Trade Insight Vol

Climate change Intellectual property Blue economy SAARCFINANCE Economics Regd. No. 208/070/071 (Kathmandu) Regional AdvisoryBoard Dr. DebapriyaBhattacharya Tel: +977-1-4424360/4444438 South AsiaWatchonTrade, Baluwatar, Kathmandu, Nepal E-mail: [email protected] cover &Illustration Dr. AbidQaiyumSuleri Dr. DushniWeerakoon Dr. PoshRajPandey Web: www.sawtee.org Fax: +977-1-4444570 Associate Editor Dr. PuspaSharma Assistant Editor Bipendra Ghimire Editor-IN-Chief

and Dr. VeenaJha Abin Shrestha P.O. Box: 19366 Dikshya Singh Published y Kshitiz Dahal Tukucha Marg Bangladesh Sri Lanka Pakistan Design

Nepal Environment India

(SAWTEE)

editors’ note further deterioratingtheprospectsofaquickrecovery. regarding theremissionofviralspreadhashitconsumersentiments, supply- anddemand-shockshaveledtojoblosses,theuncertainty strict curfew-likelockdownsimposedbysomecountries.Theresultant were lockedintheirhomesdueto‘shelter-at-place’instructionsand pecially fromMarchtoMay,ahugenumberofpeopleacrosstheglobe and shopfloorstoshutdown,arrestedmovementofpeople.Es adopted tocontainthespreadofcoronavirushaveforcedfactories 2019, thediseasehasspreadto216countriesandterritories.Measures the firstsightingofdiseaseinChina’sHubeiprovince,December THE COVID-19pandemichaslefttheglobaleconomyintatters.Since economic future Uncertain that thecorearguments remainintact. has beenpublished.Wehope ourreaderswillneverthelessappreciate tion presentedinthearticlesmay havechangedbythetimethisissue spread, economicforecastsand resultingresponses,dataandinforma by whichLDCscanturnthepresent crisisintoanopportunity. countries inSouthAsia.Asthe coverarticleargues,therearealsoways and responsivemitigationmechanismsadoptedbydifferent LDCsand in thisissueofTradeInsightprovideinsightsintothecurrentsituation extent towhichthesemeasureswillhelpacceleraterecovery. Thearticles there arequestionsregardingtheefficacyofthesemeasures, andalsothe tions ofLDCsandSouthAsiancountriestheloominguncertainty, relief toaffectedbusinesses.However,consideringthetight fiscalposi targeted atsustaininghouseholdsinneedandprovidingshort-term nounced stringsofreliefmeasuresandeconomicstimulus packages exchange resourcesinmanyLDCsandSouthAsiancountries. workers toreturntheirhomecountries,thusdryingupvital foreign global economicslowdownishighlylikelytoforceinternationalmigrant push 16millionpeopleinSouthAsiaintoextremepoverty.Moreover,a tute forDevelopmentEconomicsResearch,theCOVID-19pandemicwill pandemic. AsestimatedbytheUnitedNationsUniversityWorldInsti Asian countriesareparticularlyvulnerabletotheeconomicfalloutof informal works,andinsufficientsocialprotection,LDCsSouth arrested manufacturinggrowth,overdependenceonagricultureand pushing millionsinthesecountriesintofinancialvulnerability. their majorexportssuchasgarments,andstemmedremittanceincome, by thepandemic,externalshockshavedrieduptourismrevenue,hurt the economiccontraction.Besidesdomesticwoesbrought tries inSouthAsia,amongothers,aregoingtobeseverelyaffectedby decades inreducingextremepovertytheworld,accordingtoIMF. larly affectlow-incomehouseholds,wipingoutprogressmadeovertwo estimate to-4.9percentinJune.Theeconomiccontractionwillparticu- global economytocontractby3percentinAprilhasdowngradedthe for 2020.TheInternationalMonetaryFund(IMF)thathadforecastedthe Economic forecastagencieshavepredictedableakeconomicscenario infections undercontrol,arestaringintothesecondwaveofinfections. million. Worse,manycountries,includingChina,whichhadbroughtthe ID-19 crossed10million,whilefatalitieshavebeenmorethanhalfa As oftheendJune,totalnumberpeopleinfectedbyCOV Finally, asanoteofcaution,given theprogressioninpandemic To respondtothepossibleeconomicfallout,countrieshave an Considering, interalia,highpovertyratesandunequalsocieties, The world’sleast-developedcountries(LDCs)anddevelopingcoun n ------Trade Insight Vol. 16, No. 1-2, 2020 Content Investment prospects turn bleak Mitigating Economic Report, 8 Vulnerability COVID-19 pandemic and impact on LDCs of COVID-19 on Report, 9

least-developed countries Negotiating the climate What’s next after COVID-19 Imran Saqib Khalid, 40-42

Ratnakar Adhikari 10-15

Climate change challenges Afghanistan for Sri Lanka’s blue economy Bangladesh Athula Senaratne, 43-45 Bhutan India covid–19 Nepal Governance of intellectual Pakistan property over plant varieties: country Sri Lanka Time has come for perspective Asia to revisit its unique approach Shoaib A. Rahim, 16-18; Fahmida Khatun, 19-21; Om Bhandari, 22-24; Rajesh Chadha, 25-28; Paras Kharel, 29-32; Mobeen Ali Khan and Vaqar Kamalesh Adhikari, 46-49 Ahmed, 33-35; Ganeshan Wignaraja and Angela Hüttemann, 36-39 Knowledge platform Economic policy Book review cooperation in SAARC: India looks East for prosperity in the news, 4-7 A primer on SAARCFINANCE Arvind Kumar, 52 network news, 53-54 Kshitiz Dahal, 50

Member institutions of SAWTEE BANGLADESH 1. Bangladesh Environmental Lawyers’ Association (BELA), Dhaka; 2. Unnayan Shamannay, Dhaka; INDIA 1. Citizen consumer and civic Action Group (CAG), Chennai; 2. Consumer Unity & Trust Society (CUTS), Jaipur; 3. Development Research and Action Group (DRAG), New Delhi; NEPAL 1. Society for Legal and Environmental Analysis and Development Research (LEADERS), Kathmandu; 2. Forum for Protection of Public Interest (Pro Public), Kathmandu; PAKISTAN 1. Journalists for Democracy and Human Rights (JDHR), Islamabad; 2. Sustainable Development Policy Institute (SDPI), Islamabad; SRI LANKA 1. Institute of Policy Studies (IPS), Colombo; 2. Law & Society Trust (LST), Colombo Views expressed in Trade Insight are of the authors and do not necessarily reflect the official position of SAWTEE or its member institutions. in the news

EU’s GSP+ to Sri Lanka India’s e-commerce to continue till 2023

The European Union’s (EU) market set to surpass Generalised Scheme of Pref- erences plus tax concessions US$91bn in 2023 to Sri Lanka will continue till 2023, Sri Lanka’s minister of industry, export, investment pro- The overall transaction value of the e-commerce can be attributed to the motion, tourism and aviation Indian e-commerce market is pro- benefits offered by online retailers said after meeting Thorsten jected to grow from INR3.4 trillion such as discounts, cash-back and Bargfrede, head of political, (US$49 billion) in 2019 to INR6.3 loyalty points on purchases. Annual trade and communications at trillion (US$91 billion) in 2023. online sale festivals such as ‘Flipkart the Delegation of the EU to Sri The data and analytics compa- Big Billion Days’ and ‘Amazon Great Lanka and the Maldives. ny GlobalData’s latest report India Indian Sale’ too have resulted in the Sixty percent of Sri Lan- Cards & Payments: Opportunities and exponential growth of e-commerce ka’s garment exports go to Risks to 2023 states that the growth sales. EU member countries. The in the e-commerce market has been Retailers are also extending their garments industry represents supported by rising Internet penetra- product lines to further penetrate about 43 percent of the coun- tion rates, benefits such as discounts, into the market. In May 2019, Flip- try’s exports and earns around faster delivery options offered by kart launched online grocery store US$5 billion to the country an- e-retailers and the rising consumer ‘Supermart’, extending its presence nually, the minister said. (www. preference for online shopping. from fast-moving consumer goods fibre2fashion.com/, 22.01.2020)n With Indians being increasing- to groceries. (www.bmmagazine.co.uk/, ly price-sensitive, the growth of 23.01.2020) n

Locusts invade COVID-ridden South Asia

Massive swarms of locusts have Wikimedia Commons invaded Pakistan and India just when these South Asian countries are battling the complica- tions of the COVID-19 pandemic. The locust invasion has the potential to devastate vast, almost unimaginable, acres of agricultural crops. The locusts have already destroyed more than 123,000 acres of crops in India. Pakistan has declared a national emergency. The mass destruction of fruit and vegetable crops in the region Rajasthan and Maharashtra face the will affect the country’s domi- will further diminish access to potential of being the hardest-hit in nant textile industry with wage food for the masses who desper- this first wave of locusts. These states earners losing jobs, disrupting ately need to be fed. The crop provide nearly 40 percent of India’s the supply chain from farm to destruction will further increase agricultural production, equivalent market, and inflated pricing of the economic stress. to approximately 80 million tons. finished goods as a result of short The Indian states of Madhya Portions of Pakistan’s cotton crop supply. (https://missionsbox.org/. Pradesh, Uttar Pradesh, Gujarat, have already been consumed. This 15.06.2020) n

