- The change in patterns of trade triggered by these two major events is now forcing the MNCs to go back to the drawing board.
- MNCs need to reconfigure their trade routes. They have to re-lobby for assured capital and they have to broker new destinations for their goods.
- With the changing global trade polarities, the MNCs are rethinking China, and eyeing future giants like Africa.
The much acclaimed African Continental Free Trade Area (AfCFTA) that came into being last year may just have saved Africa from a new world trade order.
Thanks to the global pandemic and then the Russia-Ukraine war, the plate tectonic of global trade is shifting. The resulting divergence and convergence are squeezing and pulling in different directions.
Multinational Companies (MNCs) have, for the last three decades or more, controlled trade. These international corporations have enjoyed the fruits of globalization more than any other business entity.
They have had access to capital from all kinds of sources including government subsidies and bailouts where they fumbled all in keeping with the moniker that ‘they are too big to fail.’
They built skyscrapers for their headquarters in Shanghai and doubled their earnings on Wall Street at the New York stock exchange; then partied on cruise ships off the coast of Mexico.
Yes, these are the tycoons, the movers and shakers not only of trade but politics as well. Their campaign donations decide who takes office and what bill passes; they have truly been sitting on top of the world.
But the shift in geopolitics caused by the two major events of the decade, the coronavirus pandemic and the Russia-Ukraine war, have caused alliances to shift; it is no longer a unipolar globe.
The change in patterns of trade triggered by these two major events is now forcing the MNCs to go back to the drawing board. There will be no holiday in Barbados this summer. MNCs and major businesses and governments for that matter must rethink trade altogether.
When you factor in technological advancements and the reality of AI, businesses are changing altogether, if the layoffs in the tech companies are any sign. As a result of the changing geopolitical alliances, the fluid un-resisted free flow of capital and with it flawless trade has come to a stop.
“In a world reshaped by the coronavirus pandemic, rising geopolitical tensions, renewed inflationary pressures, and war, MNCs must reassess, reevaluate, and reconfigure their businesses for a new era,” write researchers at the McKinsey Global Institute.
Take China, for instance. Moving from a backbencher to a frontline pushing aside the century-old big players like the UK and the US, it took creating an environment for multinationals to exist and thrive.
Research shows between 1990 and 2019, China’s GDP grew by almost 10 percent annually on average. This growth represents more than a quarter of the entire global GDP growth. China was doing so well that the average household income in China rose from a low of US$750 to a high of US$13,000.
To achieve this amazing growth, China did not do it all by itself. The growth quickly attracted international corporations. This growth was a magnet for MNCs, and they gravitated to China.
“At one point, MNCs employed 16 million people and accounted for more than half of China’s exports,” attests the report.
At this point (and to date) China’s GDP measured 18 percent of the global total, that is ‘…equal to the entire European Union’s and second only to that of the United States which represents 24 percent of global trade.’
China and the US MNCs on top of the World.
Then came the coronavirus, a decisive factor in the US-China trade wars, and before that shock settled friend-shoring started by the Russia-Ukraine war.
Now, in the face of this new reality, MNCs need to reconfigure their trade routes. They have to re-lobby for assured capital and they have to broker new destinations for their goods.
This reconfiguration is no child’s play; Africa has been a major source of cheap raw materials and an assured destination for final products curated by these MNCs. However, now that the coronavirus dust is settling and the shaking and rambling of the Russia-Ukraine war is further clearing the air, Africa has awoken to a new reality that it needs internal trade.
This is why the AfCFTA has come alive at the right time. The 54 African countries are geographically spread across such diverse environments, culture and population that more than six distinct regions exist in one continent.
As a result, each of these regions produces very differently and each has unique minerals and vast natural resources. Through the AfCFTA, Africa is able to trade internally for basics like food products instead of relying on Ukraine for grains, for example.
When it comes to trade with the giants like China and the US, African countries no longer need to enter into individual short-handed contracts. They can now trade as entire regions, or even better, trade as an entire continent.
When a miniature country like Rwanda negotiates with a giant like the US, it has little say, there are only so much leeway it can make before it is forced to settle for whatever offer is on the table.
However, the chips are much different when Africa trades as a continent. The playing field is leveled. Should the AfFCTA result in, say, a single coffee trading body, then foul play by these MNCs will be a thing of the past because the single trading body will have the monopoly of Africa’s coffee, and that way it will have a better say in price.
These are the shifting bocks reshaping the map of global trade.
“The sheer size and complexity of the Chinese market may mean that notions of outright decoupling are simplistic; furthermore, we continue to live in a world connected by those global flows of capital, trade, and ideas.
“MNCs face a much more difficult imperative: maintaining access to China’s upsides while managing increasingly complex risks. It is a challenge that will define the next era for MNCs, and those that solve it will be tomorrow’s winners,” reads the report.
With the changing global trade polarities, the MNCs are rethinking China, and eyeing future giants like Africa.
“A recent survey indicated that the share of US MNCs perceiving China as one of their top three investment priorities dropped from 77 percent in 2010 to 45 percent in 2022.”
Africa through AfCFTA now has the chance to sign new deals with the MNCs, to broker new trade pacts and attract more FDIs, create new jobs and finally awaken the sleeping giant’s true trade potential.
