The coronavirus has either halted or restricted many of the world’s supply chains across almost all sectors. The impacts of this pause are being felt the entire length of the value chain, but it is likely to cause the most damage in the economies of Least Developed Countries (LDCs), where many raw materials and components originate. Whilst the pandemic is causing the global economy to shrink, global efforts to protect and nurture inclusive trade programmes could help shield LDCs from the full potential economic damage.
Globalisation allows rapid movement of goods across international borders, lowering trade barriers and permitting less developed countries to join value chains that facilitate greater income. For decades, the governments of LDCs have fought to join complex global supply chains by developing meaningful inclusive trade mechanisms, yet, as a result of the coronavirus pandemic, many of these efforts have been forced to pause.
The coronavirus crisis is affecting almost every value and supply chain by shrinking available workforces, limiting supplies and causing major logistical issues. For example, ripened summer fruits and fields holding a bumper crop of wheat are ready for harvest across the developing world, but as country-wide lockdowns to stem the spread of COVID-19 continue, farmers are left without the labour to harvest these crops, or the means to transport them to their next destination in the supply chain, let alone overseas. As a result, the products made from these ingredients will not be produced and supermarket shelves around the world will become emptier. All the while, these crops will go to waste and farmers will lose their income.
As a result of this disruption, the World Trade Organisation (WTO) expect world merchandise trade to plummet between 13 to 32 per cent. Meanwhile, the UN's trade and development body, UN Conference on Trade and Development (UNCTAD), state that foreign direct investment (FDI) has slowed to a trickle as a result of coronavirus, and could lead investment to fall by as much as 15%. This is critical because ‘shocks to consumer demand and the economic impact of supply chain disruptions will affect investment prospects in other countries’, an UNCTAD statement explains. “The ripple effect could cause a major setback to efforts of government around the globe to attract the private investment needed to achieve sustainable development objectives,” UNCTAD Secretary-General Mukhisa Kituyi said. “Such a setback could deepen inequality and worsen vulnerability for many countries.”
Although the effects of the pandemic are only just beginning to emerge, inclusive trade - the concept of ensuring that every community is able to participate in value chains through the production of ethically sustainable products – could be a critical part of economic protection and eventual restoration throughout the pandemic. Inclusive trade directly contributes to poverty reduction by opening up new employment opportunities and reducing the prices of goods and services for poor consumers. It also allows LDCs to integrate into multilateral trading systems that support the long-term growth prospects by providing access to new sectors, new technologies and making their development sustainable. Therefore, by enabling the continuity of trade activities in LDCs - such as local farming and product or component production - poverty created by the virus will be lessened and global supply chains will remain functional.
The potential of this mechanism has resulted in a major effort by governments, humanitarian and global trade organisations to establish and reinforce trade and development systems that facilitate inclusive trade and support economic recovery in the long term. For instance, the FAO is providing smallholder farmers and herders with seeds, tools, livestock feed and other inputs, along with animal health support, so they can continue to produce food for their communities and generate income. By supporting inclusive trade in this way, the FAO will not only help protect the lives of these farming communities but also ensure the continuity of the food supply chain.
In addition, country-specific initiatives that support inclusive trade are also being established. For example; the Keralan government has reached out to farmers and consumers with a large relief package, including free distribution of essentials to support the many Indian farmers who are finding it difficult to sell their produce in the absence of trading and market auctions. In addition, throughout India, local governments are procuring fruits and vegetables directly from farms to ease rural distress and provide essential supplies to customers in order to support global value chains.
Meanwhile the Ministry of Agriculture, Forestry and Fisheries in Cambodia has issued measures to prevent the drop in price of mangoes, a major export product, including a project for all provincial agriculture departments to cooperate with the agro-industry players in Cambodia to register farmers so they can help production management control and support inclusive trade efforts.
Further, the heads of Food and Agriculture for Latin America and the Caribbean, and eleven international organisations, have agreed to join forces to help Latin American and Caribbean countries secure their food systems and maintain agriculture and inclusive food trade during the pandemic.
Central to ensuring inclusive trade is nurtured throughout the global health crisis is safeguarding open trade and market access – each a proven driver of economic growth and poverty reduction. To do this, conversations between trade bodies and logistics partners must continue despite the pandemic. In addition, governments much continue to explore new supply chains by cooperating in international trade discussions.
The next link in the chain is nurturing innovation that either facilitates or results in inclusive trade activities. Ensuring entrepreneurs and businesses are still able to be creative to solve problems is even more crucial at this time of international crisis, because economies able to continue operating safely during the lockdowns will likely emerge stronger as a result.
Ensuring that all economies are empowered to emerge from this crisis in their best shape is vital at every level of economy. Protecting the vulnerable by supporting inclusive trade is just one way to ensure that the global economy does not decline any further than necessary. In addition, the success of inclusive trade efforts may at last demonstrate its value as a central component to future, healthy supply chains on a global stage, setting a new precedent for future trade that levels the competitive playing field.
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