4 Trade Insight Vol. 16, No. 1-2, 2020 China’s uneven economic Pakistan recovery continued in April begins

Needpix Afghan transit trade via Gwadar port

Pakistan on 29 May opera- tionalized the Gwadar port for Afghan transit trade, with the first-ever cargo ship berthing at the seaport to mark the beginning of a new era of trade via sea route from Gwadar to Afghanistan. In a series of tweets, Advis- er to Pakistan’s Prime Minister on Commerce and Investment Abdul Razak Dawood shared that a ship carrying 16,000 met- ric tonnes of urea and fertilizer for Afghanistan has arrived in Gwadar. China’s industrial economy collapse in spending in the first According to ministry bounced back strongly in April after quarter. It was worse than analysts’ officials, imported urea that the first quarterly contraction in histo- forecasts of a 6 percent drop. arrived at Gwadar would be ry, but retail and investment remained Investment in the manufacturing bagged at the port and later weak, as demand concerns persisted. sector fell by 18.8 percent over the first would be sent to Afghanistan Across the board, monthly data four months of the year, with infra- in trucks under the Afghan- was improved from March, with structure investment down 11.8 per- istan-Pakistan Transit Trade industrial production, retail sales, cent and property down 3.3 percent. Agreement-2010 (APTTA). fixed asset investment, all kicking on. The surveyed jobless rate was 6 Apart from fertilizers, However, with weak demand at home percent in April, up from 5.9 percent Afghanistan would also be and abroad, China’s efforts to get the in March but better than the all-time granted permission for the economy back to full speed are likely high of 6.2 percent in February. How- transit trade of sugar and to remain slow, analysts have said. ever, while this is an indicator of the wheat from Gwadar, whereas Industrial production, a measure- unemployment rate in a certain seg- only those trucks carrying fully ment of output in China’s manufactur- ment of the economy, it is not viewed sealed consignments would be ing, mining and utilities sectors, grew as an accurate depiction of the overall allowed to go to the neighbour- by 3.9 percent from a year earlier, employment situation. ing country. following a 1.1 percent contraction in And while industrial production Earlier, Pakistani govern- March. This was much better than the has bounced back reasonably strong- ment had granted a special per- median result of a Bloomberg poll of ly, producer prices have fallen to mission to resume the handling analysts, which predicted 1.5 percent a four-year low, suggesting manu- of Afghan cargo at Gwadar growth. facturers are unable to charge what port under the APTTA to help Retail sales, a gauge of consumer they would like for the products they early clearance and quicker spending in the world’s most popu- make. transportation of sugar, wheat, lous nation, fell by 7.5 percent com- Most businesses have reopened, and fertilizer to Afghanistan. pared to April 2019. This was much according to various trackers, but ca- (profit.pakistantoday.com.pk/, improved on March’s 15.8 percent pacity issues persist. (www.scmp.com/, 29.05.2020) n drop, which helped drive a 19 percent 15.05.2020) n

Trade Insight Vol. 16, No. 1-2, 2020 5 in the news

EU and 15 WTO members establish contingency appeal arrangement for trade disputes

The EU and 15 other members Wikimedia Commons of the World Trade Organization (WTO) have decided on an arrangement that will allow them to bring appeals and solve trade disputes among them despite the current paralysis of the WTO Appellate Body. This is a stop-gap measure to reflect the temporary paralysis of the WTO’s appeal function for trade disputes. WTO will continue its efforts to restore the appeal function of the WTO dispute settlement system as a matter of priority. The Multiparty Interim Appeal Arbitration Arrangement mirrors Costa Rica, the EU, Guatemala, the multilateral trading system the usual WTO appeal rules and can Hong Kong, Mexico, New Zealand, based on rules. be used between any members of Norway, Singapore, Switzerland, The Multiparty Interim Ap- the Organization willing to join, as and Uruguay—attach to a func- peal Arbitration Arrangement is long as the WTO Appellate Body is tioning two-step dispute settle- expected to be officially notified not fully functional. ment system at the WTO. Such to the WTO in the coming weeks, The agreement underscores the a system guarantees that trade once the respective WTO Members importance that the participating disputes can be resolved through complete their internal procedures, WTO members—Australia, Brazil, an impartial and independent after which it will become opera- Canada, China, Chile, Colombia, adjudication, which is essential for tional. (ec.europa.eu/, 27.03.2020) n

Global economy will take US$12tn hit from coronavirus, says IMF

The International Monetary Fund it now expected the global economy It said the forecasts were (IMF) has said the global econo- to contract by 4.9 percent this year, subject to an even greater than my will take a US$12 trillion hit compared with a 3 percent drop usual amount of uncertainty from the COVID-19 pandemic expected in the spring of 2020. and were based on some key as- after slashing its already gloomy The IMF said the coronavirus sumptions about the fallout from growth projections for the UK and pandemic had been more negative the pandemic: physical distanc- other developed countries in 2020. for activity in the first half of 2020 ing persisting into the second The IMF said it would take two than expected, and recovery was also half of 2020, long-term scarring years for world output to return to projected to be slower. The revised from the larger than anticipated end-2019 levels and warned that World Economic Outlook said the lock- damage caused by the lockdown governments should be cautious down had dealt a “catastrophic hit” and a hit to productivity as about removing financial support to the global labour market, adding surviving businesses ramped up to their fragile economies. that rising share prices were out of workplace safety and hygiene In an update to forecasts kilter with the deepest recession of practices. (www.theguardian.com/, published in April, the IMF said the postwar era. 24.06.2020) n

6 Trade Insight Vol. 16, No. 1-2, 2020 WTO sees “ugly” China provides trade plunge, tariff exemption for likely worse than exports from Bangladesh financial crisis

The World Trade Organization China has provided a trade products that would be exempt- forecast that goods trade would boost to Bangladesh by an- ed from tariff. shrink more steeply this year nouncing tariff exemption for 97 Currently, 3,095 Bangla- than in the global financial crisis percent of Bangladeshi products deshi products enjoy duty-free a decade ago before rebound- effective from 1 July. access to Chinese market under ing in 2021 as the COVID-19 The decision has come one the Asia-Pacific Trade Agree- pandemic recedes if countries month after Bangladeshi Prime ment (APTA). With the new worked together. Minister Sheikh Hasina and announcement, 97 percent of The WTO said global trade Chinese President Xi Jinping Bangladeshi products will join would fall this year by between held a discussion to upgrade this zero-tariff club that raised 13 percent and 32 percent, their bilateral relations during the number of Bangladeshi giving a wide range because the COVID-19 pandemic. products with zero duty access so much about the economic The Ministry of Foreign Af- to Chinese market to 8,256. impact of the health crisis was fairs of Bangladesh announced China’s tariff exemption is uncertain. on 19 June that 97 percent of expected to help Bangladesh “These numbers are ugly – items would be exempted from cushion the economic impact there is no getting around that,” Chinese tariffs. Thus, a total of of the COVID-19 pandemic. WTO Director-General Roberto 8,256 Bangladeshi products will (https://economictimes.indiatimes. Azevedo said in a statement. come under the 97 percent of com/, 20.06.2020) n Keeping markets open and predictable, he said, would be critical to spurring renewed investment. Countries working together would see a faster recovery than if each country Record global CO2 concentrations acted alone. The Geneva-based WTO despite COVID-19 crisis said that for 2021 it was fore- casting a rebound in global Despite reports of localized air These results may come as a goods trade of between 21 per- quality improvements as the world surprise to those who optimisti- cent and 24 percent, depending has locked down to combat the coro- cally assume that COVID-19 will largely on the duration of the navirus pandemic, the most recent reduce total global emissions. coronavirus outbreak and the data from the United States National While it is true that vehicular effectiveness of policy respons- Oceanic and Atmospheric Associa- movement, air traffic, as well as es. tion (NOAA) shows global carbon industrial activity has reduced The WTO also confirmed dioxide (CO2) levels rising sharply. sharply in most parts of the world that 2019 had ended on a In April 2020 the average con- since January 2020, this is not the sombre note, with a 0.1 percent centration of CO2 in the atmosphere case with our electricity supply: decline in goods trade, weighed was 416.21 parts per million (ppm), 64 percent of the global electricity down by trade tensions, notably the highest since measurements energy mix comes from fossil between the US and China, and began in Hawaii in 1958. fuels (coal: 38 percent, gas: 23 an economic slowdown. The United Nations Environ- percent, oil: 3 percent), according In October, the WTO fore- ment Programme’s (UNEP) World to the World Energy Outlook cast trade growth would grow Environment Situation Room shows 2019. Heating systems have been 2.7 percent in 2020 after expand- a sharp increase in CO2 concentra- functioning as before COVID-19. ing 1.2 percent in 2019. (www. tions of more than 100 ppm since (https://www.unenvironment.org/, reuters.com/, 08.04.2020) n March 1958. 11.05.2020) n

