“If Sri Lanka succeed to control COVID-19 with zero infections for 14 days before other countries, the exports and ports will be entering a huge vacuum demand”
Coronavirus (COVID-19) is an infectious disease caused by a newly discovered coronavirus that started in late 2019. Now declared as a pandemic by the World Health Organisation (WHO), the majority of people who contract Covid-19 suffer only mild, cold-like symptoms. However, the elderly and people with underlying problems like high blood pressure, heart and lung problems or diabetes, are more likely to develop the severe acute respiratory syndrome. In order to slow the spread of Covid-19, many countries introduced “lockdown” measures and according to an analysis by Statista, shows that 25 percent of the world population is currently on some form of a coronavirus lockdown.
Although the outbreak appears to have slowed in China, COVID-19 and its impacts have gone global and the infections are mounting in Europe, South Korea, Iran, the United States, and elsewhere.
Since the COVID-19 was announced as a global pandemic, the global economy started slowing down and the IMF Chief Kristalina Georgieva, commented that its clear global economy has entered a recession. However, out of many countries the European Union, the USA, the UK, and China can be identified as the most affected economic powerhouses by this pandemic for the moment. Looking back at history global pandemics and economic crises happing at the same time often resulted in disputes between nations. This article will breakdown into few parts of which the importance of strong international relations on pandemic situations while giving a closer analysis of global supply chains, Belt and Road Initiative (BRI) and Sri Lanka’s respond to bounce back from this crisis.
What to learn from history?
Looking back at history COVID-19 is not the biggest challenge humans faced in this post-industrial era, the 1918-19 Influenza pandemic, also called Spanish flu, is considered one of the most severe influenza outbreaks which took life’s of up to 25 million to 100 million people, making it among the most devastating pandemics in human history. It’s important to notice that 1918 influenza happen right after Europe fought World War One from 28 July 1914 – 11 November 1918, at a time, Europe was destroyed by one of the biggest confits in human history along with strained international relations.
One other time the world faced an economic collapse is in the 1930s the Great Depression in the USA, the stock markets crashed and the international relations at the time were challenging. In Asia, the Japanese invention of Manchuria happed in 1931 September, which resulted in the Japanese government withdrawing from the League of Nations entirely, while In Europe, Germany’s national socialist party was building up momentum and by 1933 Adolf Hitler was named as the chancellor.
However, these scenarios highlight how the society reacted in the instability of economy, health crisis, and dispute in international relations. So, in the midst of a pandemic and upcoming economic recession, the most troubling is to have a crisis in international relations.
The trade confits with the US and China and the upcoming US election is one of the main events to look forward to, while the President Putin of Russia is in the midst of a constitutional crisis, and the Russian economy is struggling mainly due to global sanctions. The US- Russia relationship has been politicized since President Trump came into power. In the meantime, the Iran’s complications with the middle east could lead to dysfunction of OPAC, bringing damages to global oil markets.
In Asia, Prime Minister Modi’s political approach have weakened India-Pakistan relations which given an upraise towards a China – Pakistan allies and Expansion of Chinese influence in the world is seen threating by the western democracies. The EU with the UK’s exit needs some reorganization and the response from EU member states with regard to the COVID-19 was not welcoming.
The global framework of the United Nations has been working as an effective forum to build diplomacy among member states and should work at its highest diplomatic senses by building effective dialog among nations to overcome the current situation. However, the secretary-general of the United Nations Mr. António Guterres stressed on the BBC Hard Talk program that current global situation is troubling and that nations need more cooperation, he quoted that,
“We are witnessing a serious problem, and that problem is that international cooperation has never been at this low level. The relationship between the biggest powers has never been as dysfunctional the security council has been paralyzed in relation to many of the conflict situation around the world”
These words by the secretary-general gives a clear snapshot of the current global challengers, with leaders in powerful countries tend to lead the world into a rise of ‘populist nationalism’. If a combined diplomatic approach is not found towards meeting the upcoming challenges, will it halt the global system with consensuses?
