A part from its trail of human deaths, Covid-19 has left an indelible mark and trail of destruction across the global economy. With millions of unemployed and businesses in liquidation, the economic cost of Covid-19 will not only leave many victims and lost output but going forward will change economic dynamics, especially international trade. This week’s blockage of the Suez Canal is yet another stark reminder of the interconnectedness of the global economic system as well as its inherent fragility. The Covid-19 pandemic has delivered perhaps the greatest shocks to international trade since the Great Depression. Global trade in 2020 declined by around a quarter and the recovery is now expected much slower and erratic than previously imagined. However, irrespective of the actual quantification of the impact, the global trade landscape will look dramatically different, and business and nation leaders need to start assessing the risks associated to international trade if they want their organisations and countries to build economic resilience. There are a number of interrelated factors which are being exacerbated by the pandemic that will have a lasting impact on how and where trade is connected. The pandemic has highlighted the fragility of our interconnected economic world. With destablised economies, a looming debt crisis for developing countries, intensified geopolitical frictions and supply chain vulnerabilities, international trade will definitely be redefined in the new normal. The macroeconomic environment There is no doubt that the economic recession will generate a lower demand for goods and services thus affecting international trade. Apart from this demand effect, production constraints due to logistical disruptions, lockdowns and closures will also limit the supply of goods and services. Trade volumes will be heavily influenced by whether economic recovery is shaped like a V, U, J or W. It is also largely dependent on the various government measures that continue being announced in support of struggling businesses. There is no doubt that tourism is going to be one of the biggest casualties with fear of travelling being the most pressing issue amongst consumers. For economies that depend on tourism, with a large share of developing economies being dependent on such an economic sector, the net effect will be devastating and will cause further economic strains. The looming debt crisis of developing countries, who this year have to pay a combined $130 billion in debt service this year, will further destablise the global economy should countries start defaulting with a possible contagion effect kicking in and rocking global financial markets. Geopolitical tensions With geopolitical tensions already being high on the agenda pre-Covid, the pandemic has only intensified nationalist policies. The pandemic is prompting some governments and customs unions to place further controls on trade in medical and agricultural goods. The change in administration in the US is working to improve relations with China however various other regional trade agreements have been strained with Brexit being the biggest shock to regional trade. However, the coming into play of the African Continental Free Trade Agreement will on the other hand open-up markets creating the largest single market in trade. However, all in all, governments are also likely to put greater emphasis on domestic production to reduce the risk of future supply shocks. Supply-chain disruptions For many companies, the pandemic has underscored the supply-chain risks of concentrating too much production and sourcing in a handful of distant low-cost jurisdictions. The overreliance of just-in-time inventory management has also brought to the agenda the need to build supply-chain resilience. It is no secret that the conversations that large companies are having in the board room is focused around altering their supply chains and reducing their risks emanating from supply-chain disruptions. The closure of the Suez Canal has shown the limits of just-in-time manufacturing and will definitely disrupt supply chains. This has exacerbated the risks associated with it and various mitigation and resilience measures and plans will be contemplated by global companies as to how to reduce supply-chain disruptions. Embracing the new normal Business and nation leaders are grappling with pandemic and its aftermath. As they chart a new normal, they need to be aware of the changing global trade landscape and the effects that such changes will have on their business and country. In planning for this new normal, it is evident that the power of digitalisation and smart factories made possible by Industry 4.0 need to be not only embraced but internalised in strategic plans and reform packages. Global companies are looking at have multilocal manufacturing sites and have surplus stocks in different locations that are closer than the low-cost jurisdictions. It is here that Rwanda should find its space and niche in this changing landscape and remain focused on establishing itself as a key economic and manufacturing regional hub. Industry 4.0 is a reality. Rwanda should consider an updated and forward-looking industrial policy that is cognizant of the challenges and the changing global trade landscape but more importantly conscious of the opportunities that exist. The pandemic and economic recovery remain impossible to predict. Trying to measure or estimate its impact is futile. We need to accept and realise that the disruptive nature of the pandemic will leave a lasting impact on global trade. Rather than waiting to revert to the pre-Covid momentum, business and national leaders need to start implementing the required reforms in their business and in their counties. Supply chain resilience will require changes in supply networks and change can bring opportunities with it. Now is the time for countries to take stock, embrace new technologies and secure their competitive advantage in a new normal. The writer is a co-founding partner at Seed Consultancy, an internationally-focused advisory firm. www.seedconsultancy.com jp@seedconsultancy.com