Trade Insight Vol. 16, No. 1-2, 2020 7 report

Investment prospects turn bleak

Foreign direct investment (FDI) multinational enterprises to postpone landing in four possible trajectories: to developing economies in Asia investment plans. reshoring, diversification, regionali- is projected to decline by up to The COVID-19 pandemic under- zation and replication. 45 percent in 2020, according to scored the vulnerability of supply The transformation of interna- United Nations Conference on chains and the significance of the role tional production in the post-pan- Trade and Development’s (UNC- of China and other Asian economies demic era will bring both challenges TAD)World Investment Report as global production hubs. and opportunities for policymakers. 2020. This year’s World Investment The main challenges in the new Global FDI flows are forecast Report describes three key technology era of international production to decrease by up to 40 percent trends of the new industrial revolu- are likely to involve increased in 2020, from their 2019 value of tion (NIR) that will shape interna- divestment, relocations, investment US$1.54 trillion. This would bring tional production: robotics-enabled diversion and a shrinking pool of FDI below US$1 trillion for the automation, enhanced supply chain efficiency-seeking investment, im- first time since 2005. FDI is pro- digitalization and additive manufac- plying tougher competition for FDI. jected to decrease by a further 5 to turing. However, the pace and extent Changes in the locational determi- 10 percent in 2021 and to initiate of new technological adoption will nants of investment will negatively a recovery in 2022. A rebound in partly depend on the policy envi- affect developing countries’ ability 2022, with FDI reverting to the ronment for trade and investment, to attract multi-national enter- pre-pandemic underlying trend, which is trending towards more prise operations. In contrast, new is possible, but only at the upper opportunities are likely to arise due bound of expectations. to investors looking to diversify FDI flows to South Asia, in supply bases to enhance production 2019, increased by 10 percent Recovery will depend resilience. to US$57 billion. The rise was on policymakers Shorter value chains leading to driven largely by a 20 percent distributed manufacturing of final increase in investment in India, safeguarding a trade goods and digital platforms can en- the largest South Asian FDI re- and investment policy able new applications and services cipient, to US$51 billion. Most of environment. as well as improve bottom-up ac- the investments in India went to cess to global value chains. Longer information and communication term, supply chain resilience is technology (ICT) and construction crucial for economic growth and industries. Flows to Bangladesh interventionism, rising protectionism job creation, and for the develop- fell by 56 percent to about US$2 and a shift to regional and bilateral ment prospects of low-income and billion, reflecting an adjustment frameworks. They will also depend vulnerable countries. from a record-high level in 2018. on sustainability concerns, including Recovery will depend on In Pakistan, FDI recovered, grow- differences between countries and policymakers safeguarding a trade ing 28 percent to US$2 billion regions on emission targets and en- and investment policy environment after a 30 percent fall in 2018. vironmental, social and governance favouring a gradual adjustment of The outlook for the rest of standards, market-driven changes in international production net- the year is bleak as lockdown products and processes, and supply works. Governments will face the measures and factory stoppages chain resilience measures. challenge of dealing with adverse impacted supply chains and fac- The effects on international pro- developments but at the same time tories’ production in Asia. Falling duction from the technology, policy have plenty of opportunities to cap- corporate earnings, a slump in and sustainability trends are mul- italize on emerging avenues. n global and regional demand and ti-faceted, and will play out differ- This is excerpted from the World Invest- economic slowdown have led ently across industries and regions, ment Report 2020.

8 Trade Insight Vol. 16, No. 1-2, 2020 COVID-19 pandemic and impact on LDCs

AMONG the COVID-19 pandemic’s which makes them even more vul- by about 20 percent in 2020, the far-reaching consequences for the nerable to COVID-19-related decline sharpest decline in recent history. global economy, the least-devel- in demand in these markets. The top Remittances represent an impor- oped countries (LDCs) face the destination markets for LDCs in- tant source of foreign exchange most daunting challenges. The clude those that are among the worst earnings for South Asian LDCs pandemic threatens to derail hard- affected by the outbreak (i.e. China, such as Bangladesh and Nepal, to won development gains in LDCs, France, Germany, India, Italy, Spain, which countries migrant workers according to the latest publication the UK and the US). are reportedly being repatriated of the World Trade Organization. The COVID-19 pandemic is also due to crisis conditions in host A lack of resources to support likely to hit severely those LDCs countries. an economic rebound is compound- dependent on travel services. The Manufacturing LDC exported by LDCs’ dependence on a lim- travel sector accounted for close ers (e.g. of textiles and clothing ited range of products exported to to half (48.3 percent) of total LDC products) are likely to experience a a few markets, some of which have commercial services exports in significant fall in export revenues been those worst affected by the 2019, compared to only 24 percent in 2020. For instance, according to COVID-19 outbreak. The ongoing for world services exports. Travel the export promotion agency of pandemic may affect the near-term exports account for a predominant the Government of Bangladesh, prospects for some countries to share of services exports for several the country’s exports registered graduate from LDC status. Angola an 83 percent decline in April 2020 and Vanuatu, which are scheduled compared to April 2019. Report- to graduate soon, and LDCs such as edly, Bangladesh and Cambodia Bangladesh, which are on the path The expected have received order cancellations to graduation in the next few years, downturn in trade in worth several billion US dollars. have been experiencing unavoid- Moreover, some retailers in export 2020 could be more able declines in economic growth destinations have started to file and export earnings. severe for LDCs than at for bankruptcy protection, causing The year 2020 started against the global level. significant worries to suppliers the backdrop of a subdued trade in LDCs, as existing contracts performance in 2019. The value of risk being cancelled. Agriculture LDC exports of goods and services and horticulture exports from declined by 1.6 percent in 2019, a LDCs: Nepal (93 percent), Tanza- LDCs are also being significantly greater decline than that of world nia (93 percent), Haiti (91 percent), affected. For instance, Ethiopia, the exports (1.2 percent). Consequently, Angola (87 percent), Cambodia (82 second-largest flower exporter in the share of LDCs in world exports percent), Lao People’s Democratic Africa, has lost 80 percent of the also registered a marginal decline, Republic (81 percent), Vanuatu (81 mainly European demand. falling to 0.91 percent in 2019. The percent), Zambia (81 percent) and Since the start of the pandemic, LDC share in world goods exports Timor-Leste (80 percent). at least two-thirds of LDCs have was estimated to be 0.99 percent Remittances from workers living put in place a variety of lock- in 2019, while their share in world abroad have been a major source of down measures. Some LDCs have services exports amounted to 0.68 foreign exchange earnings in LDCs, announced stimulus packages, percent. In sum, LDCs entered and have, in the past, financed a con- which have covered export-ori- the pandemic period as marginal siderable portion of their imports, ented sectors. They have also participants in world trade, and as most of the LDCs experience strengthened healthcare systems the drastic decline in global trade negative trade balance. Average re- and ensured social relief packages is likely to have a disproportion- mittances accounted for 7 percent of and liquidity support to small and ate impact on all LDC exporters. GDP in 2019 in LDCs. In April 2020, medium-sized enterprises. n Merchandise exports of LDCs are the World Bank estimated that glob- This piece is based on the WTO’s infor- concentrated in a few markets, al remittances are likely to decline mation note published on 8 June 2020.

Trade Insight Vol. 16, No. 1-2, 2020 9 cover feature

Mitigating Economic Vulnerability of COVID-19 on least-developed countries

To emerge from the COVID-19 crisis, LDCs need to focus on policy innovation, understand the virtue of partnership, and not leave recovery to sheer chances.

Ratnakar Adhikari

he least-developed countries T(LDCs), which are characterized by low levels of income and human capital as well as high level of economic vulnerability, face significant economic fallout due to the COVID-19 pandemic. Barring three South Asian LDCs (Afghanistan, Bangladesh and Nepal), which collectively account for more than 70 percent of infections, LDCs in general are not severely affected by the pandemic. But, the economic fallout emanating from a lack of institutional preparedness to handle the crisis coupled with imposition of lockdowns in these countries have been significant. Measures undertaken to fight the pandemic have created an unprecedented fiscal squeeze due to increased spending on public health and reduced revenue collections. The challenges are further compounded by demand shock, supply chain disruptions and reduced volume of trade and investment, which are likely to derail the progress made by several LDCs and the international community towards meeting several Sustainable Development Goals (SDGs).

