Before the economic shock of COVID-19, world merchandise trade in 2019 was already slowing down due to trade tensions and decelerating economic growth.
According to the World Trade Organization (WTO), “the dollar value of world merchandise exports in 2019 fell by 3% to US$18.89 trillion”. Overall, world trade is expected to continue falling and will range between 13% and 32% in 2020, as the health crisis continues to disrupt world economies.
In addition to the economic disruption, so far, Coronavirus has left more than 200,000 people dead across the world, more than the fatalities recorded in the World War 11, as observed by the UN Secretary–General, Antonio Gueterres. The effects of the ‘Great Lockdown’ as perceived by the International Monetary Fund (IMF), is far beyond the effects of the 1930s Great Depression. With exception of businesses dealing in pharmaceuticals, life-saving amenities and protective apparatus, most domestic and international trade has been mired by the crisis.
Mitigation measures derailing the economy
In Africa, the pandemic has forced governments to implement measures to mitigate the spread of the virus. Across the world, governments have differed in ways to alleviate the impact of the pandemic while ensuring that the economic effects are minimal. Measures put in place, while they reduce the spread of the virus, have caused immense damage to many sectors.
In the Deloitte report dubbed Economic impact of the COVID-19 pandemic on East African economies, released in May 2020, the projected GDP growth of 3.2% for 2020 is slowing down and expected to recess to -0.8% due to a number of reasons brought about by quarantine, lockdowns and social distancing leaving industries to run dry.
Although essential in curtailing the virus, such measures “continue to acutely impede sectors that rely on social interactions (such as travel, hospitality, entertainment, and tourism) with more than half of the world’s population already under some form of lockdown,” reads the Deloitte report.
While the number of confirmed COVID-19 cases is relatively low in East Africa compared to other regions, issues such as hunger and poverty have been made worse by the disruption in supply chains, thus affecting the flow of commodities and trade. In the past two months, exports within the East African community have declined by more than 60 per cent according to the East African Business Council (EABC).
Demand and supply chains disrupted
The Deloitte report further reveals that cross-border trade (including informal cross-border trade which allows Partner States to trade without taxation) have been affected by the restrictions on the movement of goods and people, creating a threat on the livelihoods of traders and their families, as well as reduced revenue for the countries involved.
“Cross–border trade is also estimated to account for the livelihood of about 60% of EAC residents hence its significance,” the report reads.
Speaking to CNBC Africa, Allen Sophia Asiimwe, CTO, TradeMark East Africa, observed that Coronavirus has greatly affected the demand and supply chains in the region.
On a visit along the Kenya-Uganda border at Busia on March 10, 2020, Ms. Asiimwe witnessed a hive of trading activities especially of dried fish, whose revenue was up to the tune of KShs 25 million (USD$234,840) at the time. Today, however, “all these have been seriously affected,” she said adding that the traders “got their fish from Lake Turkana, Lake Victoria and Lake Kyoga, and were supplying DR Congo and the whole region”. Now, “none of that is happening,” she said in a video interview with the media platform.
In the April, 2020 brief by the EABC, Kenya’s exports in fresh produce which stood at “5000 tons of perishable products per week by air against capacity of 6000 tons, has gone down to 1500 tons per week against demand of 4000 tons.” Additionally, the floriculture subsector has been hit hard and is currently exporting 12,000MT of flowers per week after COVID–19 compared to 30,000MT per week previously. These losses are due to the restrictions imposed by various countries in a bid to reduce the infection rates.
The projected GDP growth in EAC countries is expected to slow down in 2020 by more than 50 per cent. Prior to the virus, Kenya’s GDP growth stood at 5.7 per cent. Now, it stands at just one per cent. Ethiopia’s GDP growth of 6.2 per cent for the year has now been revised to 3.2 per cent. Uganda and Tanzania are also grappling with the negative effects of the health crisis. At the moment, Uganda’s GDP growth is 3.5 per cent which is a decline by 1.8 per cent. Similarly, Tanzania’s 5.3 per cent GDP growth recorded before COVID–19 has declined to 2 per cent.
A recent study by the WTO investigating the effect of Coronavirus on the participation of least-developed countries (LDCs) in global trade, noted that export earnings in the LCDs has declined rapidly due to the “decreasing demand in key markets, falling commodity prices and a decline in remittances.” Moreover, the report added that these countries (which include Uganda, Rwanda, Burundi and Tanzania in EAC) “are likely to be the hardest hit by the crisis due to their limited resources to stimulate growth.”
Commenting on imports and exports values and volumes between Africa and the external markets, Eric Olander, Managing Director, China Africa Project said: “It is really a two-way problem; on the one hand, there’s the manufacturing problem coming out of China, but the supply chain has been so much disrupted coming out of Africa.”
As China slowly gets back to manufacturing, the question is whether its industries have the “necessary raw materials to produce the kinds of intermediate goods that are so important for African businesses to be able to use to grow the economy,” Mr. Olander remarked in an interview with CNBC Africa.
Another downside of COVID-19 is the postponement of the African Continental Free Trade Agreement (AfCFTA), which was aimed at discussing trade liberalization linked to trade facilitation in the African region. The meeting which was planned for June 2020 has been pushed to a later date that has not yet been communicated. The resulting benefit of the agreement will be crucial in aiding Micro Small Medium Enterprise (MSMEs) in the long run through “increased competition, economies of scale, reduced trade barriers, total growth of the economy, employment creation and positive flows to the fiscus.”
The AfCFTA is part of African Union’s Agenda 2063 (The Africa We Want. Realistically, what do Africans really want?) flag–ship projects to be implemented within the first ten years of operation (2014-2023). If implemented, the trade agreement would be one of the largest on the globe and will ease the movement of goods and people across the continent.
While several key meetings have stalled as a result of the pandemic, industries in Africa and governments should embrace the new way of doing business to sustain the wavering businesses affected by COVID-19. Initiatives aimed at taking the region to the next level in terms of trade such as the AfCFTA, and other trade related discussions should not be derailed by the virus; instead, Africa must review strategies and create new opportunities that promote trade among the AU member states.
In terms of mitigating the impact of COVID-19, Partner States must consider regional approach to allow free movement of both essential and non-essential goods within the region, source for alternative markets for EAC imports and exports, increase the capacity of health workers at the border to promote efficiency and adopt new technologies to source as well as market products outside of the EAC.