The effect of Covid-19 on international trade has been surprisingly muted considering its significant effect on global output, which the IMF estimates to have fallen by 3.5% in 2020.
After anticipating a decline of up to 32% in global trade at the onset of the pandemic, the WTO now estimates that global merchandise trade has registered a 9% decline in 2020. Early on, social distancing measures that were imposed to contain the spread of the virus disrupted supply chains, but the impact was transitory.
While subsequent hikes in unemployment and business closures led to a fall of demand, this effect seems to have been dampened by a relatively greater fall of demand for services.
The most severe effects of the pandemic occurred in the second quarter of 2020 (April to May), and the pace of recovery was varied across countries. China recovered rapidly from the fall of trade and, by the third quarter of 2020, managed to register almost 10% higher export performance relative to the same quarter in 2019. Many countries are still trying to catch up with their pre-pandemic levels; for example, US export trade in the third quarter of 2020 was 13% less than it was in the same quarter of 2019.
Covid-19 and Africa’s trade performance
Recovery was equally divergent among African countries. Countries like Nigeria and Algeria saw their export revenues fall by more than half, but for a different reason. Their exports suffered from the sharp decline of oil prices to less than $20 a barrel in March 2020, which were precipitated by the combined effects of the pandemic and the Saudi-Russian oil price war. As Nigeria and Algeria generated more than 85% of their export revenues from oil, the effect on their export bills was enormous.
Interestingly, merchandise trade remained relatively intact in many non-oil producing African economies. The exports of South Africa, for example, contracted sharply in the second quarter of 2020 but bounced back to their 2019 level by the third quarter. Ethiopia’s merchandise exports showed a modest increase in all quarters.
Tanzania even achieved a 28% annual boost in exports in 2020, thanks to relatively lax lockdown measures and a 33% surge in revenues from gold exports – a major commodity that makes up more than 44% of the country’s merchandise exports.
Kenya, a major regional trade powerhouse in east Africa, witnessed a temporary 10% decline in exports in the second quarter, but this was preceded and followed by better quarterly export performance than in 2019. The effect of lockdown policies on international trade: Evidence from Kenya, a Brookings Institution working paper I recently co-authored with Majune K Socrates, sheds light on the mechanisms through which the pandemic affected international trade in Kenya.
Kenya’s trade performance
The paper examined the immediate effects of lockdown policies on Kenya’s international trade performance during the one-year period that started on July 1, 2019. It found that the introduction of lockdown measures by Kenya’s trading partners had a positive effect on exports but a negative one on imports. Weekly exports to countries that introduced lockdown measures increased by an average of 13%, while imports from those countries decreased by 23.4%.
The fall in Kenya’s imports was due to a significant disruption of sea cargo imports from countries that introduced lockdown measures, which was large enough to compensate for a significant increase in air cargo imports. This suggests a substitution from sea to air cargo trade, possibly due to the perceived safety of air cargo and cheaper fares from airlines that faced a collapse in passenger traffic.
Kenya’s weekly import and export of food commodities increased in response to the lockdown measures, by an average of 31% and 21%, respectively. The increase in food imports contrasts with a sharper decline in non-food imports, and most likely reflects the low income elasticity of food commodities, which remained in demand in spite of negative (anticipated) income shocks.
The bottom line
Apart from major oil producers, most large African countries seem to have dodged a severe disruption of international trade due to the pandemic. Merchandise trade has held out thanks to a healthy demand for food exports and the availability of cheap cargo transport to supplement disruptions in sea cargo trade. Kenya’s experience suggests that the negative effects of the pandemic were confined to imports, which slumped in the face of trade disruptions and a fall of domestic demand.
Addisu Lashitew is a David Rubenstein research fellow at the Global Development and Economy programme of the Brookings Institution. He can be reached at [email protected]