10 Trade Insight Vol. 16, No. 1-2, 2020 Estimates of the rise in poverty in materials from China due to supply to Vanuatu’s GDP.9 Forty-five out of developing countries due to COV- chain disruptions. For example, due the 48 diagnostic trade integration ID-19 range from 420 million to one to the reduced availability of textiles studies (DTIS) of LDCs, supported by billion depending on the expected from China, Cambodia’s garment the Enhanced Integrated Framework duration of the pandemic, the extent factories, which procure 60 percent of (EIF), had prioritized tourism trade.10 of economic contraction, and more im- raw materials from China, risk idling Thus, a prolonged downturn in this portantly the amount of disposable in- 160,000 workers in the worst-case sce- sector could have a significant impact come available for people living in the nario.4 Supply shock is also manifested on LDCs’ export revenues, foreign margin of poverty.1 Thus, the target of by mandated factory closures due to exchange reserves and GDP. eradicating poverty by 2030 (SDG 1) various levels of lockdown measures Another area of services trade looks impossible, with ramifications introduced by the governments.5 in which LDCs are being affected is for other SDG indicators. However, LDCs are equally affected by in the delivery of services through there are some silver linings, particu- demand shocks as can been seen from the movement of natural persons. larly for LDCs that are either moving declining orders or even cancellation LDCs’ huge reliance on remittances fast or using the crisis to undertake of ready-to-ship orders by Western can be gleaned from the recent World strategic reforms that are not possible clothing brands, some of which have Bank data (Figure 1, Page 12).11 These during normal times and which could shuttered their outlets in the wake of receipts are not only important for create lasting positive impact. Lessons the COVID-19 crisis.6 For example, covering LDCs’ import requirements, from these LDCs are clear: with appro- according to the Bangladesh Gar- but they have also contributed to sig- priate policies, support measures and ment Manufacturers and Exporters nificant poverty reduction and human coordinated efforts, LDCs may be able Association, Bangladesh has seen its capital development in these LDCs. to weather the crisis. garment orders worth US$3.18 billion Due to COVID-19, global remittances flow is likely to reduce by 19.9 Critical areas percent, from US$714 billion in 2019 Health and social impacts of the pan- to US$572 in 2020, and low- and mid- demic are inextricably linked to eco- COVID-19 crisis seems dle-income countries (which includes nomic impact. This article focuses on to have provided LDCs) are likely to see a reduction the economic impact of the pandemic of 19.7 percent. There is already on the LDCs and possible opportuni- incentives to LDCs to evidence to suggest that migrant ties in the areas of trade, investment take steps towards workers are vulnerable to job losses and development assistance for recov- paperless trade. during times of economic crises.12 As ery and reform. demand for labour in the manufacturing sector as well as construction Trade and hospitality services decline in LDCs had witnessed reduction in their cancelled or suspended due to the host countries, relatively unskilled exports of goods and services by 1.6 closure of Western retail outlets.7 This and semi-skilled foreign workers are percent in 2019, which was higher has affected 1,150 factories and 2.28 the first ones to be laid off. Similarly, than the overall decline in global million workers in Bangladesh. Even due to travel restrictions imposed by exports of 1.2 percent. According to after a full reopening of some of these the host as well as home countries the World Trade Organization (WTO), markets, given the possibility of a for foreigners, remittance receipts in global merchandize trade is expected ‘U’ or ‘W’ shaped economic recovery the LDCs are likely to decline.13 The to shrink by 13-32 percent in 2020 rather than a ‘V’ shaped economic hardest hit regions will be Sub-Saha- due to COVID-19.2 This will have an recovery, LDC exporters may continue ran Africa (23.1 percent), followed by outsized impact on LDCs, rendering to struggle. South Asia (22.1 percent). Remittance the achievement of SDG Target 17.11 Services exports from the LDCs receipts for Bangladesh are estimated of doubling the share of LDC exports have become another casualty with to fall by 22 percent, and Nepal by 14 by 2020, which was already off-track, the travel and tourism sector being the percent in 2020.14 impossible.3 Although the June esti- worst affected. According to the Unit- Thus, LDCs are severely impacted mates of the WTO point towards a rel- ed Nations World Tourism Organiza- in the realm of goods and services atively optimistic outcome, the worst tion (UNWTO), loss of tourism exports trade due to COVID-19. However, hit would be the LDCs reliant on the revenue due to COVID-19 is likely to some LDCs are turning the crisis into export of manufactured products, like be up to US$1.2 trillion affecting up an opportunity for reform that could garments, and on the exports of fuels to 120 million jobs globally.8 A large outlive the pandemic. A couple of in- and minerals. number of LDCs are dependent on the itiatives taken by LDCs in promoting Clothing is a thriving export sector travel and tourism sector for income trade by advancing e-commerce and in many LDCs, which has mainly and employment. For example, the trade facilitation agenda are worth been impacted by a shortage of raw sector contributes up to 48 percent highlighting here.

Trade Insight Vol. 16, No. 1-2, 2020 11 cover feature

Figure 1 LDCs with highest cumulative remittance receipts (in billion US$)

Bangladesh

Nepal

Yemen

Haiti

Senegal

Myanmar

Cambodia

Democratic Republic of the Congo

Uganda

South Sudan

0 20 40 60 80 100 120 140 160 Thousands

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e

WTO. 2020. The COVID-19 Pandemic and Trade-related Developments in LDCs. (Based on The Global Knowledge Partnership on Migration and Development (KNOMAD), https://www.knomad.org/data/remittances)

E-commerce transactions have ment and provide services such as hospitality sector staff, who have lost posted growth in the COVID-19 era e-health, delivery and e-payment, their jobs, in the customer service due to heightened awareness on the have already been registered.15 departments of companies involved in importance of touchless/contactless Cambodia, where the EIF provided e-commerce businesses.16 modes of transaction. Even prior to the multiple types of support on e-com- At a micro-level, an example of a COVID-19 pandemic, many LDCs had merce, including the development of company named Thulo.com in Nepal prioritized e-commerce as a means of an e-commerce strategy, has gone a is worth highlighting here. Despite the directly connecting their firms to glob- step further. EIF Partners, namely the challenges faced during the lockdown al and regional markets and making United Nations Development Pro- period, the company managed to them competitive. In this endeavour, gramme (UNDP) and the Australian ensure healthy growth in the grocery their development partners, including Department of Foreign Affairs and segment of its business by deploying the EIF and United Nations Con- Trade (DFAT), joined hands to accel- some strategic approaches. ference on Trade and Development erate the deployment of e-commerce First, it was able to build trust (UNCTAD), helped them undertake solutions to help Cambodia contain among its customers by swiftly rapid e-trade readiness assessments. the impact of COVID-19. adopting online payment systems for Senegal, which was supported This innovative project seeks to touchless transactions, which other- by the EIF to prepare its e-com- diversify the services provided by ex- wise depended mostly on cash-on-de- merce strategy as a follow-up to the isting online marketplaces to facilitate livery mode of payment. Additionally, above-mentioned assessment, devel- business continuity for essential sec- it equipped its delivery crew with oped an e-commerce platform that tors and enable effective local retailer/ personal protective equipment so as to provides easy access to websites of consumer logistics. Two aspects of the avoid the risk of virus transmission, if small and medium-sized enterpris- projects are particularly noteworthy: any, at the time of delivery. Second, it es (SMEs) that sell essential goods. first, partnering with existing mar- joined hands with other e-commerce Recent data show that 50 SMEs, which ketplaces that have proven expertise companies to share experience in re- supply products such as foodstuffs, and experience in aggregating sellers solving their problems and collectively fresh products and household equip- and buyers; and second, employing obtained necessary support from the

12 Trade Insight Vol. 16, No. 1-2, 2020 Ministry of Industry, Commerce and enterprises by up to 40 percent, there to trade tensions, business enterprises Supplies when they encountered prob- will be a decline in reinvested earn- globally are looking for opportunities lems in goods delivery. Third, due to ings, which account for more than 50 to diversify component production the problem of sourcing in adequate percent of FDI This will surely impact and assembly. This trend is already quantities of goods due to the lock- LDCs, where major FDIs have been in visible in the case of countries such as down, it managed to swiftly deliver fuels, minerals, light manufacturing India and Vietnam. substitute products to customers and and tourism sectors, all of which are LDCs should also tap into this refund the difference, if any.17 experiencing demand and supply opportunity. LDCs, in particular, Regarding trade facilitation, limit- shocks (Figure 2).22 offer two advantages: first, they have ed trade facilitation measures, includ- Despite such a bleak prospect, an abundance of low-wage labour, ing burdensome customs formalities, the international community should and second, they get duty-free and have been a major constraint for the work closely with the private sector to quota-free market access in major LDCs. If we consider the ratification of contribute to SDG Target 17.5, which markets. However, LDCs also face the WTO’s Trade Facilitation Agree- envisages the adoption and imple- several constraints, including a lack ment as a proxy for the willingness mentation of investment promotion of skilled human resources, deficient and capacity of a WTO Member to regimes for the LDCs so that the infrastructure and limited availability undertake trade facilitation reforms, much-needed flow of FDI to the LDCs of logistics services providers. LDCs, accounting for 65 percent of can be maintained. This is even more Nevertheless, these problems are pending ratifications, lag far behind important for LDCs on the threshold not insurmountable. Since many LDCs other countries.18 of graduation. are already witnessing an influx of However, the COVID-19 crisis At the same time, LDCs can use skilled or semi-skilled workers return- seems to have provided incentives to the crisis as an opportunity to attract ing from developed and emerging LDCs to introduce some quick win and retain both domestic and foreign countries, the problem of skills gaps measures to facilitate trade as well as investment. This article focuses on two might be alleviated at least partially. take steps towards paperless trade.19 such strategies. Sound policies and collaboration with For example, Nepal has put in place a First, Given the supply chain dis- the private sector would be para- system for the release of customs con- ruptions caused by COVID-19, along mount in this case. signment for essential goods within with pre-pandemic trends such as ris- Similarly, although infrastruc- two hours of documents submission ing labour costs in China and growing ture and logistics services cannot be at the customs point. Moreover, it has uncertainty about market access due improved overnight, LDCs having decided to accept copies of required documents and to provide for the possibility of attaching documents online, thus removing the requirement Figure 2 to present original documents during Greenfield investment projects the lockdown period.20 LDCs: Value of announced LDCs: Number of announced Investment greenfield investment projects, greenfield investment Private investments, both domestic and foreign, have been vital sources of average quarterly 2019 and Q1 projects, average quarterly LDCs’ financing in their effort to build 2020 (Billions of dollars) 2019 and Q1 2020 (Number) productive capacity and achieve struc- tural transformation. Data on domestic -19% -27% private investment are not readily available. Regarding foreign investment, the World Investment Report 2020, recently released by UNCTAD, shows that the global flow of foreign direct 9 92 investment (FDI) is going to reduce by 7 67 up to 40 percent in 2020 from its 2019 value of US$1.54 trillion. It is projected to decrease by a further 5-10 percent in 2021 before possibly initiating a Average quarterly level Q1 Average quarterly level Q1 recovery in 2022.21 2019 2020 2019 2020 It is equally concerning to note that due to a serious hit in the profit margin of the top multinational Source: UNCTAD. Note 21.

