Emerging markets move towards regionalisation to share risks
WITH the breakdown of supply chains leading to concerns over the provision of key goods during the COVID-19 crisis, some emerging markets have moved towards regionalisation in an effort to share risks, Oxford Business Group (OBG) has said in its latest report.
In some cases, the report said, regional-level responses to COVID-19 have helped supplement international efforts led by institutions such as the World Bank and the IMF.
For example, in April the African Development Bank announced a 10 billion COVID-19 Response Facility to help member countries fight the pandemic, of which 3.1 billion was allocated to sovereign and regional operations for countries in the African Development Fund.
Meanwhile, in May the Asian Development Bank (ADB) tripled the size of its assistance package to 20 billion to help its members weather the economic fallout.
Beyond multilateral financial institutions, in some cases, COVID-19 has also resulted in inter-governmental cooperation in an effort to overcome shared challenges. For example, in April the foreign ministers of ASEAN’s 10 member states endorsed several collective initiatives to fight the pandemic, including the establishment of a common COVID-19 response fund to enable a rapid response to medical emergencies.
Notwithstanding these regional responses, the report said, the disruptions have led some countries to explore more localised supply chains and focus their attention on boosting domestic resiliency, particularly when it comes to the provision of essential goods.
“We expect the current disruption in international trade to encourage African countries to start looking inwards,” Ghana Investment Promotion Centre CEO ofi Grant told OBG.
In light of current events, markets around the world are likely to prioritise localised supply chains for medical goods and pharmaceuticals in an effort to hedge against global supply disruptions.
Amid plans for manufacturing expansion in some countries, the African Continental Free Trade Agreement (AfCFTA) could play a key role in enhancing the regional market for signatory countries and external partners.
With a combined GDP of 3.3 trillion, the AfCFTA region is set to become one of the world’s largest free trade zones. Some analysts suggest that easing the movement of goods between member states could boost trade by more than 50 percent.
The agreement will require members to develop infrastructure that facilitates cross-border trade, while a sub-committee will oversee the implementation of these measures. The Covid-19 pandemic has underscored the benefits of such a system in enabling the delivery of essential supplies, particularly medical equipment and food products.
The GCC has also banded together to address some common regional challenges associated with COVID-19.
For example, in mid-April members of the GCC, including Qatar, agreed to establish a food supply network to safeguard the region.
Alongside the economic impact of the virus, the recent fall in oil prices has posed an additional challenge to GCC member states. This has placed renewed emphasis on the importance of economic diversification and accelerating non-oil revenues. Indeed, the pandemic has highlighted the success of some recent investment in the region’s entrepreneurial space.
In Asia, the major growth engine of the global economy in recent years, 60 percent of total trade is regional, according to global management consultancy firm McKinsey.
In a report published in September last year, before the outbreak of COVID-19, McKinsey referred to the standout growth of the region’s industrialisation network, and how rising consumption and improved domestic value chains had led to a rise in “Asia-forAsia” supply chains.
Since the onset of the pandemic, there has been a further potential for countries to capitalise on a manufacturing shift away from China. This change was already underway, with rising Chinese labour costs and increased tariffs from the US-China trade war leading some companies to move their industrial operations elsewhere in Asia.
However, disruptions caused by COVID-19 seem to have accelerated the move, with the EU, Japan, and the US all making public statements about the prospective relocation of companies with China-based factories.