he world is today grappling with the Corona Virus (COVID-19) that has unprecedentedly disrupted global supply chain as it continues to snuff out life of thousands across the world. The disease has affected the global market patterns that have evolved over the years significantly, more than ever highlighting the trade interdependence amongst the countries.
It has also put into question the strengths and weakness, in times of crisis of this nature, of markets traditionally referred to us as the superpowers, which are today seeking means to tackle the huge toll the disease has visited upon them.
Having initially began in Wuhan, a Port City in China, the COVID -19 has today rapidly spread to other parts of the world paralyzing economies and trade in a manner that was completely unforeseen when the first case was reported in December last year.
As a response to contain this highly infectious disease, almost all the countries in the world have taken stringent measures to contain new spread, measures that have come with far reaching economic consequences.
In Africa, just like in the rest of the developed countries where the pandemic first spread to, countries have closed border points, cancelled international flights, announced lock downs, done quarantine and curfews to encourage social distancing. All these measures have diminished the movements of people and goods, with serious cost on many global economies and stock markets that are now at the brink of collapse.
Thus, transport and logistics sector is one of the major victims of the COVID-19 with ripple down effects on the other vital sectors. The industry, which is basically involved in shifting cargo to various locations drives sectors such as manufacturing, agriculture, aid and relief, construction, education just to name a few.
An International Air Transport Association (IATA) recent report offers a good picture of the ongoing crisis. In Africa, aviation sector supports 6.2 million people, which translates to a 2.6% of the continent’s GDP. However, since January this year, over 185,000 pax have cancelled flights, which has also affected delivery of certain essentials. Airfreight sector primarily carries pharmaceuticals, chemicals, flowers, vegetables and fruits among others.
For instance, flower exports to key markets such as the European Union (EU) have dropped by over 50% due to depressed economies as result of the COVID-19. After operating below capacity, the Dutch auction eventually closed doors resulting to some farms suspending shipping of flowers to Europe in what they considered uncertain market.
In Kenya, last minute cancellation of international flights with already packaged produce in place waiting loading into cargo planes led to huge losses. In one instance, 10 tons of fresh export flowers decayed due such cancellations leading to a loss of approximately USD 120,000.
Flower farmers are now disposing their produce worth millions of dollars due to lack of markets that has also led to massive job losses. Being one of the leading foreign earners, Kenya’s Exchequer has started experiencing foreign exchange earnings shortfall due to this diminishing global flower market.
Dr. Joy Kiiru, an economist at the University of Nairobi summarizes this crisis as a disruption in the global supply chain affecting several sectors and compounded by globalization and interdependence of economies.
Another example of the impact of the constrained movement of the goods in the wake of global interdependence is shipment of goods to Kenya. For instance, shipping from China to Kenya has reduced drastically with over 37 vessels cancelling calling at the Port of Mombasa, the gateway to East and Central Africa, in the recent past. This situation has been described as the worst in KPA history, a reflection of Kenya’s over-reliance on China imports, which average 40% of the total port imports.
The Kenya’s manufacturing sector relies heavily on Asian countries as the source of most intermediate inputs for processing. As the epicenter of the COVID -19 outbreak, most of the China’s factories have been shut down and workers placed on quarantine to contain the spread of the virus.
In the same vein, countries which relied on China for exports of inputs needed for manufacturing are now operating on low inventory having also paralyzed the importing factories production in China. As the world’s manufacturing capital, it is indeed true that when China sneezes, the world catches a cold.
The cancellations of ship to Kenya has affected the cargo throughput in Mombasa port, affecting the entire logistics chain. Standard Gauge Railway (SGR) line, which hauls the entire Nairobi based cargo to the Inland Container Deport (ICD) has been the biggest casualty.
The subsequent impact of these cancellations is a decline in revenue collection by the Taxman. SGR, the country’s biggest infrastructure project is yet to settle the China based Exim Bank loan used to construct the project, with Sh 32 billion repayment due this year.
Intra Africa trade has not been spared the twist. Uganda was the first to close its borders when Kenya reported its first Covid 19 case last month. It’s worth noting that Uganda is Kenya’s biggest trading partner in the East Africa Community (EAC).
Kenya’s Economic Survey of 2019 indicate that the value of imports from Uganda to Kenya rose to approximately USD 480M in 2018 on account of increased imports of maize, animal feeds, milk and sugar. The border closure, therefore, will hamper the flow of trade and affect earnings.
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 the global markets and the aftershocks will be felt for long in future. The current crisis brought about by Covid 19 pandemic highlights the critical role logistics industry will play in the restoration of markets and trade through the provision of relief supplies such as medical supplies, pharmaceuticals, Personal Protective Equipment and in worst hit areas – relief food.
The COVID-19 pandemic has reaffirmed the critical role that efficient supply chains play in resolving global crisis such as these and restoration of trade and economies. The industry will also be expected to embrace innovative ideas to remain central in global economy.
The writer is the Group Marketing & Communications Manager at Siginon Group and can be reached at Rnduta@siginon.com
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