Briefing to member States on UNCTAD report
08 December 2020
"The impact of the COVID-19 pandemic on trade and development - Transitioning to a new normal"
Dear President,
Dear delegates,
2020 is the year of the crisis of a century. It has caused disruptions and change that were beyond imagination. We have experienced a lockdown, which at its height affected the mobility of half of the world population. Borders closed, planes were on the ground, streets were empty, social distancing became a household word. Technology has been the key to deal with the abrupt change in how we work and interact. We were relieved when the first wave was over but soon reality of the second wave kicked in with new records of COVID cases.
In this period, we have been united in the common goal of finding a vaccine against COVID-19 and finding solutions to work and function under these new circumstances. Adapting, learning and building resilience have been the features of this time.
It is in this light, and your call for integrated analysis, that we have produced this comprehensive report on the impact of the COVID-19 pandemic on trade and development.
In the drafting process, we discussed whether we could refer to the post-COVID world or if this would still be a distant future, and whether we are rebuilding a new normal or reverting to where we were before. The more we analyzed, the more we saw arguments that we can construct a new and better world, but only if we are committed to take bold actions. A great example of such action is of course the development of a vaccine at record speed. We thus decided to title the report “Transitioning to a new normal”.
What does the report offer?
- It offers a holistic overview of how the pandemic has affected trade and development across the world, and what the new normal looks like and how we can make it better.
- It is unique in terms of the breath of data. And the data show a clear picture: the impact of the pandemic is immense.
- It contains policy recommendations for a new normal, which is more inclusive, resilient and sustainable.
Let me now walk you through the main findings and recommendations:
First, the report shows that while literally the whole world has been affected, the pandemic has had asymmetric impacts on populations and sectors. In socio-economic terms, COVID-19 has affected most the poor, informal workers, migrants – in short, all those without or insufficient social safety nets. And often, and predominantly, these are women.
The crisis could send an additional 150 million people into extreme poverty by next year (this figure has been recently updated and thus differs from the report!), with Africa and South Asia estimated to record the steepest increases. In fact, global poverty is on the rise for the first time since the 1998 Asian financial crisis. Enhancing social protection and labour programmes is thus essential to cushion the negative impact of the pandemic.
Women and girls suffer disproportionally in crisis, including in this. Women hold more often temporary and precarious jobs in the informal sector with none or little social protection, many women work in services hit hard, they have less access to credit, and suffer more from domestic violence during crisis. And girls are the first that are taken out of school to support their families. This will have lasting impacts on educational outcomes and the productive capacity of countries. We thus call for gender sensitive response policies.
We are also much concerned about the impact on micro, small and medium enterprises which are the backbone of economies. They are hit hard because many have difficulties in obtaining credit to survive. Survey results on the impact of the pandemic on SMEs indicate that a third of SMEs feared bankruptcy within a month. This is an enormous problem as recovering is much harder when businesses are out of business. Many governments have responded with policies in support of MSMEs but, especially in low income countries, such policies should be better aligned with policy objectives. Our Entrepreneurship Policy Framework, Empretec programme and Business Facilitation programme can be valuable tools to build resilient and agile MSMEs.
We also highlight the vulnerability of the tourism sector. The impact of the pandemic on tourism could cost the world economy up to USD 3.3 trillion, or around 4.2% of GDP. To ensure that tourism can continue to be a lifeline for millions of people, tourism workers and businesses require specific support, and the report provides various examples.
Then, we discuss “Financing response and recovery in developing countries”.
The financing needs triggered by COVID-19 are enormous. Governments have reacted with massive recovery and stimulus packages, but the financial capacity for national responses is highly uneven. The differences between the share of GDP that developed countries and LDCs other developing countries can spend are important, but in absolute terms they are colossal. A developed country, on average, spends around $1,400 dollars per capita on direct fiscal stimulus, while the average LDC can afford just $18 per capita, and other developing countries around $78 per capita.
These immense financing needs occur amidst a very difficult financing landscape:
- Our estimates on Foreign Direct Investment point to a 30-40% decline for 2020.
- Many traditional donors are challenged themselves by the pandemic. Development Initiatives estimates that as a result of COVID, ODA to developing countries could decline by 10%.
- As migrants were amongst the first to lose their jobs, remittances to low- and middle-income countries will record a steep decline, almost 20% according to World Bank estimates.