The consequences of the COVID-19 to the global economy and the Belt & Road initiative?
Despite the health crisis, the ongoing spread of the new coronavirus has become one of the biggest threats to the global economy and financial markets and the consequences will shake all sectors of the global economy. Today, a forthcoming global recession is no longer a debate, the global economic analysis is trying to figure out how deep will this hit and how long it will take to recover, some mainstream media explains this is probably the most defect economic situation since WW2.
The economic downturn started in China and the economic contraction of the fastest growing economy in the world is hitting its lowest since the 1976 cultural revolution of China. It is projected by the current scenarios that the US unemployment will be 30% and probably for the first time in the modern era
However, the priority now of the majority of states is to lock down and stop the spread of the virus. The impact of the virus didn’t hit all continents at the same time, China was severely hit back in February and within a month the government managed to bring the numbers down. Once China is recovering Europe becomes the highly infected and as per the statistics USA will be the next victim of COVID19, and as per top infectious disease specialist, Dr. Anthony Fauci projected deaths could reach over 100,000 in the USA in coming months.
It’s still hard to predict how far it will affect South Asia since the infectious numbers of the whole region was low and with 1.8 billon people the region is considered as one of the densest populations in the world. Also, the middle east and African continent seem to cope within their capacity threshold.
The pattern shows shutting down of different regions at different times and if Europe managed to recover the Asian market and the European market can circulate some form of order in global trade before it kicks off at full capacity.
The shutting down of the global economy of around 89 trillion (GDP), divided upon three main regions, one in East Asia & Pacific for around 25.9 trillion GDP with a global share of 30.2%, then Europe & Central Asia with another 23 trillion (GDP) with is around 26.8% global share. and North America with 22.2 trillion (GDP) with is about 25.9% of the global share.
However, arguably global trade is balanced by the key drivers globally, one is the production market which is China, other is the selling market which is the USA and in recent weeks, we have seen the significant economic impact of the coronavirus on both demand and supply shocks echoing across the global economy.
The impact of COVID-19 in countries around the world is very visible at the moment. Similarly, China’s flagship global infrastructure investment project BRI has been slowed by lockdowns and travel restrictions. However, these short-term setbacks are unlikely to derail projects. The COVID-19 outbreak crisis posed a challenge to BRI because the coronavirus threat exposed economic and human risks to it. The big cause of any setbacks in BRI projects is travel restrictions and border control. Therefore, some of the BRI projects could experience some delays in the first half of 2020.
China would see BRI as a natural platform for extending its public diplomacy efforts, in BRI countries and beyond. COVID-19 is reshaping the global order and China gaining global pre-eminence. Some have argued that the United States’ less than satisfactory response to the pandemic and Beijing’s apparent success in battling the virus as well as its outreach to not only its BRI friendly countries but also other severely affected Western countries. China has sent medical experts and badly needed medical supplies to places hit hard by the pandemic in Europe, the Middle East, Africa, and Asia.
While pandemic may create opportunities for Beijing’s cooperation in partner countries’ and new areas will be developed especially in public health systems along the BRI. The current COVID-19 pandemic may boost China’s ‘Health Silk Road’ ambition as well.
At the Beijing “Health Silk Road” summit in August 2017, WHO Director-General Dr. Tedros Adhanom Ghebreyesus said, the initiative “contains the fundamentals to achieve universal health coverage“
China appears to be in the early stages of an economic rebound, while this recovery could be vulnerable if a new wave of local infections were to emerge, many Chinese companies have already moved beyond crisis response to recovery and post-recovery planning.
However, the shortage of products and spare parts from the Chinese and other markets will affect many countries around the world, and the longer this virus remains unleashed, the more slowdown of world economies, leading to further economic and financial ramifications.
