income of most economies in the region is relatively large, compared to other regions. In 2017 the share of trade in GDP was 31% in North America, 40% in South Asia, 56% in SSA and 57% in EAP. Africa’s share of exports to the rest of the world ranged between 80-90% during 2000-2017, higher than any other region. Given that the countries most afflicted by the pandemic account for a significant share of global trade and output and are the largest trading partners of the region, the trade impacts are expected to be severe. Hence, despite a relatively low percentage of confirmed cases of COVID-19 in SSA thus far, the largest shocks to the region are going to be external. In addition, the lion’s share of FDI to SSA comes from these regions, creating a confluence of triple shocks: falling demand for African exports; global supply shocks further curtailing production in export-oriented sectors; and a slump in FDI flows. The impact of disruptions in GVCs driven by the global demand slump would be predominant in countries with strong forward linkages – mainly exporting raw materials used in the production for export in other countries. This accounts for the largest share of the region’s trade and GVC integration. [The author: Woubert Kassa]
Zhihua Zeng: How will COVID-19 impact Africa’s trade and market opportunities? (World Bank Blogs)
In the recent decade, Africa’s trade linkage has been steadily increasing. Based on an upcoming study on Africa-Asia global value chain linkages, exports to Asia are positively correlated with exports to the rest of the world, and increased exports from a Sub-Saharan African country to Asia tend to raise exports to the rest of the world as well as to other African countries, thus, helping Sub-Saharan African nations move up the value chains. Although exports from Sub-Saharan Africa to Asia remain highly concentrated in resource-intensive products, such as petroleum, minerals, metals, and primary goods, there are a few exceptions. For instance, Ethiopia and Tanzania have done relatively well in diversifying their export portfolios during the boom of exports to Asia. However, the COVID-19 pandemic will put a brake on this for the time being. The mass production shutdowns and supply chain disruptions due to the rare “twin supply-demand shock” will create ripple effects across all global economic sectors, causing further uncertainty for a continent already grappling with widespread geopolitical and economic instability. With China, Africa’s largest trading partner, and other major economies gradually reopening their economies, Africa’s trade will gradually pick up, however, the path might not be that smooth at least for the foreseeable 1-2 years. So, where is Africa’s future market and trading opportunities? [The author: Douglas Zhihua Zeng]
Related: World Bank pdf COVID-19 Trade Watch No. 2, 29 May 2020 (1.31 MB)
Andrew Mold: How East Africa could bounce back from the COVID-19 pandemic (OECD Development Centre)
This final point [strengthening regional integration] merits some elaboration. China is a major supplier to the East African market, accounting for around 20% of all imports into the region. China-Africa trade contracted by 14% in the first quarter of 2020. That is hitting both consumers and firms dependent on imported inputs and capital goods coming from China. But there is also a double-whammy effect at play, because the European market – the other major source of imports, responsible for another 20% of the regional total – is also now being hit by major disruptions to its supply chains.
However, all of this may have a silver lining over the mid-to-long term. Dependency on imports from China and elsewhere has become excessive for the region. An interruption to the surge of imports will oblige countries to find alternative strategies. Regional manufacturers will need to rise to the challenge and fill the void left by reduced Chinese and European imports, not just for this period of crisis but for the future. In this context, the crisis is underpinning the importance of the African market and urgency of implementing the African Continental Free Trade Area.
Climate change and climate variability could lead to severe macroeconomic consequences as early as 2030. In all African regions, negative climate change impacts would progressively compound and lead to decreasing GDP per capita. The warming scenarios entail losses by 2030 (as compared to a baseline GDP per capita scenario) that range from -0.6% in Northern Africa in the low warming scenario, to -3.6% in Eastern African in the high-warming scenario. As early as 2030, African regions would start benefiting from stringent mitigation action. Even though, by 2030, the absolute difference in losses between the low and high warming scenarios is still minor, the high-warming scenarios lead to increased damage ranging from about 16% in Northern Africa to about 54% in Central Africa, compared to losses in the low warming scenario. African countries are projected to experience detrimental economic consequences from climate change by mid-century, in both warming scenarios.
Under a high-warming scenario, Eastern and Western Africa, would experience a reduction in GDP per capita by about 15% by 2050 (below a baseline GDP scenario).
Northern and Southern Africa would experience a decrease in GDP per capita approaching 10% by 2050, while Central Africa could be less affected, with a possible decrease of 5% in the high-warming scenario.
Although Nigeria is not a transitional state, the country possesses some pockets of fragility that undermine its resilience to cope with human and nature induced pressures as highlighted by the Bank’s 2018 Country Resilience and Fragility Assessment (Annex 1). The assessment is based on seven dimensions (political inclusion, security, justice, economic and social inclusion, social cohesion, regional spill-over effects and environment). The major challenges arise from a tenuous security situation, weakness in social cohesion, growing youth unemployment, weak judiciary, fragility and inadequate preparedness to tackle environmental and natural disasters. The country’s policy architecture to handle economic shocks may be further tested by the speed and efficacy with which Nigeria addresses the challenges of the COVID-19 pandemic. In most indicators however, Nigeria’s capacity and resilience to overcome the fragility pressures and challenges are assessed to be relatively low.
