It is clear that developing countries have very lucrative opportunities in the field of trade in the coming post-COVID-19 world.
Saying that the COVID-19 pandemic has shocked the global economy would be a great understatement. According to the World Bank, the pandemic will likely send the economies of most countries into a recession. With advanced economies predicted to shrink by 7% while developing economies are estimated to diminish by 2.5%. These projections are concerning for the health of the global economy, as times of recession are likely to reduce confidence in trade. The increasing interconnectedness of countries due to globalisation has consequently made the global economy increasingly important for most countries around the world.
However, all is not lost, the aftermath of this pandemic may prove to provide developing countries with unique opportunities in the field of international trade. The first of these is the ability to reset their economy. A clean restructuring of an economy is a very expensive task and tends to damage the economy. With the COVID-19 pandemic however, economic losses are unavoidable making the current time perfect for developing nations to improve their production bases. The second opportunity is the increasing investment in communications technology. Social distancing has become a norm for many individuals living in lockdown. This has led to an increasing investment in communication as people are realising the importance of modern communication technologies. Fortunately, communications is a very important aspect of trade and improved communications could drastically enhance trade transactions. Finally, China’s dwindling reputation in the international sphere especially after the COVID-19 outbreak, can be a huge opportunity for other developing countries to become a substitute to China. This in tandem with the previously discussed opportunities, can seriously give developing countries improved quality and presence in international trade.
These opportunities are starting to slowly reveal themselves in developing countries. In order to explore this further, the countries of South Africa, Brazil and Vietnam will be looked at to see the different responses developing countries are having to these new developments.
South Africa at the writing of this has had 118,000 confirmed cases of COVID-19. This was responded to with very strict lockdown procedures. Almost all movement outside was banned, with additional bans on cigarettes and alcohol.
This has led to South Africa being in circumstances where an economic revamp would be most effective and relatively less damaging when compared to pre-COVID times. The South African President has even realised this opportunity, stating that “COVID-19 is going to give us greater capacity and capability to reset, reposition and even repurpose our state-owned enterprises.” He further explained his plans by stating that the economy should be geared to address poverty and create jobs in South Africa. Revealing that South Africa will likely act on these opportunities, which in turn will allow them to create jobs that will ultimately aid South Africa’s production base.
Their communications technology has steadily been improving throughout the last decade, with revenue increasing by 3.6% in telecommunications and by 3.8% in broadcasting, showing slow but steady growth. This is likely to increase as the COVID-19 pandemic has made it clear that communications technology has to be well developed in the modern world. Therefore, investment in South African telecom companies such as Telkom and Cell C is likely to increase.
Finally, China’s declining reputation is an opportunity South Africa has the ability to capitalise on. Both countries don’t have many exports in common. South Africa tends to focus on exporting raw materials, while China is more focused on exporting finished products. For example, one of China’s biggest exports is computers at 5.69% of total exports. While gold is one of South Africa’s biggest exports at 15.5% of total exports. Computers use many of the raw materials South Africa exports, especially gold. Which could be a potential product they could produce that could also provide an alternative option to China.
Brazil as of writing this paper has had 1.32 million cases of COVID-19. Their lockdown measures were just as strict as South Africa’s, because of this their economy has similarly taken a massive hit. This has consequently also put in place conditions that would be very suitable for an economic reset.
Brazil’s measures in reviving their economy comes in the form of a stimulus package of 150 billion U.S dollars closed by the Ministry of Economy and the Central Bank. It is being used to support the Brazilian economy and as stated by an advisory firm KPMG, is used to expand liquidity in markets, which will revitalise the Brazillian economy. Revealing that Brazil hasn’t realised the opportunities in resetting their economy. For example, currently Brazil is the second biggest food producer in the world, with 60% of its territory being devoted to it. However, their natural resource and renewable energy industries have potential for growth but aren’t being adequately supported. If funding could be put towards their growing industries, they could revamp their economy by diversifying their production.
Brazil currently also has one of the biggest telecommunications markets in Latin America, specifically when looking at the mobile network and broadband markets. Their IT industry grew by 10% in 2018 and is likely to grow at a faster rate. Brazil’s communications sector could grow potentially even faster than South Africa’s because of the severity of the pandemic in Brazil, which would make the need for modernised communication even more apparent. Telecom companies such as Oi and Telefonica would definitely be good options for funding.
China and Brazil share few similar exports however, Brazil still has the opportunity to become an alternate supplier for certain products. For example, one of Brazil’s biggest exports is crude petroleum as it took up 10% of their total exports in 2018. While China’s biggest import is crude petroleum at 12.9% of total imports. China refines this petroleum and exports it, with it taking up 1.4% of their total exports. Their biggest markets for this petroleum are in the American and Asian region. Brazil could invest in refineries allowing them to refine their own crude petroleum and become a new alternative source of refined petroleum to those regions.
Vietnam has had a relatively small number of COVID-19 cases. This is likely due to their government taking strict measures in preventing the spread of the virus. This has caused Vietnam’s economy to be negatively impacted, according to the World Bank, Vietnam’s economic growth is projected to slow down 3 to 4 percent.
Vietnam just like South Africa is aware of the opportunity to reset their economy. One of the biggest improvements they want to make is in infrastructure. With their relatively low cases of COVID-19, the Vietnamese government was able to quickly get back to infrastructure improvement which would reportedly allow domestic firms to better integrate into the global value chain. However unlike South Africa, work has already begun on this reset. Work on metro lines and expressways are currently underway, which if completed would improve supply chains and employment levels. This is because goods and people will be able to be transported at a greater capacity and efficiency.
Vietnam’s communications industry has a lot of potential to grow. In 2019, the telecommunications industry in Vietnam made 20.2 billion US dollars in revenue. Which was a 19% increase when compared to 2018. This industry is likely to grow even more in the coming years because of how well good communication technology can complement a growing production base, rather than because of the severity of COVID-19 forcing non-contact communication.
In terms of exports, Vietnam has many common export products with China, so much so that they could potentially even replace China. For example, both nation’s biggest exports are broadcasting equipment, with it taking up 8.64% of China’s total exports and 15.6% of Vietnam’s total exports. With China’s deteriorating reputation, it is very likely that Vietnam could become the top exporter of broadcasting equipment to developed countries. In previous years certain manufacturers wanted to switch to Vietnam for imports over China, but quickly found out that Vietnam’s production base was very small. David Dodwell, the executive director of the Hong Kong-Apec Trade Policy Group stated that Vietnam’s smaller GDP and workforce were huge disadvantages that would make it difficult for manufacturers to make the swap to Vietnam. With improvements being made in infrastructure, Vietnam might be able to bring up their production capabilities in order to become a more appealing option.
In conclusion, it is clear that developing countries have very lucrative opportunities in the field of trade in the coming post-COVID-19 world. Be it the chance to reset their economy, improve communications or capitalise on China’s deteriorating reputation. While discussing the cases of South Africa, Brazil and Vietnam it is clear that not all developing countries are the same. Hence, they are reacting to these opportunities differently. South Africa and Vietnam seem to be heading in a direction of capitalising on these opportunities, while Brazil has yet to act on them. Nonetheless, these opportunities will likely be realised by more developing countries in the coming months, which will help their presence in international trade tremendously in a post-COVID world.
Rishabh Kumar is an intern at ORF
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