Given the political structure, it’s not easy for many other countries to recover as quickly as China. The Leaders of the Group of 20 major economies or the G20 pledged on 26th March 2020 to inject $5 trillion in fiscal spending into the global economy to blunt the economic impact of the coronavirus, this is positive coordination.
How Sri Lanka will bounce back from this crisis?
Economic considerations are always important for the Sri Lankan government when taking any action, including in the current fight to contain the threat of the COVID-19 pandemic but governments should not let economies become the prime driver, especially if it means risking people’s health and lives, which are far more important than their livelihoods. There is also a pressing need for economic measures to stabilize and stimulate the economy and protect people’s jobs and livelihoods. Sri Lanka is a small island upper middle-income economy with a GDP per capita of USD 4,102 (2018) and a total population of 21.7 million, struggling to protect its people and economy. As China’s extreme lockdowns and containment were effective and helped to bring the crisis there under control, now Sri Lanka is now following similar lockdown nationwide. The island nation barred all arrivals at ports, to maintain order and to have 14 days without a new infection is the ultimate goal of the Sri Lankan government.
However, it’s important to highlight a few facts on the political and economic structure of the country. It’s been few months since the country elected a new president, and the country is the midst of a general election while the president seems to be favourable among Sri Lankans, yet his economic approach is still not predictable. The fact that the main opposition political parties are having an internal crisis would also create a comfortable seat at decision making for the government. However, it’s clear that the ruling government is heading towards an economic meltdown in the coming months and Sri Lanka needs to utilize its resources smartly.
Financial Inputs
Back in 2019 Ex Central Bank Governor Dr. Indrajit Coomaraswamy, emphasized that in the next 3 to 5 years Sri Lanka going to have to borrow $3 billion per year from the market to be able to meet the countries obligations and still maintain a reasonable level of imports. He added that a ‘strong relationship with the international bodies as IMF is important’
On the recent highlights, Sri Lanka signed a facility agreement of USD 500 million, with concessional terms on both interest and tenure with China Development Bank (CDB) on 18th March 2020. According to the Chinese Embassy in Sri Lanka, this loan was urgently requested by the Sri Lankan government to support Sri Lanka’s current financial situation and fight Covid-19.
Moreover, The World Bank Group and International Monetary Fund have issued a joint statement on 25th March 2020 to the G20 and call on all official bilateral creditors to suspend debt payments from International Development Association (IDA) countries to help with IDA countries’ immediate liquidity needed to tackle challenges posed by the coronavirus outbreak and allow time for an assessment of the crisis impact and financing needs for each country.
IDA countries are those with low per capita incomes that lack the financial ability to borrow from the International Bank for Reconstruction and Development (IBRD). As Sri Lanka is an upper-middle-income country as of last year, Sri Lanka graduated from IDA at the end of FY17 and classified as IBRD (International Bank for Reconstruction and Development) country and therefore Sri Lanka only allowed to borrow from the International Bank for Reconstruction and Development. However, Sri Lanka can receive transition support on an exceptional basis through the IDA18 period (FY18-20).
The United States Department of State and the USAID also agreed to provide US$ 1.3 million to Sri Lanka as emergency health and humanitarian assistance to help fight the COVID-19 coronavirus pandemic. The Asian Development Bank (ADB) has allocated a $600,000 grant from the Health System Enhancement Project to the Government of Sri Lanka to finance preventive and response efforts to fight a potential novel coronavirus (COVID-19) outbreak in the country.
According to Harvard Business Review, some shifts will likely persist beyond the crisis, and many sectors will re-emerge to new market realities. For example, the SARS crisis is often credited with accelerating the adoption of e-commerce in China. It is too early to say for sure which new habits will stick in the long run, but some strong possibilities include a leap from offline to online education, a transformation in health care delivery, and an increase in business to business (B2B) digital channels.
Creating a domestic supply.