And debt in many developing countries is mounting. Ladies and gentlemen, debt suspension granted is welcome and needed, but by no means sufficient. We need more, we need debt relief.
The report also examines how international production networks can be made more resilient.
The crisis has accelerated the transformation in global production that has been underway since the financial crisis of 2008/09. Future trade and FDI flows may stabilize at lower levels than that seen in the previous decades.
We thus think that value chains will be shorter, more regional and more digital. This can open new opportunities. For instance, policymakers could attract investors looking to diversify supply bases and building redundant and resilient production capacities in various locations. It also makes the case for intensifying South-South Cooperation, especially through regional agreements, such as the AfCFTA.
The pandemic will likely have lasting effects on investment-related policymaking. It may solidify the shift towards more restrictive admission policies for foreign investment in strategic industries. It may also accentuate the need for the reform of international investment agreements. Sustainability concerns and possibly more interventionism may play increasing roles.
COVID-19 demonstrated the power of science, technology and innovation (STI) and the digital economy. The report emphasizes the value of open science, open source technologies and the need to integrate scientists and manufacturers in developing countries into international scientific collaboration for producing the required health products under licence.
It takes a close look at the implications of accelerated digitalization and investigates if there will be lasting behavioural change. For instance, it discusses the boost to digitalizing trade facilitation, and provides novel data on online shopping. These data sugggest an increase in transactions but with smaller amounts and different items.
The report calls for addressing growing inequalities, most notably in the digital economy. The wealth of big digital platforms has increased substantially while many other firms struggled to survive. For instance, the leading technology platforms in the US and China have increased in market capitalization on average around 40% since the start of 2020, all while the Dow and the S&P have been slightly down or flat.
COVID-19 is leading to further digital market concentration. On one hand, we must expect a wave of M&As (mergers and acquisitions) wherein digital giants are likely to take over SMEs. And SMEs, as previously mentioned, are more likely to go into bankruptcy.
A better recovery must include support for closing digital divides and reducing digital market concentration. This calls for stronger and more concerted competition and consumer protection policies. In turn, this requires that competition authorities are further empowered.
COVID-19 made us green by accident, how do we become green by design?
Lockdown measures have led to a drastic reduction in CO2 emissions. Yet, the decline is not enough to meet the targets of the Paris Agreement.
Worrisomely, the pandemic has added pressure for a race to the bottom whereby firms use “cheaper” sources for stimulating growth (e.g. oil) and delay adoption of environmental standards. The recovery packages could have been an opportunity to incentivize greener growth, but mostly this has not happened. What we need is to increase incentives for renewable energy and promote nature-based solutions.
Yet, the crisis has demonstrated that a global problem can lead to unprecedented research and mobilization of resources to find solutions. This positive experience may give impetus for global action for the most severe global problem of our and future generations – climate change.
We advocate for designing policies to achieve fairer and greener recovery through trade. On the trade policy front, this means that we enhance transparency in trade measures to help restore trust and cooperation in the rule-based trading system. We also need to enhance trade cooperation, such as in regulatory measures concerning essential medical products to lower trade costs while ensuring the quality and safety of these products.
I want to finish with some common reflections on the way forward.
International cooperation and solidarity are the sine qua non. COVID-19 cannot be solved until it is eradicated everywhere. The current debates on access and distribution of vaccines exemplify the need for cooperation, coordination and solidarity.
We also need to revive multilateralism to find common solutions and agreements in which we can trust and on which we can build.
Therein, we remain deeply committed to the SDG agenda. COVID-19 created an immense set-back to the SDGs, yet these goals remain our best compass for a better, healthier and more sustainable planet and people.
Dear delegates,
With this report, we want to contribute to the discussions on how we can recover better. This is an interactive process with you member States, where we need to hear your voices on what is useful and where you want to receive more. We are committed to produce updates in line with your needs and the developments that are happening fast. Questions such as “What is the impact that the vaccines will have on growth or inequality”, “what is best in terms of intellectual property rights”, “which behavioural change will last and how can developing countries harness benefits from these changes” are just some questions we need to address. But most importantly, we want to hear from you.
And of course, I am committed to engage well beyond this session, in this format or on a bilateral basis. It is “Side by Side” or “Côte à Côte” that we will come up with the means to overcome this crisis.
Before opening the discussion, our Chief Statistician, Steve MacFeely, will give us some updates so that we have the latest available data for our reflections and interaction.
Thank you.
