Global lessons for supply chains from the Great Lockdown
China, the EU and the US are responsible for 63% of world supply-chain imports, and 64% of supply-chain exports; this should change
When the shutters came down on China, the EU and the US amid the Covid-19 pandemic, the disruption to global trade was profound. But within these challenges lay opportunities for more resilient and inclusive supply chains to arise.
New data is emerging showing just how far the ripples of the Great Lockdown in the world’s three major supply chain hubs have spread into developing countries, many of which also went into lockdown. Millions of small and medium enterprises (MSMEs), employing millions of people across Asia-Pacific, Latin America, the Caribbean and Africa, have been affected. As an international community we have a responsibility to provide a comprehensive response for the recovery and to bolster the resilience of MSMEs against future crises.
The evidence shows the extent of the disruption. 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 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 been both a global health and economic crisis as the pandemic has challenged governments with finding the most efficient ways of channeling medical and personal protective equipment (PPE) and basic items, such as food, to where they are most needed. The surge in demand for health-related products, supply chain disruptions and logistical constraints has made this a Herculean task.
But ITC’s research finds 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% of global trade in pandemic-related goods such as PPE 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.
Together, China, the EU and the US are responsible for 63% of world supply-chain imports; and 64% 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 $126bn.
In Africa, for instance, exporters are set to lose more than $2.4bn in global industrial supply-chain exports due to the shock from factory shutdowns in China, the EU and the US. More than 70% of this loss is caused by the temporary disruption of the supply-chain links with the EU alone.
In SA, projected exports of chemicals to China, the EU and US worth $111m will be lost in 2020. There are above-average numbers of women working in this supply chain.
ITC’s analysis suggests 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 $300m — a sizeable 15% to 20% of Africa’s entire exports to the EU.
Resilient supply chains can transmit knowledge, provide stability and generate agility
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.
What three lessons can we learn from the Great Lockdown?
First, there are opportunities for global supply chains in medical and sanitary products to be reorganised in global regions, 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 world exports of such products, including 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, such as chambers of commerce, sector associations, trade and investment support institutions, and co-operatives, 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 co-operate 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 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 multi-agency 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. Proposals exist for how to link 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, new fields of work and new 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 UN sustainable development goals.
• Tembo is acting executive director at the International Trade Centre.
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