The COVID-19 crisis highlighted a national concern when fighting infectious disease. Unprecedented lockdown brought small economies such as Sri Lanka to a near standstill and created severe economic hardship, in particular, whose economic backbone is made up of micro, small, and medium-sized enterprises. The chambers collective led by the Ceylon Chamber of Commerce has written to President Gotabaya Rajapaksa, recommending measures that could be taken to mitigate the spread of COVID – 19, and to stabilize the economy.
Priority should be given to facilitate the local production of essential food and safety items such as masks, gloves, hand sanitizer liquid to meet the demand. This is a good time for the government to reorganize the local supply network intergraded with digital platforms. Facilities connectivity is one of the priority areas for implementing the BRI.
Under the China’s BRI funding infrastructure development as new rail lines and roads in Sri Lanka Improved which connect most the cities and make transportation more convenient by facilitating local economic and social development.
Further Sri Lanka with the highest basic literacy rate in South Asia and about 42% of the population is digitally literate, the island state can take advantage of new e-commerce business opportunities.
In order to prevent the uncontrolled gathering of people at market places amidst an effort to combat COVID–19, the government established a Task Force for the prevention of COVID-19 to deliver essential items to homes.
This will be implemented through a local system in collaboration with Cooperative Societies and supermarket chains that are essential to maintain the day to day life in the battle against COVID-19. Further Task Force decided to facilitate the cultivation and fisheries activities without any interruption and exploring the possibility of distributing these items through a combined effort between Cooperative outlets and supermarkets after purchasing from domestic farmers.
Despite the high rate of smartphones, social media use and the high potential for e-commerce in Sri Lanka, the use of our e-commerce is still at low levels and at low penetration. Sri Lanka’s annual domestic e-commerce sales value including services is an estimated US$40 million. Currently, only 0.4% of Sri Lanka’s total annual retail sales are in e-commerce. However, e-commerce has transformed the way business is done in India. The Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion as of 2017. During COVID-19 lockdown, India suspend the physical stores, instead, they asked supermarkets to focus only on door-step deliveries.
The rapid growth of the mobile phone industry signals towards the potential for mobile-based e-commerce growth. The majority of Sri Lanka’s electronic payments take place through traditional instruments such as ATMs and cheques with mobile/ internet banking lagged behind. Creating an Information Silk Road is also part of facilities connectivity under BRI and that will create a robust digital network infrastructure that will be critical to support the deployment of digital services and platforms.
Moreover, through BRI People-to-people bond is a workable approach to bring a wide range of knowledge, technical know-how, managerial and organizational skills that Sri Lanka needed for digital commence. For example, a Kenya-based mobile telecommunications operator Safaricom’s mobile payment initiative M-Pesa provides cellphone-based banking services to tens of millions of people in East Africa and beyond. It is recognized as a world-leading African innovation that has used technology to leapfrog traditional financial services models. Safaricom is relying on Chinese technology specifically the Mobile Money platform developed by China-based Huawei.
In addition to maximizing the economic output, the government has announced a multiple economic measure including credit relief. Therefore, Sri Lankan entrepreneurs can use this opportunity to create a new business based on the local supply chain.
Moreover, it’s fair to emphasize the unity and the socialist clutch of Sri Lankans during a crisis, many are willing to volunteer, and even handing over fully functional luxury hotels to fight the virus, this is something we didn’t hear in any other part of the world. The government should work smarter and use these generous gestures to create a sustainable local economy that can function with fewer imports, and after all the country is the Democratic ‘Socialist’ Republic of Sri Lanka.
Targeting global supply chains,
It’s reasonable to note that ‘Early intervention can have a huge impact’, however, most parts of the world did little, apart from developing a modest testing capacity. Europe had become the worst-affected region, with Italy and Spain particularly hard hit. However, China, Singapore, Hong Kong, Taiwan, and South Korea flattened the curve after instituted strict travel controls and protocols for identifying sick individuals. India seems to have done well in controlling the number of confirmed cases compared to other countries in the early phase of the pandemic.
