Launch of the UNCTAD COVID-19 Report
19 November 2020
With late stage clinical trials now showing the effectiveness of some vaccine candidates, offering welcome news that the recovery phase of this pandemic may soon begin in earnest, we at UNCTAD are releasing this report, “Impact of the COVID-19 Pandemic on Trade and Development – Transitioning to the New Normal.”
This report argues that now is the right time to address the weaknesses of globalization that led to the rapid spread of the virus around the world and its uneven economic impacts. Such efforts must go hand in hand with the arrival of potential vaccines to market, otherwise we risk reinforcing existing inequalities that turned this health emergency into an economic crisis in the first place.
This report is the culmination of the last 9 months of UNCTAD’s efforts to monitor the development impacts of the COVID-19 crisis, showing how globalization has helped spread the virus but also must now play a part in the recovery. It summarizes our observations on how the pandemic has affected trade and development and interrelated issues in the areas of finance, investment, technology and sustainable development. The report documents how the COVID-19 pandemic emerged as a health emergency that spread among the major economies along the principal trade routes and transit corridors of globalization from East Asia to Europe and North America first. It shows how the pandemic then catapulted into a global economic crisis that has disproportionately impacted the poorest and most vulnerable in developing countries especially.
Due to the pandemic, UNCTAD expects the extreme poverty ratio (share of population living on less than $1.90 per day at purchasing power parity) to increase by nearly 70 million additional poor this year, rising for the first time since the Asian Financial Crisis. Out of these 70 million additional people living in poverty, more than 30 million of them will be in Sub-Saharan Africa and more than 20 million of them will be in South Asia. These numbers will nearly double globally to 130 million additional poor cumulatively by next year, as the economic crisis persists in the developing world.
But it is more than the extreme poor who have suffered most from the economic effects. While the health crisis has targeted older populations, especially older men, it is the youth, and the women who are bearing the brunt of the economic crisis. Countries with higher incidence of COVID-19 have seen disproportionately higher rises in female unemployment, with women making up significant parts of the workforce in the tourism, services and informal sectors most affected by the economic crisis.
In addition to the uneven economic impacts of the pandemic, this report also documents the uneven national responses to the crisis. We estimate that the typical developed country is spending around 4.5% of their GDP on additional expenditures & foregone revenues plus 5.6% of their gross domestic product on liquidity support[1]. By contrast, the typical least developed countries can only afford far less – just 1.9% of gross domestic product on additional spending and 0.6% on liquidity support.
Given differences in population size and the size of their economies, this means that the typical developed country spends around $1,400 dollars per capita on direct fiscal stimulus, while the typical LDC can afford just $18 per capita, and other developing countries around $78 per capita. Liquidity support per capita in the typical developed and transition economies is around 350 times larger than that of the typical LDC!
To avoid that these uneven impacts and uneven responses persist into the recovery phase, this report argues that we must transition to a new normal that reshapes global production and resets multilateral cooperation. While the crisis has reversed some trade and development trends, it has accelerated others, and the better recovery must harness this momentum. We are seeing new hopes that changes in behavior that have taken place during the pandemic can sow the seeds of a fairer globalization and a more resilient multilateralism.
This report benchmarks UNCTAD’s expectations for the better recovery called for by the United Nations as a whole. The United Nations Secretary General has called for “building back better” from this crisis for a “better recovery”. He has notably called for double-digit stimulus packages and greater multilateral cooperation. This report constitutes UNCTAD’s answer to that call and describes what a better recovery must entail in terms of a “better globalization”.
A better recovery needs to move forward on the new areas of consensus on development finance that have emerged in the discussion around sovereign debts and international liquidity, which originated in UNCTAD and the IMF’s calls for $2.5 trillion in additional ODA, SDRs and debt relief, including debt relief that covers multiple creditor types and all developing countries, especially the vulnerable SIDS.
A better recovery also needs to harness the new shorter, more regional and more digital value chains that will be the way of the future. The crisis has accelerated the transformation in global production underway already since the last crisis. While this may mean that future trade flows and FDI flows will stabilize at lower levels than that seen in the previous decades, that also means that there are new opportunities to harness the green and blue economies and the digital economy as sources of diversification and domestic demand in developing countries. Intensifying South-South Cooperation, especially through regional agreements, such as AfCFTA, will be key in this regard.
A better recovery must offer new impetus for closing digital divides and reducing digital market concentration. 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. This raises the prospects for a wave of M&As where digital giants take over many of the SMEs that have fallen on hard times because of the crisis. This could radically worsen market concentration and calls for stronger more concerted competition and consumer protection policies.
And finally a better recovery must also be greener and more environmentally sustainable. Global CO2 emissions are on track to decline by 8% this year, the equivalent of 2.6 gigatons. This is roughly the same reduction that is needed annually for the next 10 years to maintain progress to just a 1.5 degree Celsius rise in global temperatures. Unfortunately as the economic pain that has accompanied this change reminds us, we are far away from being able to achieve that kind of progress in an equitable and sustainable manner. Yet it is our hope that a reshaped global production system and stronger more resilient multilateral cooperation can help us move in that direction.
As we move from COVID-19 response to COVID-19 recovery, we at UNCTAD will be working to ensure that the frailties of globalization and the weaknesses of multilateralism that have intensified this crisis can be addressed through fruitful and constructive dialogue on these issues. We look forward to continuing this discussion on what constitutes a better recovery as UNCTAD member states begin their preparations towards the UNCTAD 15 Conference to be held in Barbados next year.
[1] Major economies have spent more but the gap remains. Japan has spent nearly 120 trillion Yen, equivalent to 21% of its gross domestic product. Germany reportedly spent 33% of its gross domestic product on COVID-19 rescue programmes. This compares to 5.5% for Brazil, 10% for India and 8.6% for South Africa.
