Comparison to previous crises
Trade and supply chains across the world have been affected by the Covid-19 pandemic but because of the high dependency on services amongst the Commonwealth’s SIDS and the high level of commodity dependency in many African economies,
The impact has been felt particularly severely in two ways:
- Reduction in travel and tourism and supply chain disruption: UNCTAD estimates that travel receipts have dropped by around 70 per cent during the Covid pandemic. As services, and particularly tourism, are said to account for around 25 per cent of SIDS’ GDP, and as many of them are highly dependent on imported goods, this makes them especially vulnerable to the key features of the pandemic – a drop in travel and supply chain issues.26
- The collapse of commodity prices at the beginning of the pandemic.
Asian economies have proved more resilient, not least because of the greater focus on manufactured goods in their trade profile.
Goods trade across the Commonwealth fell back in 2020 by around 12 per cent in value terms (top Figure adjacent). What is interesting, however, is that in goods trade terms, this is not as great an impact as the Global Financial crisis when exports fell by 23 per cent and imports by 19 per cent or the oil price collapse between 2014 and 2016 when trade fell by 15 per cent for exports and from and to Commonwealth countries fell back by 22 and 12 per cent for imports. The drop in 2020 was similar: 12.2 per cent for exports and 12.7 per cent for imports.
The effect of course is that for the whole of the Commonwealth, but particularly for import- dependent of commodity trade dependent LDCs and SIDS, the effect has been a worsening trade balance and external debt position, and has highlighted their vulnerability to external shocks.28As a result the risk appetite for banks to provide trade finance to exporters in these nations has deteriorated and while Multilateral banks and Export Credit Agencies are now working to address the issues of the pandemic through guarantees to working capital loans and export finance generally, there is a risk that the damage will have longer- term consequences.
The lower Figure adjacent shows the compound annualised growth between 2015 and 2020 and the projected growth in goods trade between 2021 and 2026 by the Commonwealth nation.
What is remarkable from this is just how many economies, irrespective of the state of development are likely to struggle to recover quickly. Trade across the whole of the Commonwealth is likely to grow in 2026 by just 0.2 per cent annually over the next 5 years, which is modest, but of the 20 countries with the slowest growth projections for 2026, only seven are not SIDS and six of these are emerging African economies.
This is just the trade for goods and excludes the services trade of these nations, but this serves to highlight a point. Trade finance is predominantly focused on goods rather than services trade for the simple reason that it is easier to identify, insure and monitor a goods transaction than a service one. As a result, it is those economies with a strong goods trade presence across the Commonwealth who will be most affected immediately by the pandemic; those economies with a greater exposure to the informal and services economies will have been affected by the reduction in risk appetite generally alongside the drop in travel and tourism.
Commonwealth total trade, 2006–2020 (USUS$billion)
Commonwealth actual and projected growth in exports by country, 2015–2020 and 2021–26 (CAGR %)
Emerging trade challenges
The discussion thus far suggests that there are issues in trade across the Commonwealth economies. Our discourse analysis shows the prevalence of words associated with trade that arise commonly across the Commonwealth in the 500 major media sources and publications that were scraped. The results confirm:
- That over a five and a half-year period, the over-reliance on manual processes and inefficiencies because of incorrect paperwork have been the most important issues reported in trade.
- That over half of the mentions were in 2021 (to the end of October, the cut-off point for scraping), for most issues suggesting that all had become more important during the Covid pandemic and its aftermath.
- That for emerging economies digital trade is not the only issue in trade facilitation – logistics, infrastructure, fraud and cross-border barriers are also important.
More broadly, the discourse analysis also shows an increasing association of the word “trade” with different forms of technology. In other words, across the Commonwealth Smart Automation, Blockchain and Artificial Intelligence are increasingly positively associated with the word “trade”.
What this tells us is that there are challenges in Commonwealth trade and that these are increasingly identifiable, in the trade data and in the public discourse. The interesting and key conclusion from this, however, is that within the public discourse there is a general acceptance of technological solutions associated with trade. In other words, the public would be amenable to the implementation of digital trade, especially if it helped to address some of the barriers to Commonwealth trade also identified in through discourse analysis.
The interviews we conducted corroborated the issues with Commonwealth LDC and SIDS trade and can be summarised as follows:
- Interviewees, especially in the Caribbean and in Asia, were concerned about the increased costs of trade.
- Interviewees from LDCs and SIDS reported similar challenges in recovering through trade-led growth.
- The interviewees were generally positive about the use of legal reform as a trigger to facilitate trade finance and reduce costs.
- Caribbean respondents, in particular, saw the Covid pandemic as a primary catalyst for change.
- Public sentiment across emerging Asia, particularly Bangladesh and Malaysia, was seen as a potential obstacle to rapid adoption.
- The prohibitive costs of trade in Africa were a dominant feature of discussions with a particular focus on pre-border, border and informal costs associated with crossings.