On regional integration and trade: The Nigerian economy is more integrated with the rest of the world than with the continental and regional peers. Available trade data for 2018 show that 92.6% of Nigeria’s exports went to the rest of the world (see Figure A6.1 in Annex 6), compared with 3.7% to ECOWAS member states, and the same figure to the rest of Africa (South Africa). Similarly, Nigeria imported 96.3% from the rest of the world against 3.7% from African countries outside ECOWAS region. While Nigeria is a key regional player contributing about 65-75 % of ECOWAS GDP, its trade intensity with member countries is very limited. Several factors explain this discrepancy. These include concentrated structure of its exports, dominated by crude oil mainly to destinations outside Africa; poor regional infrastructure and partial domestication of regional protocols on trade liberalisation and proliferation of non-tariff barriers, including outright import ban on some products.
In Bangladesh and Pakistan, women are less likely to receive information about COVID-19 than men, according to early results from surveys conducted by UN Women’s Regional Office for Asia and the Pacific. In April, UN Women created a new rapid assessment survey tool, partnered with mobile network operators, and began rolling out questionnaires via SMS to capture the pandemic’s gendered consequences throughout the region. With thousands of respondents already — and with weights applied to adjust for age, sex, and educational attainment — the agency is beginning to better understand how the coronavirus is impacting men and women differently.
COVID-19 and food security: gendered dimensions (World Bank)
Across the developing world, the coronavirus pandemic threatens to cause massive disruptions in food supply chains. The World Food Programme estimates that by the end of 2020, 265 million will face acute food insecurity - twice as many as before the crisis. Women play a key role in keeping the food system functional. Their livelihoods also depend on these jobs, which are primarily concentrated in the informal sector, and they have little access to savings and social safety nets. This note highlights women’s contribution to food supply chains, focusing on women as informal producers and traders of food. It discusses potential impacts of the pandemic on their vulnerabilities and policy responses. It concludes with some early reports on how women along the food supply chain are rising to the challenge of COVID-19, and some considerations for investments in inclusive food systems.
COMESA’s Christopher Onyango: Diaspora remittances critical to post Covid-19 recovery (The Star)
In the COMESA region, the leading recipients of remittances in 2019 were Egypt ($26,791m), Kenya ($2,819m), Tunisia ($ 1,912), DRC ($1,823m) and Zimbabwe ($ 1,730m). In terms of contribution of remittances to GDP, Zimbabwe led with 13.5%, Comoros (11.5%) and Egypt (8.2%). Within Africa and by extension COMESA, the commitments to remove restrictions on the movement of persons across the region specially professionals and other essential workers is now paramount. Restrictions hinder productivity and growth of both migrant source and destination countries and subsequently the associated remittances. Going forward, COMESA member states should undertake financial regulatory reforms to streamline and effectively reduce the costs of sending remittances. This would entail review Central Bank Acts, Money Remittance Regulations, National Payment System Act, and the E-money Regulations. The reforms should also guide licensing and operations for Remittance Operators as well as anti-money laundering measures. [The author is Director of Trade and Customs at the COMESA Secretariat]
Antonia Esser, Juliet Munro: How to fill the remittance gaps left by COVID-19 (Devex)
However, unlike mobile money, mobile remittances aren’t as simple. While remittances can easily flow within countries — say, from Nairobi to Kisumu in Kenya or from Dakar to Kolda in Senegal — cross-border transactions, such as from Cameroon to Nigeria, remain difficult. And that’s mostly due to regulatory issues. So, what can be done to help solve this? While there is a strong case — beyond remittances — for government investment in providing basic infrastructure, there are three areas that governments could prioritize to encourage the uptake of mobile remittances. First, use public-private partnerships to drive investment in critical infrastructure such as network towers. Next, remove regulatory barriers and review taxes to encourage more competition and growth. Finally, explore digital government-to-person payments and virtual currencies as ways to familiarize consumers with digital channels from a government perspective.
IOM, EU bolster response to economic impact of COVID-19 on returning migrants across West and Central Africa
IMF’s Ralph Chami: Umbilical cord of remittances under threat
Brian Caplen: Triple-funding whammy stalks emerging markets
The crisis is leading to a greater focus on online supply in sectors such as retail, health, education, telecommunications and audiovisual services. Suppliers are accelerating efforts to expand their online operations and consumers are adopting new habits that may contribute to a long-term shift towards online services. In the future, increased supply of services through digital networks could increase trade through mode 1 (cross-border supply). Extract: It seems likely that trade statistics for 2020 and beyond will show not only a substantial drop in services trade, but also, over the medium term, an intensification and acceleration of the trends that led to a change in the structure of cross-border trade in services over the last decade. In relative terms, services trade has shifted away from the “traditional” categories of transport and travel-related services toward telecommunications, computer and information services, business services, financial services and audiovisual services.
Are changes in services markets provoking reform, restrictions, or inertia? To address this question, this paper draws on a new World Bank-World Trade Organization Services Trade Policy Database. The paper analyzes the services trade policies of 68 economies in 23 subsectors across five broad areas -- financial services, telecommunications, distribution, transportation, and professional services. Policy measures are quantified into a Services Trade Restrictions Index following a novel, consistent and transparent framework. The paper identifies patterns of services trade policies across sectors and economies, and secular trends over the past decade.