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Trade Pact Could Boost Africa’s Income by $450 Billion

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The African Continental Free Trade Area (AfCFTA) represents a major opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion, a new World Bank report has found. If implemented fully, the trade pact could boost regional income by 7% or $450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035.

The report suggests that achieving these gains will be particularly important given the economic damage caused by the COVID-19 (coronavirus) pandemic, which is expected to cause up to $79 billion in output losses in Africa in 2020. The pandemic has already caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food.

Most of AfCFTA’s income gains are likely to come from measures that cut red tape and simplify customs procedures. Tariff liberalization accompanied by a reduction in non-tariff barriers—such as quotas and rules of origin—would boost income by 2.4 percent, or about $153 billion. The remainder—$292 billion—would come from trade-facilitation measures that reduce red tape, lower compliance costs for businesses engaged in trade, and make it easier for African businesses to integrate into global supply chains.

Successful implementation of AfCFTA would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs. In the longer term, AfCFTA would provide a path for integration and growth-enhancing reforms for African countries. By replacing the patchwork of regional agreements, streamlining border procedures, and prioritizing trade reforms, AfCFTA could help African countries increase their resiliency in the face of future economic shocks.

“The African Continental Free Trade Area has the potential to increase employment opportunities and incomes, helping to expand opportunities for all Africans,” said Albert Zeufack, the World Bank’s Chief Economist for Africa. “The AfCFTA is expected to lift around 68 million people out of moderate poverty and make African countries more competitive. But successful implementation will be key, including careful monitoring of impacts on all workers –women and men, skilled and unskilled—across all countries and sectors, ensuring the agreement’s full benefit.”

According to the report, the agreement would reshape markets and economies across the region, leading to the creation of new industries and the expansion of key sectors. Overall economic gains would vary, with the largest gains going to countries that currently have high trade costs. Côte d’Ivoire and Zimbabwe—where trade costs are among the region’s highest—would see the biggest gains, with each increasing income by 14 percent. AfCFTA would also significantly boost African trade, particularly intraregional trade in manufacturing. Intra-continental exports would increase by 81 percent while the increase to non-African countries would be 19 percent.

Implementation of the agreement would also spur larger wage gains for women (an increase of 10.5 percent by 2035) than for men (9.9 percent). It would also boost wages for skilled and unskilled workers alike—10.3 percent for unskilled workers, and 9.8 percent for skilled workers.

This report is designed to help countries implement policies that can maximize the agreement’s potential gains while minimizing risks. Creating a continent-wide market will require a determined effort to reduce all trade costs. This will require legislation to enable goods, capital, and information to flow freely and at easily across borders. Countries that do so will be able to attract foreign investment and increase competition that can increase productivity and innovation by domestic firms. Governments will also need to prepare their workforces to take advantage of new opportunities with new policies designed to reduce the costs of job-switching.

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MSMEs Key to Southeast Asia’s Post-COVID-19 Recovery

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Strengthening the dynamics of micro, small, and medium-sized enterprises (MSMEs) with innovation and internationalization will be key to revitalizing Southeast Asian economies devastated by the coronavirus disease (COVID-19) pandemic, according to a new report from the Asian Development Bank (ADB).

MSMEs are a critical driving force in Southeast Asian economies, accounting for an average of 97% of all enterprises and 69% of the national labor force from 2010 to 2019. They contributed an average of 41% of each country’s gross domestic product over the same period.

“MSMEs in Southeast Asian economies mainly focus on domestic markets and their level of entrepreneurship remain suboptimal. Supporting the development of MSMEs, particularly in technology adoption and participation in global supply chains, will contribute to inclusive growth and aid in recovery efforts from COVID-19,” said ADB Chief Economist Yasuyuki Sawada. “We’re confident that this new report, Asia Small and Medium-Sized Enterprise Monitor (ASM) 2020, which provides a rich set of data and analyses on MSME development in Southeast Asia pre-COVID-19 pandemic, would become a benchmark in helping design feasible government assistance for MSMEs amid a new normal in the region.”

The first volume of ASM 2020, released today at a virtual launch attended by ADB Vice-President for Knowledge Management and Sustainable Development Bambang Susantono, presents a detailed assessment of financial and nonfinancial issues facing MSMEs in Southeast Asia at both the country and regional levels. It also analyses policies and regulations surrounding MSME development and access to finance in each country in Southeast Asia.

Key findings from the report’s second volume, to be released on 28 October, examines the impact of COVID-19 on MSMEs in Indonesia, the Lao People’s Democratic Republic, the Philippines, and Thailand based on rapid surveys conducted from March to May this year. The challenges faced by MSMEs in the region have been exacerbated by COVID-19, with demand for MSME products and services declining since the onset of the pandemic. This has resulted in layoffs, reduced business operations, and a depressed outlook for the sector. The report explores policy approaches that could support MSMEs during and after the pandemic.

ASM 2020’s remaining two volumes will be released by the end of 2020. They comprise a thematic chapter analyzing the impact of fintech-based loans to tricycle drivers in the Philippines; and a technical assessment that will present ADB’s new Small and Medium-Sized Enterprise Development Index.

