THURSDAY, 8th DECEMBER 2022. FULL SPEECH
Global Trade at Crossroads – Supply Chain Disruptions, Inflation, Sanctions
Protocols
Chairman of the Occasion
Friends of the Media
Distinguished Ladies and Gentlemen
I would like to thank the IDU for the invitation extended to me to participate in this conference and to make some remarks on the very important topic of Global Trade at a Crossroads – Supply Chain Disruptions, Inflation, and Sanctions.
Manfred Steger characterized the global trade concept with the ‘Jabulani’ ball used in the 2010 South African World Cup. According to Steger, the ‘jabulani’ meaning ‘celebrate’ in the Zulu language was supplied by Adidas, a transnational corporation headquartered in Germany.
All ‘jabulani’ balls were manufactured in China using latex rubber made in India and thermoplastic rubber produced in Taiwan. The plastics, in turn, were generated from petroleum imported from the Middle East and Norway and carried on mostly South Korean-built ships.
This characterization, Ladies and Gentlemen, depicts the centrality of global trade in the economic and socio-cultural development and growth of our world.
The past two years have seen the world record two momentous landmarks in our history i.e. the COVID-19 Pandemic and the Russia-Ukraine war. These two events have significantly disrupted the global markets causing global prices to skyrocket especially for natural gas and oil as well as food prices.
Countries and economies throughout the world are experiencing severe challenges following the COVID-19 pandemic and the more recent Russia-Ukraine war. The pandemic, which started in early 2020, resulted in the greatest economic depression in the world since the 1930s with most countries recording negative GDP growth. Supply chain disruptions and the rising price of oil, which went up to a high of over $130, resulted in major increases in the prices of fuel across the globe with petrol prices doubling in many countries.
Furthermore, the global average cost of shipping a container has increased from $1,446 in December 2019 to $9,789 in February 2022 (an increase of 576%). This has dramatically increased the cost of shipping goods and therefore their prices on the market.
Food prices have also not been left out. The Food and Agriculture Organization (FAO) Global Food Price Index increased from 95.1 at the end of 2019 to 140.7 in February 2022 (an increase of 48%). The increase in commodity prices has been exacerbated by the Russia-Ukraine conflict.
In Ghana, for example, 30% of our cereal grains, wheat flour, and fertilizer were from Russia. 60% of iron rods and metal sheets imports were from Ukraine. 20% of Ghana’s manganese exports were to Ukraine.
Global inflation is on the rise and many advanced economies like the UK and USA are experiencing their highest inflation rates in 30 and 40 years. Countries as diverse as Spain, Algeria, and Nigeria are all feeling the impact of the price increases.
The economic damage of the war as evidenced in the forecasts is threatening the very fabric of our global community and portends to be even more severe with a protracted war. This phenomenon places global trade in a significantly unfavorable position and at a crossroads.
From the trends identified above, global trade can be said to be impacted presently through three main pathways.
First, higher commodity prices such as prices of food and energy drive up inflation which in turn reduces the value of incomes and demand.
Second, neighboring economies potentially face disruptions in supply chains and remittances.
Lastly, lower business confidence and greater uncertainty in investments are expected to negatively affect asset prices thereby tightening financial conditions and potentially leading to capital flights, particularly from emerging and developing economies.
Distinguished Ladies and Gentlemen, a survey by McKinsey & Company reveals that the combined effect of the global COVID-19 pandemic and the Russia-Ukraine war has forced many organizations to address vulnerabilities in their complex, highly globalized supply networks.
Many companies responded to these challenges by implementing dual or multiple sourcing strategies for critical materials while regionalizing their networks. The survey by McKinsey also observed companies shifting focus from visibility to improvements in demand and supply planning with an accompanying emphasis on supply chain digitization.
The revelations from the survey clearly highlight the complexities supply chain companies have had to deal with in recent years. Disruptions in land-based trade routes as well as sea freight routes have placed enormous pressure on global air cargo capacity causing a rise in air freight prices as a result of longer routes and fuel costs.
It is clearly evident, Distinguished Ladies and Gentlemen that these supply chain disruptions have been a major contributory factor to the persistent pressure on living costs.
