Trade in the time of Covid-19
The Covid-19 effect has paralysed the Kenyan logistics sector, resulting in a hit on the flower trade.
The Covid-19 effect has paralysed the Kenyan logistics sector, resulting in a hit on the flower trade. The Dutch auction has been operating below capacity, forcing few farms to suspend the shipping of flowers due to the pandemic. Ruth Nduta, group marketing & communications manager of Siginon Group explains how the closing of border points, lockdowns, quarantine, and curfews have plummeted the country's flower exports to key markets such as EU by over 50 percent.
Today, the world is grappling with the coronavirus (Covid-19) that has continued to snuff out the life of thousands across the globe. This newly discovered infectious disease has threatened human existence as its infection rates soar from different corners of the globe. Beginning in Wuhan, a port city in China, the Covid -19 has rapidly spread to other parts of the world paralysing economies, trade and human safety of countries affected. As a response to battle the spread of the disease, countries have taken necessary measures such as the closing of border points, lockdowns, quarantine, and curfews to encourage social distancing as well as limit movements to forestall further spread of the disease. With these interventions, trade and businesses have been paralyzed pushing economies to the brink of collapse and crashing of stock markets globally.
The transport and logistics sector is a major victim of Covid-19. The industry, which is driven by facilitating cargo movement to or from different geographical locations, supports key economic sectors such as manufacturing, agriculture, aid and relief, construction, education amongst others. However, the interventions to stop the spread of the Covid-19 have made it challenging if not impossible to move goods from point A to B thus affecting trade between regions.
A report by the International Air Transport Association (IATA) states that the aviation sector supports 6.2 million jobs in Africa or 2.6 percent of Africa's GDP. However, since January 2020 over 185,000 pax have cancelled flights and vital cargo capacity disappeared. This has negatively affected the airfreight sector whose goods primarily comprise of pharmaceuticals, chemicals, flowers, vegetables, and fruits, among others.
Flower exports to key markets such as the European Union (EU) have dropped by over 50 percent. The Dutch auction has been operating below capacity and eventually closed resulting in some farms suspending the shipping of flowers due to the uncertainty in the market. In Kenya, perishable exports nosedived following last-minute flight cancellations after the produce has been packaged and awaiting to get loaded onto cargo planes. At one instance, 10 tonnes of fresh export flowers decayed due to these cancellations resulting in a loss of approximately $120,000. Farmers have therefore begun disposing of flowers worth millions of dollars while workers are being sent home either on leave or being made redundant. Export flowers are amongst Kenya's leading foreign exchange earners and the impact of these cancellations will be felt to the exchequer. Dr. Joy Kiiru, an economist at the University of Nairobi summarises the resulting crisis as a disruption in the global supply chain affecting several sectors compounded by globalisation and interdependence of economies.
Shipping from China to Kenya has reduced drastically, with over 37 vessels being cancelled while others reported blank arrivals at the Port of Mombasa. These cancellations affected the cargo throughputs at the Kenya Ports Authority (KPA) and subsequently, the supply chain with the standard gauge railway (SGR), which hauls cargo from port to the inland container depot (ICD). This situation has been described as the worst in KPA history, a reflection of Kenya's over-reliance on China imports which accounts for an average of 40 percent of the total port imports. The subsequent impact of these cancellations is a decline in cargo handled at the port as well as a decline in revenue collection by the customs authority. The SGR, a major infrastructure project in Kenya is yet to settle its loan to the Chinese government that is envisaged to be generated by the income collected via SGR from the Mombasa port and ICD business. This deferral by the Covid-19 is unwelcome and will jeopardise the Kenyan government's ability to pay the loan.
The manufacturing sector has been negatively affected due to its reliance on Asian countries, as the source of most intermediate inputs for manufacturing. As the epicenter of the Covid -19 outbreak, China's factories have been shut down and workers are placed on quarantine to contain the spread of the virus. Subsequently, countries that relied on China for exports of inputs are now operating on low inventory or paralysed altogether due to lack of inputs to support local production. Reliance on Chinese expertise in the manufacturing sector has also been affected by travel restrictions, thus stalling production, pending an uplift of the same. As the world's manufacturing capital, it is indeed true that when China sneezes, the world catches a cold.
Intra Africa trade has also taken a hit due to the closure of borders amongst neighbouring countries. Uganda closed its border, which borders Kenya after its first case of the Covid-19 was announced. The move left commuters and truck drivers stranded as the announcement of the closure left most users flat-footed. It is important to note that Uganda is Kenya's biggest trading partner in the East Africa Community (EAC). According to Kenya's Economic Survey 2019, the value of imports from Uganda to Kenya rose to approximately $480 million in 2018, on account of increased imports of maize, animal feeds, milk, and sugar. The border closures will hamper the flow of trade resulting in low revenues and volumes on goods traded. Other countries that have adopted similar stances to safeguard and control its public are Kenya, Rwanda, Nigeria which closed its airports to all incoming international flights while Tunisia imposed a lockdown.
Alexandre de Juniac, IATA's director general and CEO aptly states, "Today, as we fight a global health war against Covid-19, governments must take urgent action to facilitate air cargo. Keeping cargo flowing will save lives," The impact of the Covid-19 continues to be felt across global markets and the aftershocks will be felt into the foreseeable future. The pandemic has now more than ever highlighted the trade interdependence amongst countries and questioned the strengths and weaknesses of markets traditionally referred to as superpowers in the face of a crisis of this nature. It also highlights the critical role logistics entities play in the restoration of markets and trade through the provision of relief supplies such as medical supplies, pharmaceuticals, PPEs and in worst-hit areas - relief food.
The Covid-19 pandemic has reaffirmed the critical role that efficient supply chains play in resolving global crises such as these and the restoration of trade and economies.