Trade Insight Vol. 16, No. 1-2, 2020 13 cover feature

helped European countries recover swiftly, Nobel laureates Abhijit Banerjee and Esther Duflo propose a ‘COVID-19 Marshall Plan’ for poor countries. They also remind developed countries the lessons of the 2008 financial crisis and suggest not to call for a return to fiscal ‘discipline’ too early.29 In order to address COVID-19-related health, economic and social shocks faced by more than 100 poor countries, including LDCs, debt relief measures announced by international financial institutions in the recent past have been immensely helpful. For example, G20 economies have allowed the world’s poorest countries to suspend repayment of official bilat- special economic zones (SEZs)/in- businesses. A recent study suggests eral credit from 1 May until the end dustrial parks, where these problems that in the case of low- and middle-in- of 2020.30 Moreover, the World Bank are taken care of to a large extent, come countries (which include LDCs), Group alone has committed to deploy can attract FDI in building up their sustainable agriculture, ecosystem up to US$160 billion over the next 15 capacity to serve the global production regeneration and accelerating clean months, of which US$50 billion will be network. Examples include LDCs such energy installations could present either in the form of grants or highly as Bangladesh, Cambodia, Ethiopia, areas for potential recovery in which concessional loans from the Interna- Myanmar, Nepal and Senegal. FDI can be attracted.25 tional Development Association, the Therefore, LDCs putting in place One such example is the circular part of the World Bank that helps the active policies to attract and retain in- economy that replaces the end-of- poorest countries. 31 vestment during the COVID-19 crisis life concept with restoration, use of However, a partial debt relief is are likely to benefit in the long run. renewable energy, elimination of the clearly not enough as some LDCs For example, Myanmar, one of the first use of toxic chemicals and wastes re- continue to struggle to finance their LDCs to adopt a COVID-19 Economic duction.26 The supply-chain disruption regular expenditure, let alone devel- Recovery Plan, which, among others, due to the pandemic is likely to com- opment expenditure. Moreover, due includes an active investment promo- pel governments and the private sec- to joblessness, growing inequality tion and facilitation policy, is likely to tor alike to embrace circular economy and frustration, particularly among have a head start in this area.23 in designing post-COVID-19 recovery the youth, there is a real danger of Second, there is enormous poten- by utilizing available resources more resurgence of conflict in fragile LDCs. tial for LDCs to tap into the Sustaina- optimally.27 Leveraging private invest- Therefore, at the very least, those de- ble Foreign Direct Investment (SFDI) ment, including FDI, that contributes veloped countries that are yet to meet opportunity. SFDI is a form of FDI that to promoting circular economy would the globally agreed target of contribut- is commercially viable but at the same be a smart move on the part of LDC ing 0.7 percent of GNI to the interna- time makes a maximum contribution governments. tional development endeavour, should to the economic, social and environ- increase their contribution. mental development of host countries. Development assistance Aid for trade (AfT), which is a Achieving the SDGs has been Given the magnitude of the current sub-set of development assistance, has reported to potentially open at least 60 crisis and shrinking sources of financ- been a critical support for the LDCs to fast-growing market opportunities.24 ing, LDCs, left to their own devises, achieve sustained trade growth and Together, these would generate busi- will not be able to fend off the crisis. undertake the necessary institutional ness revenues and savings worth more High cost of borrowing and relatively reform to attract investment, among than US$12 trillion by 2030. However, high debt-to-GDP ratio28 means that others. It is too early to ascertain how actions taken so far in this area have LDCs do not even have the fiscal space AfT flows will change since data on been grossly insufficient. to borrow more to finance their health this indicator is lagged by up to 18 As countries move towards green expenditure and protect their vulnera- months. If development assistance recovery post-pandemic, there could ble people by putting in place neces- resources are diverted predominantly be opportunities for countries in sary safety net measures. to address the health-related impli- attracting FDI in green, climate-re- Comparing the current crisis to cations, this source of inflow could silient, future-proof and sustainable World War II, when Marshall Plan shrink. Despite these challenges,

14 Trade Insight Vol. 16, No. 1-2, 2020 recognizing the significance of AfT in nikkei.com/Spotlight/Coronavirus/ Newsletter No. 85, First Quarter 2020. helping LDCs to contribute sustain- Cambodia-s-garment-industry-hangs- https://unctad.org/en/pages/newsde- by-a-thread tails.aspx?OriginalVersionID=2283 ably for the economic empowerment 5 https://covidtracker.bsg.ox.ac.uk/ 19 Kim, S.H. and Y. Duval. 2020. “In of micro-, small- and medium-sized stringency-scatter the world’s poorest countries, the enterprises, women and youth, AfT al- 6 Kelly, A. 2020. “Garment workers face move to digitalize trade procedures is location to LDCs should be increased destitution as Covid-19 closes facto- needed now more than ever”. Trade in line with SDG Target 8.a. ries”. The Guardian 19 March. https:// for Development by EIF 4 May. https:// www.theguardian.com/global-develop- trade4devnews.enhancedif.org/en/ ment/2020/mar/19/garment-workers- op-ed/worlds-poorest-countries-move- Conclusion face-destitution-as-covid-19-closes- digitalize-trade-procedures-needed- A lack of preparedness on the part of factories now-more-ever 20 LDCs to handle multiple crises emerg- 7 According to information available on Based on discussion with Shyam https://www.bgmea.com.bd/ Dahal, Consultant, Asian Development ing from the COVID-19 pandemic has Bank, Nepal, on 28 April 2020. 8 UNWTO. 2020. “Impact assessment of once again exposed the vulnerability 21 UNCTAD. 2020. World Investment the covid-19 outbreak on international of LDCs on health, social and eco- Report 2020: International Production tourism”. https://www.unwto.org/impact- beyond the Pandemic. Geneva: United nomic fronts. However, these crises assessment-of-the-covid-19-outbreak- Nations Conference on Trade and have also offered some opportunities. on-international-tourism Development. Governments, development partners 9 https://knoema.com/atlas/topics/Tour- 22 ibid. and private sector actors in a number ism/Travel-and-Tourism-Total-Contribu- 23 Choragudi, U. 2020. “‘Leaving no one LDCs have been quick to respond and tion-to-GDP/Contribution-of-travel-and- tourism-to-GDP-percent-of-GDP behind’ – Myanmar COVID19 Econom- adapt, while others are sitting on the ic Recovery Plan”. Mizzima 30 April. 10 WTO, EIF and ITC. 2016. Tourism http://mizzima.com/article/leaving-no- fence. In order to build back better, for Development in Least Developed one-behind-myanmar-covid19-econom- Countries. Madrid: United Nations LDCs need to make use of proven ap- ic-recovery-plan World Tourism Organization and Ge- proaches followed in various settings 24 neva: Enhanced Integrated Forum and AlphaBeta. 2017. Valuing the SDG by adapting them to their own so- International Trade Centre. Prize: Unlocking Business Opportuni- cio-economic contexts. They also need ties to Accelerate Sustainable and In- 11 Ratha, D., S. De, E.J. Kim, S. Plaza, G. to focus on policy innovation, under- clusive Growth. London: Business and Seshan, and N.D. Yameogo. “Remit- Sustainable Development Commission. stand the virtue of partnership, and tances to low- and middle-income 25 Hepburn, C., B. O’Callaghan, N. Stern, more importantly not leave recovery countries on track to reach $551 billion in 2019 and $597 billion by 2021”. J. Stiglitz, and D. Zenghelis. 2020. “Will to sheer chances. Equally important is World Bank Blogs 16 October. https:// COVID-19 fiscal recovery packages ac- the need for a shared global vision for blogs.worldbank.org/peoplemove/ celerate or retard progress on climate mitigation and recovery, and strength- data-release-remittances-low-and- change?”. Oxford Smith School of En- terprise and the Environment Working ening of international cooperation in a middle-income-countries-track-reach- 551-billion-2019 Paper No. 20-02. number of economic areas. n 26 12 World Bank. 2020. “COVID-19 Crisis Snape, J. 2020. “The planet’s health Dr. Adhikari is Executive Director, Through a Migration Lens”. Migration is our health: why healthcare must go Enhanced Integrated Framework Executive and Development Brief 32. Washington green”. World Economic Forum Agenda 11 June. https://www.weforum.org/ Secretariat, World Trade Organization. Views DC: The World Bank and KNOMAD. https://www.knomad.org/sites/default/ agenda/2020/06/healthcare-pharma- expressed are personal. files/2020-05/Migration percent20and ceutical-sustainability-circular-econo- percent20Development percent20Brief my/ 27 Kechichian, E. and N. Mahmoud. 2020. Notes percent2032.pdf 13 For example, in the wake of the “The circular economy can support CO- VID-19 response and build resilience”. 1 heightened crisis in South Korea, the Sumner, A., C. Hoy, and E. Ortiz- Government of Nepal has banned World Bank Blogs 18 May. Juarez. 2020. “Estimates of the impact travels to South Korea for employment 28 For example, according to the World of Covid-19 on global poverty”. WIDER purposes. On the other hand, most Bank, by the end of 2018, public debt Working Paper 2020/43. Helsinki: UNU- Middle Eastern Countries, including in low and middle income countries WIDER. Qatar, imposed a travel ban on visiting (which include LDCs) increased to 51 2 WTO. 2020. “Trade set to plunge as foreigners, including workers. percent of GDP up 5 points since 2013. See World Bank. 2020. “Debt Service COVID-19 pandemic upends global 14 ibid. Note 11. economy”. Press Release 8 April. Suspension and COVID-19”. Factsheet 15 https://www.wto.org/english/news_e/ https://ecommerce-covid.sn/ 11 May. https://www.worldbank.org/en/ pres20_e/pr855_e.htm 16 Based on discussion with Sven Cal- news/factsheet/2020/05/11/debt-relief- 3 Tembo, D., and R. Adhikari. 2020. “How lebaut, E-commerce Advisor, United and-covid-19-coronavirus poor countries can deal with the eco- Nations Development Programme, 29 Banerjee, A. and E. Duflo. 2020. “Abhijit nomic shock of COVID-19”. World Eco- Cambodia, on 11 May 2020. Banerjee and Esther Duflo on how nomic Forum Agenda 24 April. https:// 17 Based on discussion with Suraksha economies can rebound”. The Econo- www.weforum.org/agenda/2020/04/5- Adhikari, co-founder, Thulo.com on 8 mist 26 May. https://www.economist. ways-poor-countries-can-deal-with-the- June 2020. com/by-invitation/2020/05/26/abhijit- banerjee-and-esther-duflo-on-how- economic-shock-of-covid-19/. 18 Ugaz, P. 2020. “Implementation of the economies-can-rebound 4 Onishi, T. 2020. “Cambodia’s garment WTO Trade Facilitation Agreement: 30 industry hangs by a thread”. Nikkei Not a sprint but a marathon”. UNC- ibid. Note 28. Asian Review March 6. https://asia. TAD Transport and Trade Facilitation 31 ibid. Note 28.