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Recession Deepens as COVID-19 Pandemic Threatens Jobs and Poverty Reduction in Western Balkans

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The COVID-19 pandemic has plunged the Western Balkans region into a deep recession, with drops in both domestic and foreign demand, coupled with disruptions in supply chains, forcing all six countries in the region into negative growth territory for 2020. According to the World Bank’s latest Regular Economic Report (RER), economic growth is forecast to contract by 4.8 percent in 2020, 1.7 percentage points lower than forecast in April. A second, stronger wave of the pandemic since mid-June is delaying economic recovery in the region. Travel restrictions and social distancing measures have also depressed growth in those countries more reliant on tourism.

The pandemic is further challenging labor markets in the region and threatening to undermine the progress that countries have made on improving the population’s welfare. By June, unemployment in the region had risen by a half of a percentage point, erasing 139,000 jobs. An additional 300,000 people are estimated to have fallen into poverty in Albania, Kosovo, Montenegro, and Serbia – a significant number, but less than half of the total that would have fallen into poverty had response measures not been put in place, notes the report.

“Like in much of the rest of the world, the COVID-19 pandemic is continuing to hit people hard in the Western Balkans, threatening threatening the health and economic well-being of people in all six countries,” says Linda Van Gelder, World Bank Country Director for the Western Balkans.

“As bad as this situation is, it would have been much worse had governments not taken swift measures from the outset of the crisis. The first priority remains getting the health crisis under control and limiting the economic damage. Policymakers in the region will then need to focus on strengthening their economic fundamentals for a resilient recovery.”  

According to the report, all six countries in the region were quick to introduce policies to protect lives and livelihoods. The introduction of large job-retention schemes, including employee subsidies, helped arrest some of the worst impacts of the pandemic on employment, while social assistance programs, such as cash transfers, helped protect the most vulnerable populations in the region in the face of lockdowns and other restrictions.

Despite these measures, however, the gains in labor force participation made in the region over the last few years have now been erased and progress on poverty reduction is being imperiled by the crisis. Compounding these challenges are soaring fiscal deficits in the region, as governments continue to spend more to counter the economic contractions in the face of plummeting revenues. With the end of the economic crisis uncertain, pressure on labor markets and incomes is likely to continue for some months.

“Apart from improved health systems and robust social protection mechanisms, policymakers in the region will need to take measures to enhance human capital, build stronger institutions and strengthen the rule of law. The unfortunate situation of needing to spend more in a time of declining revenues puts additional pressure on governments in the region to prioritize fiscal sustainability, including through improving public spending and strengthening tax compliance,” says Linda Van Gelder.

The report acknowledges that the speed of recovery, in the short term, will depend on how the pandemic evolves, the availability of a vaccine that allows for the normalization of economic activity, and a sustained recovery for the region’s main trading partner – the European Union (EU).

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Collapsing consumer demand amid lockdowns cripple Asia-Pacific garment industry

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Women at work in a garment factory in Hai Phong, Viet Nam. © ILO

The COVID-19 pandemic has triggered government lockdowns, collapsed consumer demand, and disrupted imports of raw materials, battering the Asia Pacific garment industry especially hard, according to a new report released on Wednesday by the International Labour Organization (ILO).

The UN labour agency highlighted that in the first half of 2020, Asian imports had dropped by up to 70 per cent.

Moreover, as of September, almost half of all garment supply chain jobs, were dependent on consumers living in countries where lockdown conditions were being most tightly imposed, leading to plummeting retail sales.

ILO Regional Director for Asia and the Pacific, Chihoko Asada Miyakawa, pointed out that the research highlights “the massive impact COVID-19 has had on the garment industry at every level”. 

Ripple effect

In 2019, the Asia-Pacific region had employed an estimated 65 million in the sector, accounting for 75 per cent of all garment workers worldwide, the report reveals.

Although governments in the region have responded proactively to the crisis, thousands of factories have been shuttered – either temporarily or indefinitely – prompting a sharp increase in worker layoffs and dismissals.

And the factories that have reopened, are often operating at reduced workforce capacity.

“The typical garment worker in the region lost out on at least two to four weeks of work and saw only three in five of her co-workers called back to the factory when it reopened”, said Christian Viegelahn, Labour Economist at the ILO Regional Office for Asia and the Pacific.

“Declines in earnings and delays in wage payments were also common among garment workers still employed in the second quarter of 2020”.

Women worst impacted

As women comprise the vast majority of the region’s garment workers, they are being disproportionately affected by the crisis, the report tracked.

Additionally, their situation is exacerbated by existing inequalities, including increased workloads and gender over-representation, as well as a rise in unpaid care work and subsequent loss of earnings

Moving forward

To mitigate the situation, the brief calls for inclusive social dialogue at national and workplace levels, in countries across the region.

It also recommends continued support for enterprises, along with extending social protection for workers, especially women. 

The ILO’s recent global Call to Action to support manufacturers and help them survive the pandemic’s economic disruption – and protect garment workers’ income, health and employment – was cited as “a promising example of industry-wide solidarity in addressing the crisis”.

“It is vital that governments, workers, employers and other industry stakeholders work together to navigate these unprecedented conditions and help forge a more human-centred future for the industry”, upheld Ms. Miyakawa.

Nuts and bolts

The study assessed the pandemic’s impact on supply chains, factories and workers in Bangladesh, Cambodia, China, India, Indonesia, Myanmar, Pakistan, Philippines, Sri Lanka and Viet Nam.

It is based on research and analysis of publicly available data together with interviews from across the sector in Asia.

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