However already some of the Chinese factories have resumed production, and some of the factories are closing due to a shortage of raw materials and declining orders. This is due to lower global consumption with less global spending.
It remains to be seen how the Sri Lankan government will handle this forthcoming economic hit caused by COVID-19. Sri Lanka’s export economy is dominated by apparel, cash-crops, and technology services, and most are exported to the US and Europe. A drop-in demand for goods and services from the top export destinations such as Europe and the US is likely to be felt widely. Therefore, at this juncture, Sri Lanka must explore new markets and businesses to export locally produced and value-added goods and services.
While the crisis impacted all sectors to some extent, demand increased in many specific areas. These include B2C e-commerce (especially door-to-door models), B2B e-commerce, remote meeting services, social media, hygiene products, health insurance, and other product groups. If Sri Lanka can manage to control the COVID-19 outbreak effectively and keeping full control of imported cases in the future, Sri Lanka can mobilize rapidly to address these needs in other courtiers, especially in SAARC and BIMSTEC countries. Sri Lanka’s FTAs with India and Pakistan and potential FTA with China alone will give companies located in Sri Lanka preferential access to a market of about 3 billion people.
The BIMSTEC provides a key stepping-stone for closer ASEAN–South Asian connectivity since it is the main regional grouping that straddles both regions. Trade around the Bay of Bengal depends on seaborne transport that relies on ships and ports. The mainline operators traditionally transhipped their containers through Colombo port feeding them to and from ports located in the Indian subcontinent and Bangladesh. Sri Lanka can develop as a logistics hub and that role would focus around multinationals holding inventory and redistributing to BIMSTEC countries, similar to the logistical services provided by Dubai and Singapore.
It’s also important to highlight Sri Lanka is strategically placed, as equidistant between Europe and the Far East on the major East-West shipping lanes and has easy access to lucrative Middle Eastern markets and rising African markets, while the growth engine that is India lies just 20 miles away and help Sri Lanka to become a gateway to those significant markets. This is the reason Sri Lanka is seen as one of the vital nodes along China’s ‘Belt and Road’ Initiative.
Therefore, Sri Lankan ports should draw the resources, the economic factors in the surrounding area so as to provide differentiated products through various operating methods.
In order to improve the utility and the competitive advantage, the ports should reduce the production cost and improve the quality of the port and shipping services. This will benefit Sri Lanka logistics sectors as well by reducing the transaction cost, which will integrate Sri Lanka with global production networks. This is a critical and integral element of Sri Lanka’s growth strategy, particularly in relation to developing Sri Lanka as a global logistics hub.
Sri Lanka Ports Authority on 27th March 2020 exempted ships calling at ports from entry charges and demurrage during a Coronavirus curfew, while shippers have been relieved from warehousing rents and fees for container storage, the President’s office said. This may attract bulk shipments in containers into Sri Lanka and stored in free economic zones or bonded stores and then be redistributed later by the sea in response to orders received. This would mean the suppliers could offer just-in-time deliveries from Sri Lanka to the whole of the Bay of Bengal area. While this is a sophisticated operation, Sri Lankan ports such as Colombo, Hambantota, and Trincomalee has the potential to cater for that need.
The Hambantota international port is the island nations newest Port and a mere 10 to 12 nautical miles from the major East-West shipping route linking the Suez Canal and the Malacca Straits. Hambantota port also can be further developed to lure vehicle trans-shipments, refuelling and oil storage services away from Singapore, the U.A.E. Port of Fujairah and Malaysia’s Port Klang. Sri Lanka can also develop into a strategic hub for air travel and air cargo in the Asia-Africa-Middle East region
If Sri Lanka could gain a competitive advantage through transportation and logistics, which will enhance Sri Lanka’s to be part of the global production network and that will support Sri Lanka’s economic growth and employment generation. So, If Sri Lanka succeed to control COVID-19 with zero infections for 14 days before other countries, the exports and ports will be entering a huge vacuum demand”