Trade Insight Vol. 16, No. 1-2, 2020 15 country covid–19 perspective Afghanistan COVID-19 hits Afghan economy

COVID-19 pandemic has revealed the vulnerability of the Afghan private sector and risks associated with overreliance on precarious transit route.

Shoaib A. Rahim

fghanistan adopted market Hence, the number of confirmed cases tic production. Major export items Aeconomy in its Constitution and deaths continued to surge. As include fresh and dried fruits, carpets, in 2004, after the fall of the Taliban of mid-June, the public sector and coal, and high value medicinal herbs regime. Trade was designated as an limited business sectors have been and spices. Tax revenue from the engine for economic growth. A private allowed to operate following Standard private sector and customs revenue sector-driven, open economy was Operating Procedures. from trade enables the Afghan govern- playing the key role of creating jobs ment to cover around 50 percent of its and improving living standards. But Afghan economy national budget. Before the COVID-19 the arrival of the COVID-19 pandemic Agriculture sector has remained a ma- pandemic, the country was experienc- and subsequent circumstances have jor contributor in the Afghan economy ing an unemployment rate of around affected the robustness that the private with around one third of GDP and 45 40 percent, with more than 54 percent sector and trade had achieved after percent of total employment gener- people living below the poverty line4 almost two decades of development ated by the sector.2 The micro, small and an economic growth rate of 2.9 interventions. This is worrisome for an and medium enterprises in different percent projected to reach 3.3 percent economy that is landlocked, embroiled sectors, including food processing, in 2020. in conflict and fragile. handicraft and carpet weaving, light The Ministry of Health in Afghan- manufacturing, construction and Timing of pandemic istan confirmed the first case of COV- services sectors, meet some part of do- The timing of an event that has im- ID-19 in the country on 24 February mestic demand and provide employ- plications for the economy plays an after which awareness campaigns ment to a significantly large portion of important role in understanding its started to inform people about social the population. impacts. As such, an analysis from a distancing and other precautionary Further, a sizable investment is seasonality perspective can be helpful measures.1 However, the cases contin- visible in areas including telecommu- to unpack the impacts of COVID-19 in ued to increase and spread all over the nication, banking, pharmaceuticals, Afghanistan. country. In the fourth week of March, steel industries and mining. Due to In Afghanistan, 20 March coincides lockdown was imposed in Kabul limited domestic production, imports with New Year’s Day of the Afghan and other provinces for three weeks, have remained around US$7 billion calendar, which is known as Nao Roz which later was stretched to two more while exports are below US$1 billion.3 and marks the beginning of the spring months. However, strict implementa- The large import figure includes key season. After a long winter in cold tion of the lockdown was a challenge. inputs and raw materials for domes- regional capitals and Kabul, econom-

16 Trade Insight Vol. 16, No. 1-2, 2020 ic activities resume and accelerate engaged in it, could not return to its containers stranded at Karachi port as days get longer and warmer. Key seasonal trend. and elsewhere in the country. This agricultural outputs, particularly fruits As a result, economic growth, disrupted the supply chain and made and vegetables, start reaching the which was forecasted at 3.3 percent several necessary items unavailable markets, new businesses are launched, for the current year, has been revised in the country such as input materials and construction work resumes. The to -3.8 percent, with implications for for manufacturing, animal feed and number of social gatherings and other macro-economic indicators.6 medicines for livestock and poultry, events increase, which means more According to the National Union pharmaceutical products, and fruits business for coffee shops, restaurants, of Afghanistan Workers and Em- and vegetables. Livestock and poultry hotels and related businesses. As a ployees, more than two million jobs sectors were affected by feed and med- result, economic activities peak. This is have been lost due to the pandemic. icine shortages to the extent that meat the reason why unemployment rates Similarly, the Ministry of Economy and poultry products were almost un- are much lower in spring and summer has stated that the current situation available in major cities. The shortages compared to winter.5 would increase unemployment and caused prices of basic food items to Furthermore, during the holy poverty rates by 40 percent and 70 spike across the country. This worked month of Ramadhan, which started percent, respectively. While a detailed as a dual-bladed sword for the public from 24 April this year, food priori- data collection and analysis would be as they lost income on one hand, and ties change and consumption rises as required to get a more precise picture had to bear the brunt of price hikes people crave better food. This is peak of direness of the economic repercus- on the other. The situation got worse time for food-processing small and sions of the pandemic, these figures during the holy month of Ramadhan as medium-sized enterprises (SMEs) to fall in line with the World Bank’s supply-side shortages amplified the supply their stock of jam, jelly, mar- estimates of June 2020, which projects seasonal high inflation. malade, pickle and juice after months that around 70 million more people To ease the supply disruption, of production. Similarly, demand for would be pushed into extreme pov- Afghan authorities requested their poultry, livestock and dairy products erty, with fragile and conflict-affected Pakistani counterparts for support. In increases. The Eid-ul-Fitr festival, countries and the global south being response, the Pakistani Prime Minister which fell on 24 May, marks the end the epicenter. expressed his commitment in mid- of Ramadhan. For this festival people March that his government would spend on new clothing, home decora- Trade disruptions facilitate the Afghan transit activities. tion, electronic equipment and other There is no doubt that the lockdown However, this announcement, and items of need. Traditionally, dried and its consequences for the economy statements that followed from differ- fruits and bakery items are served to were devastating. However, Afghan- ent Pakistani authorities, contradicted visiting guests, increasing consump- istan’s economic woes were exacer- their actions. Security checks were un- tion of domestically produced items bated when Pakistan—Afghanistan’s necessarily increased, the number of and thus raising farmers’ incomes and major transit route—closed its borders trucks allowed to cross over Afghani- contributing to the rural economy. The in the first week of March, leaving stan daily was reduced by more than season also sees increased demand around 8,000 Afghanistan-bound 80 percent, daily working hours and for imported goods, which generates profit for traders and customs revenue for the government. Wikimedia Commons The arrival of the pandemic and subsequent lockdown in the country during Ramadhan and Eid-ul-Fitr hit businesses very hard. Food processing, poultry, and dairy businesses were unable to cash in on this once- a-year peak season. Similarly, tailors, home decoration and other service providers also could not make much sales. Hotels and restaurants, which, in tandem with wholesale and retail trade, provide jobs to around 11 percent of the employed population, remained closed. Also, the labour-intensive construction sector, which is a major driver of the economy with 10 percent of the employed population

