COVID-19 has dealt a crippling blow to the world economy and Sri Lanka has also become a clobbered victim.
The OECD (Organisation for Economic Cooperation and Development) Interim Report for 2020 suggests that global growth will be down to 2.4% and could slip as low as 1.5% due to China and other major economies stumbling and supply chains being disrupted.
With our economy largely dependent on exports, the impact of this downturn would be devastating. We were also expecting tourism to contribute a significant portion of our external earnings.
The UNWTO estimates international tourist arrivals could decline by 20% to 30% or even more in 2020. This would translate into a loss of US $ 300 to 450 billion in international tourism receipts (exports), almost one third of the US$ 1.5 trillion generated globally. China, which contributed 140 million tourists in 2019, is unlikely to do so in 2020.
The World Trade Organisation expects world trade to shrink by over 30% in 2020. Unemployment around the world has reached staggering proportions. The ILO estimates that Covid-19 will wipe out 6.7% of working hours globally in the second quarter of this year, the equivalent of 195 million jobs worldwide along with it, the surplus purchasing power of customers. Forty percent of summer and autumn orders for our garments industry have been cancelled.
The enormity of Covid-19’s global disruption is clear but what could the world, especially Sri Lanka, do to meet this challenge? While there has been talk of reshaping economic fundamentals in certain quarters, there has also been push back from others.
The US, the traditional champion of more liberalised trade and open markets, has been aggressively shuttering up to protect its industries, intellectual property and domestic markets, even before Covid-19’s vengeful scythe struck. China, the main workshop of the world for the past decades and the model for State control, has continued to push aggressively for open markets.
The Europeans, who are now the weaker competitors, are edging towards more protectionism. It is difficult to see a universally satisfactory compromise emerging and the dominant economic powers designing a new world economic order where the rest of the world can also thrive. The global havoc caused by Covid 19, is stoking considerable pressure for protectionism, and self preservation and the World Trade Organization will need to prepare for more countries to capitulate under the strain, especially where states have spent billions to bail out companies. The Doha Round of Trade Talks remains deadlocked. It is likely that bilateral deals will be the preferred solution of the major economies and the rest of the world, not agile enough to adjust and adapt, might be left to pick up the crumbs in the wake of the arrangements made to facilitate the aspirations of the giants.
The US has already made arrangements with its NAFTA (North American Free Trade Agreement) partners, Canada and Mexico. Europe may also eventually agree to a bilateral settlement with the US. China has started the process in a game of brinkmanship with the US.With the rules based world trading system being unilaterally disrupted, countries such as Sri Lanka will have two options.
One is to do deals of a bilateral nature to still remain relevant in the global trading system which would also expose it to the possibility of undesirable political and other pressures. The US may press hard with its demands for a SOFA and the MCCC in order to agree to a bilateral trade deal.
We may need to look for other partners. On the other hand we could sail the uncertain waters of international trade within the existing frayed rules framework and hope for the best.
With 57% of our exports currently being sent to the US and Europe, our choices seem to be limited. While much noise has been made over the years of the need to diversify our products and markets, not much has been done in this respect. The temptation to stay in the comfort zone of the tried and tested has been our past preferred option.I would not label the current situation as the “New economic Order”. It is more like a case of “world economic disorder”.
The hope of a more liberal world economic regime envisaged by the drafters of the GATT (General Agreement on Tariff and Trade) (provisionally brought in to force through the “Protocol of Provisional Application” in 1948) and subsequently elaborated in the legally more refined WTO (World Trade Organisation, which came in to force in 1995, have been riven apart in the current climate of uncertainty and a might is right approach. The US has brought the renewal of the appeals mechanism in the WTO dispute settlement structure to a standstill. With might becoming the norm and the right, it will become more difficult for countries such as Sri Lanka to adjust to this uncertain environment.
Can Sri Lanka be more inward looking? The answer is self-evident. We produce most of our food needs or we can do so. But most other things we import whether they be the equipment needed for transport (buses, cars, trains, aircraft), IT related equipment (cellular phones, digital exchanges, desk tops, tabs), medicines, vaccines, defence needs. The list is endless.
We need to produce foreign exchange surpluses to import these. Undoubtedly, we must produce what we can domestically, especially food. For this we need to ensure the availability of water, seed material, fertiliser, especially organic, to the farmer.
The harvest needs to be collected, properly stored and distributed to the consumer. As a country, we need to scientifically refine these aspects more with better planning, training and adequate investment. But being part of the modern world requires us to be in possession of the tools of the modern world.For this we must be an integral part of the modern trading system. Sri Lanka has been part of the global trading system since time immemorial. Trade bestowed prosperity on us in the past.Many writers have opined that the magnificent cities of Anuradhapura, Polonnaruwa and Sigiriya were not produced by the surplus produced by a humble agricultural people but by an aggressive trading nation that produced the surplus wealth for the purpose. Trade attracted others and their cultures and religions to us from distant lands such as China in the East to Rome in the West.
While some might suggest retreating to within our comfort zone, logic would suggest a clever selection of our export potential and their aggressive exploitation to ensure the future prosperity of our nation and the younger generation.
The State needs to select champion industries and proactively assist in their development. We have established our world class skills in IT and software development. Technological innovation will go hand in hand with this. We must become the clever nation of the region.Our teas have a ready market and in fact prices have improved significantly in the post Covid 19 weeks. Our spices attracted global traders from the beginning of time. Our tourism potential is unmatched.
Though subject to unexpected vagaries, such as terrorism and epidemics, tourism possesses excellent potential.
Distant learning facilities and medicine (our advanced skills were amply demonstrated during the Covid-19 crisis) could be other areas that we could select to lead the charge.
The writer is a former Permanent Representative of Sri Lanka to the United Nations and a former Foreign Secretary.