These developments pose significant challenges for local economies and may lead to Governments looking inward by adopting backward nationalist policies in order to build resilient economies to withstand such shocks. The average citizenry is always at the receiving end of these shocks leaving them more exposed than ever to the shocks.
Mr. Chairman, even though the forecasts paint some gloomy prospects for global trade, a more nuanced assessment reveals how interconnected our world has become. This interconnectedness presents the silver lining for our world in these difficult times. It reveals that it is in forging close ties and making the most of the synergies of our global relationships so that our world can bounce back on the trajectory of growth. I can safely say that no country or region in the world is self-sufficient and we all depend on each other for sustenance.
Many countries are Re-evaluating global supply chains. Questions are being asked. How dependent should the world be on a few countries for critical supplies? Should countries not produce more of their own food and move towards alternative energy sources?
Europe is certainly moving towards reducing its dependence on Russian energy and expects to be fully independent of Russian energy in some 8 years.
The issue for Europe is a matter of trust. They do not trust that Russia and other countries will not use energy as a weapon of war in the future.
Sanctions have worsened Global supply and therefore increased the prices of energy and food. Developing countries and African countries in particular have borne the brunt of the global supply chain disruptions as well as sanctions because the shock absorbers have proven very thin to withstand the shocks.
Similarly, the infusion of technology in the manufacturing of products such as cars, telephones, computers, etc., depends on the global supply of semiconductor chips. The evolution of global supply chains resulted in the supply of semiconductor chips being concentrated in Taiwan and China.
COVID-19 also exposed the world’s vulnerability with the disruption in the supply of semiconductor chips. The continuing tensions between China and Taiwan are also making many countries start to think about reducing their dependence vulnerability in this area.
We are therefore beginning to see the emergence of supply chain nationalism. The question is how sustainable is this?
It is important that we do not forget the lessons of the Great Depression of the 1930s and the subsequent emergence of the new world order as countries came to understand the folly of economic nationalism.
Global trade at the crossroads requires the world to start new conversations around sustainable and more inclusive growth and trade. We need to start laying the foundations for greater collaboration on trade diversification through standardization as well as leveraging technology to break more barriers.
In Africa, we have formed the AfCFTA, the largest free trade area in the world to enhance trade amongst African counties. Economic nationalism in the context of the AfCFTA will be defeatist. You cannot open Africa for trade and at the same time close your individual doors. Africa needs more trade and value addition for its exports and not less.
Policymakers in these difficult times must strengthen macroeconomic policy buffers and institutions to promote stability. There is also the need to strengthen social protection frameworks to protect the vulnerable for a more just and equal recovery.
As globalists, ours is a more connected world working towards shared growth and prosperity. We owe it to ourselves and posterity to keep breaking barriers to ensure that the gap between developed and emerging markets is continuously bridged for the good of us all.
The time is ripe for conversations around transitions to the green economy and leveraging technology to overcome disruptions in the global supply chain ecosystems.
Ladies and Gentlemen, democracy, rule of law, and respect for the territorial integrity of countries is what will create peace and global stability for trade to flourish. The current supply chain and global trade disruptions are linked more to disruptions to democracy, rule of law, and lack of respect for the territorial integrity of countries.
Jihadist terrorism in the Sahel is a major threat to global trade and is creating instability in Chad, Mali, Burkina Faso, Niger, Nigeria, and the West African region.
The Islamic Jihadists have no respect for the territorial integrity of the countries they seek to take over. It is important that the world does not turn a blind eye to what is happening in West Africa otherwise we would wake up one day and find that these countries which supply the world most of its cocoa, as well as oil, gold, and other precious minerals will be under the control of Jihadist terrorists.
The disruption to global trade and supply chains will be serious. Making sure these countries have peace and are stable and prospering democracies is what the world should do. A fraction of what the west is currently in Ukraine will make a very big difference in the countries under the jihadist threats in west Africa.
Thank you once again for the invitation and I look forward to fruitful discussions on our collaborative efforts to overcome this challenging period in human history.
Thank you for your attention.