Trade Insight Vol. 16, No. 1-2, 2020 17 covid-19

weekly number of days of customs Way forward ensure reliable, time- and cost-effi- officials at border crossing points were Afghanistan is in the middle of an cient and secure trade routes. reduced, and Afghanistan’s exports economic crisis emanating from the l Taking serious actions to curb cor- were suspended while Pakistan’s COVID-19 pandemic without any cer- ruption at the customs and reduce exports remained open.7 tainty about the peak and flattening of leakages of revenue. Recent developments reveal that the curve. The pandemic has revealed l Ensuring access to finance through restrictions on the limits of Afghan- the vulnerability of the private sector donor-funded deposit insurance istan-bound transit containers have and risks associated with overreliance and credit guarantee initiatives. been lifted and Afghanistan’s exports on precarious transit route. A country, l Ensuring government purchases of to Pakistan were set to resume from 22 where foreign aid covers 50 percent agriculture produce, particularly June 2020. However, the demurrage of its budget, does not have as many fresh fruits, at standardized rates, and detention charges, which, on aver- measures as other countries to over- say for army or national police, age, is US$150 per day per container, come the crisis. Therefore, the govern- to reduce losses to farmers due to have continued to accumulate on ment would require external funding disrupted supply chains. n the containers. For example, there is support to implement various policy Mr. Rahim is an assistant professor of eco- an additional cost of US$15,000 for a measures to address the economic nomics, a development practitioner and regional container that is stranded at Karachi crisis. economic analyst at Kabul based think- tank port since the first week of March. This It will take time until all economic Afghanistan Affairs Unit. applies to thousands of stranded con- activities resume. It is important to tainers. The loss in terms of damage build the institutional capacity of key to the quality of non-food items and entities to enable them to tackle the Notes expiry of medicines and perishable crisis and play a vital role in fixing products add to the problems. Even the economy post-COVID-19. Also, 1 UNICEF. 2020. UNICEF Afghanistan if the transit trade is normalized now, corruption is a major challenge in COVID-19 brief. https://www.unicef.org/ afghanistan/reports/unicef-afghanistan- damage to the Afghan economy has Afghanistan, which would corrode covid-19-brief already been done. any policy interventions. The govern- 2 CSO. 2018. Afghanistan Living Condi- On the contrary, other countries ment must ensure transparency and tions Survey 2016-17. Kabul: Central have made efforts to extend support accountability as well as prevent the Statistics Organization, Government of and help to Afghanistan during the misuse of funds to achieve desired Islamic Republic of Afghanistan. same period between March and June. results and build credibility among 3 https://tradingeconomics.com/afghani- India, China, Turkey and the United donors and the public. stan/imports 4 Arab Emirates (UAE) extended the Some of the major interventions National Statistics and Information Authority. 2019. Afghanistan Multidi- much-needed medical support. India, that the Afghan government needs mensional Poverty Index 2016–2017. additionally, delivered thousands of to undertake to address the crisis Kabul: National Statistics and Informa- tons of wheat to help the country in emanated by the COVID-19 pandemic tion Authority (NSIA), Government of tackling the food crisis while Kazakh- could include: the Islamic Republic of Afghanistan. 5 stan continued its supply of flour. l Revising the national budget to According to the Afghanistan Living Conditions Survey 2016-17, unemploy- Similarly, efforts were made to ensure align development budget with ment rates in spring and summer were regional integration and economic recovery efforts to fight the crisis. 20.5 percent and 19.5 percent, respec- cooperation during these difficult l Extending relief to the private tively, and 32.5 percent in winter. times. The Kyrgyzstan-Tajikistan-Af- sector in the form of deferral or 6 World Bank. 2020. South Asia Eco- ghanistan-Iran (KTAI) corridor waiver of rents of government nomic Focus Spring 2020. Washington started its pilot operation under the properties, utility bills and taxes to DC: World Bank. 7 Transports Internationaux Routiers the most affected, growth-driving Rahim, S.A. 2020. “The Trade and Transit Woes of Landlocked Af- or International Road Transports and labor-intensive sectors. ghanistan During COVID- 19”. The (TIR) Carnets.8 The corridor offers l Providing cash transfers or food Diplomat 8 May. https://thediplomat. the shortest possible route between supplies to vulnerable families in com/2020/05/the-trade-and-transit- Iran and Kyrgyzstan via Afghanistan. both urban and rural areas. woes-of-landlocked-afghanistan-during- covid-19/ The first intermodal transport was l Beefing up pending private sector 8 IRU. 2020. “Kyrgyzstan-Tajikistan- completed from India to Afghanistan reforms, which would not only Afghanistan-Iran (KTAI) corridor opens 9 via Chabahar using TIR. It took seven create a more enabling private for TIR”. https://www.iru.org/resources/ days to complete the journey, which is sector but also help in the release newsroom/kyrgyzstan-tajikistan-afghan- around 11 days via Bandar-e-Abbas. of International Monetary Fund’s istan-iran-ktai-corridor-opens-tir Similarly, Afghanistan continued to extended credit facility. 9 IRU. 2020. “TIR helps open up India- Iran-Afghanistan intermodal trade”. benefit from uninterrupted services of l Engaging more actively with https://www.iru.org/resources/news- Bandar-e-Abbas port of Iran to ensure regional partners to, among other room/tir-helps-open-india-iran-afghani- supply of goods. things, diversify trade routes and stan-intermodal-trade

18 Trade Insight Vol. 16, No. 1-2, 2020 country perspective covid–19 Bangladesh

Enhanced support meas- Dealing ures are necessary to ensure that the poor and vulnerable people do not with COVID-19 succumb to hunger.

Fahmida Khatun

he world is passing through a freezing recruitments. It is almost clear virus to live a life. At the same time, Tmajor catastrophe since 8 De- now that the consequences of this pan- they have to be provided with food cember 2019, when the first known demic will be prolonged for several and income to stay alive. Developed case of pneumonia with an unknown more months in the absence of vaccine countries may afford a longer period etiology was found in Wuhan City, and its availability to all. Hence, it has of lockdown because their govern- Hubei Province, China. Later identi- been predicted that COVID-19 will ments are capable of providing ex- fied and named COVID-19, the world lead to the hardest and longest global tended support to the people. Howev- is now severely affected by this novel recessions encountered so far. er, in countries with limited resources coronavirus. Despite the efforts by such as Bangladesh, extended lock- governments worldwide for taming COVID-19 in Bangladesh downs may endanger the lives of the the outbreak, its spread is still uncon- The first case of COVID-19 in Bang- economically vulnerable people, many trolled and unprecedented. ladesh was identified on 8 March of whom have aptly expressed, “If the COVID-19 has not been confined 2020. Although the number of cases virus doesn’t kill us, hunger will”. to only being a health hazard but in Bangladesh was low compared to has had a major economic impact. other countries initially, it started to Economic and social impact Measures aimed at containing the rise fast along with the increase in Early signals indicate that the econom- infection has severely affected almost the number of tests. The Bangladeshi ic loss due to COVID-19 is already all economic activities such as do- government, in an attempt to check massive in Bangladesh. The Centre mestic production and supply chains. the spread of the virus, announced a for Policy Dialogue (CPD) estimated The global economy is integrated general holiday from 26 March 2020 that Bangladesh’s growth of gross through trade, remittances, investment for almost two months. This period of domestic product (GDP) would be 2.5 and foreign aid. So, the COVID-19 holiday, which was essentially a lock- percent in FY20201 against the govern- pandemic has given rise to economic down, led to a halt of all economic ac- ment’s projection of 5.2 percent.2 The challenges coupled with uncertainties tivities. Consequently, many business- International Monetary Fund (IMF) and unpredictability both at global es have lost incomes and individuals too, in April 2020, had estimated Bang- and national levels. Countries have have lost livelihoods. There is no sign ladesh’s GDP growth to be 2 percent already started and will continue to as to when economic activities can in 2020.3 Similarly, the World Bank, in feel the heat of economic slowdown start again in full swing. Therefore, its June 2020 estimation, has revised in different ways. Disruption in the Bangladesh is caught up in a dilemma. Bangladesh’s growth downward to supply chain, lower production of Should the country continue to be 1.6 percent in FY2020.4 Among other agriculture and industrial goods, and under shut down to be safe from the things, reduced economic growth will closure of aviation, tourism, restau- health risk or should it open to save severely impact poverty and inequali- rants and hotel businesses are having people from poverty and hunger? ty. As per CPD’s estimation, there has knock on effects on the job market. There is no choice between lives been an increase in national (upper) Businesses continue to lay off workers, and livelihoods. First and foremost, poverty rate from 24.3 percent in 2016 slash salaries and payments and are people have to be protected from the to 35 percent in 2020, and an increase

Trade Insight Vol. 16, No. 1-2, 2020 19 covid-19

in the income Gini coefficient from and increasing spending to create economic support is liquidity support 0.48 in 2016 to 0.52 in 2020. vibrancy in the economy. Accordingly, for cottage, micro, small, medium and Lockdown measures enforced to governments worldwide have crafted large industries, exporters and farmers contain the spread of COVID-19 have similar policy responses to tackle the that will be channeled through the dried up income sources of daily wage economic fallout caused by the lock- banking system. The government will earners. In many sectors even the down due to COVID-19. mainly provide interest subsidy on monthly salaried workers are strug- Most policy responses by coun- bank loans. Such support is deemed gling to receive payments. As about tries have been through fiscal and to help both local and export-oriented 85 percent of the total employment in monetary measures. Fiscal measures sectors that are facing challenges due Bangladesh is in the informal sector, a include stimulus packages such as di- to COVID-19. large number of people have lost their rect financial support for the affected To address the basic needs of peo- incomes due to the lockdown. More- sectors, expansion of social safety nets ple living below the poverty line, the over, they do not have any savings. and cash transfers to the low-income government has widened the coverage They include agricultural workers, groups, exemption of various taxes of existing social safety net pro- construction workers, rickshaw- and and fees, budget allocation for imme- grammes. These include distribution van-pullers, three-wheeler and taxi diate health preparedness and food of wheat free-of-cost to low-income drivers, other transport workers, small distribution at a lower price for the households, and providing allowances shopkeepers, street vendors, barbers, poor. Monetary policy responses pri- to senior citizens, and widows, de- workers in beauty parlours, garbage marily include increasing liquidity in serted and destitute women. Further- pickers, domestic helps, brick kiln the financial system. This means that more, the government has committed workers, workers in small workshops, central banks will buy treasury bonds providing cash assistance equivalent roadside eatery workers, hotel and and bills from commercial banks so to BDT 2,500 (equivalent to US$ 29) for restaurant workers, drivers working that banks in turn can provide loans a month to five million households. for individuals, loaders of goods, to customers. The other method of wood cutters, delivery workers of monetary policy response is to reduce Sourcing resources e-commerce, and so on. There are also policy rates such as repo rates and Needless to say, the amount allo- others such as beggars, street children, cash reserve ratio. Many countries cated for addressing the impact of disabled people, poor women aban- have reduced these rates drastically. COVID-19 is not adequate given the doned by their husbands, widows and The government of Bangladesh extent of the economic loss. Moreover, people from the transgender commu- has announced a number of stimulus COVID-19 is still evolving and no one nity who are in a dire state. and relief packages in order to revive is sure when this will end and how the domestic economy and to mitigate much damage it will cause ultimately. Measures taken the adverse effects of COVID-19 on Therefore, to revive the economy, a There are a few conventional econom- different economic sectors and people. large amount of resources will be nec- ic measures that governments under- Until mid-June, the total package essary. With a revenue income of only take during economic downturns. accounted for about 4 percent of Bang- 11.9 percent of GDP5 and limited scope They are aimed at boosting demand ladesh’s GDP. About 80 percent of the of borrowing from the bank, Bangla- desh will have to explore international sources for funds. pxfuel Several international organizations have announced their support in view of COVID-19. Bangladesh has also received commitments from a number of organizations. For example, the IMF will provide a support package of about US$730 million, the Asian Development Bank has announced a support of over US$ 600 million, and the World Bank has committed to provide US$100 million to Bangladesh. There may be opportunities for more support in the coming days. Still this will be only a small part of what is needed. This emphasizes the need for prudent macroeconomic management and efficiency in public expenditure and revenue mobilization. The gov-

20 Trade Insight Vol. 16, No. 1-2, 2020 pxfuel

ernment has to prioritize its spending. affected countries within the region where there have been recoveries and It needs to identify activities which are and for medical research. Beyond the the spread of virus is under control, immediately needed, and which can pandemic, public-private-partner- and open areas where there are no wait for some time. This will have to ship in healthcare services within the cases with due precaution and strict be done pragmatically so that expendi- region also has a strong potential. measures. Parallel to this, there has to ture reduction does not affect employ- However, regional cooperation be enhanced support measures to the ment and income of people. has remained mostly unsuccessful poor and vulnerable people to ensure A large investment is also needed in South Asia due to geo-political that they do not succumb to hunger, for the healthcare sector. With increas- undercurrents. Despite the potential and a strengthened healthcare system ing number of cases, the country is for mutual benefit, leaders of South to take due care of the patients. In- struggling to conduct more tests and Asian countries have not moved the deed, this strategy is applicable to all provide treatment. The perennial ne- regional integration agenda forward. countries, including the South Asian glect on public healthcare has become Even since the outbreak of COVID-19 countries, since they are on the same more evident now than ever before. in the region, no concrete steps have footing in terms of dealing with the With an allocation less than 1 percent been taken towards cooperation ex- COVID-19 challenges. n of GDP, the healthcare sector is not cept for the token fund. In fact, there is Dr. Khatun is Executive Director, Centre able to attend the needs of patients in no reason to hope that COVID-19 will for Policy Dialogue, Dhaka. normal times. Dealing with COVID-19 bring about any change in the thought is well beyond the capacity of the process of South Asian leaders. healthcare sector in current circum- Notes stances. Conclusion 1 It is evident that lockdowns im- CPD. 2020. Challenges of Policymak- ing in Times of Pandemics: State of Regional cooperation posed by almost all the South Asian the Bangladesh Economy in FY2020. COVID-19 has revived the realization countries have not helped much in Dhaka: Centre for Policy Dialogue. that collaboration among South Asian addressing the challenges created by 2 MoF. 2020. Economic Transition and countries is necessary. Undoubtedly, the COVID-19 pandemic. The num- Pathway to Progress: Budget Speech there is limited ability among South ber of infected cases has been rising 2020-21. Dhaka: Ministry of Finance, Government of Bangladesh. Asian countries to help each other sharply in the region. As economies, 3 IMF. 2020. World Economic Output. through financial support. However, including Bangladesh, await to open Washington DC: International Monetary they can learn from each other in ad- up they have been experiencing huge Fund. dressing the challenges of the pan- losses in every sector. In this context, 4 World Bank. 2020. Global Economic demic by sharing good practices. The a reasonable way to face the pandem- Prospects, June 2020. Washington DC: SAARC Emergency Fund for COV- ic is to continue with the lockdown World Bank. 5 ID-19, initiated by some of the South in affected areas to limit the spread MoF. 2020. Economic Transition and Pathway to Progress: Budget Speech Asian leaders, is a welcome gesture. of the virus, open areas in a limited 2020-21. Dhaka: Ministry of Finance, This fund can be used for the most manner and with stringent measures Government of Bangladesh.

Trade Insight Vol. 16, No. 1-2, 2020 21 country covid–19 perspective Bhutan An opportunity to boost agriculture in South Asia

Bhutan could provide some lessons to other countries in South Asia on revamping agriculture to fight COVID-19’s economic impacts.

Om Bhandari

outh Asian farmers, who feed over percent revival of tourism in 2021 and farmers are at the mercy of middle- Sa quarter of the world, are one 50 percent in 2022.1 There is looming men and buyers. This has discouraged of the world’s poorest groups. Over food and job insecurity, particularly in people from taking up agriculture as half of the South Asian population is the medium term, and depending on a profession. Before the pandemic, engaged in agriculture and the region how long the pandemic and lockdown 649 million people in the region were claims to be a net food exporter. Yet persists, this could get direr in the moderately or severely food insecure the region suffers from food short- long term. Therefore, quickly engag- and 271 million were severely food-in- ages, and ironically, many of those ing people in productive activities is secure.3 Similarly, 36 percent of the who produce the food suffer from necessary to maintain social harmony. children were stunted and 16 percent hunger. This article makes an attempt Agriculture may be one such activity. were acutely malnourished. The to identify and address the underlying The COVID-19 pandemic has fallout of COVID-19 and the contain- reasons for this predicament. Emerg- forced Bhutan to reflect and reor- ment measures will see the situation ing lessons from Bhutan in the context ient its agricultural strategies. For in South Asia worsen. Hence, South of the COVID-19 pandemic could help instance, the Bhutanese government Asian countries must act quickly and enhance greater regional cooperation has launched an initiative to promote collectively, and use this situation to in the area of agriculture. agriculture in urban and peri-urban improve regulation and revamp the areas to enhance food production disrupted agriculture supply chains. COVID-19 impacts on Bhutan and provide gainful employment to They must create the conditions to Tourism and allied sectors have been the ones recently left jobless by the make the agriculture sector more at- major employers in Bhutan. Consid- COVID-19 pandemic.2 Bhutan could tractive, especially to the young labour ering the slump in tourism due to provide some lessons to other coun- force, while implementing other re- the COVID-19 pandemic, reviving tries in South Asia. forms such as fast-tracked investments these sectors to their past glory will in technology and logistics. take considerable time. The Tourism Agriculture and food security South Asian countries can consider Council of Bhutan (TCB) estimates Food has conventionally been sup- the suggestions discussed below, also that, if all goes well, there will be a 30 ply-driven in South Asia. The region’s based on emerging lessons from Bhu-

22 Trade Insight Vol. 16, No. 1-2, 2020 tan, to boost agriculture during these tated with e-retailers across borders sources, ensuring better health, driv- difficult times and beyond. keen on sourcing produce at pre-fixed ing rural development, preserving the quantities and prices. When done at environment and promoting cultural Ensure clarity on land availability for scale, a good portion of the margin heritage. Strangely, in most South agricultural activities, including in appropriated by middlemen can flow Asian countries, the sector receives the urban areas, and the crops to grow back to the farmers. Even during lowest or a decreasing share of public Bhutan’s recently launched COV- lockdown, keeping markets open budget while concurrently aiming ID-19 support programme through with physical distancing measures, as for food self-sufficiency. This may farming is designed differently for done in Bhutan, is important. More- perhaps be because of agriculture’s three groups:4 subsistence farmers, over, while focusing on the domestic disproportionately lower per person farmer groups and cooperatives, and market, international trade should not contribution to GDP. The focus of gov- commercial farmers. Each category be ignored. ernments in agriculture investment will receive different forms and levels has often been on the construction of of support, such as in terms of land Digitize processes and value chains agriculture infrastructure such as ir- allocation, and provision of vegetable and use technology to reduce trade rigation canals and farm roads. These seeds and cultivation manual. Also, barriers public goods are necessary but not since over 25 percent of agricultural Leveraging digital tools in agriculture sufficient. Agriculture is largely site- land in Bhutan is fallow, the govern- provides on-demand value to the and crop-specific. Developing value ment’s policy is to encourage farmers farming community, both locally and chains through improving transport to utilize the uncultivated land for from a distance. Promoting platforms and logistics, financing, branding, vegetable farming.5 The government that allow simple farm machinery packaging and certification for specific will help identify and allocate state- rental and portals to provide infor- products with comparative advantag- owned land if interested groups do mation on price and available labour es need to be prioritized. Identifying not have access to private land for could be a start. As the use progresses, and promoting public-private-part- cultivation. nership (PPP) projects in agriculture Revamping agriculture to en- are often missing in national budgets. gage the displaced workers, return- Realizing these shortcomings, Bhutan ee migrants and the unemployed South Asia must act is quickly reprioritizing and rese- provides an opportunity to transform collectively to improve quencing its current five-year plan.8 It agriculture into a modern, smart and regulation and revamp is discussing, for example, crop-specif- professionally-managed enterprise ic buy-back guarantees. that would appeal better to the youth. the disrupted agriculture Bhutan’s urban agriculture initiative supply chain. De-risk private investments is a good start where drying facilities, Agriculture will be more attractive greenhouses and market sheds are be- when production, agri-processing ing developed alongside warehouses6, and other elements of the value chain albeit at small scales. technology can enable remote visu- are integrated. Incentives and sub- alization to keep track of plantations, sidies provided to the value chain Improve logistics and disseminate checking of pest infections and diseas- actors must be unequivocally clear to market information widely es, organization of trainings as need- investors. A targeted effort to proac- During the lockdowns almost all ed, preventing losses, enlarging crop tively entice investments is necessary, South Asian countries experienced insurance, proper utilization of space especially in agriculture. South Asian shortages despite adequate food and ensuring quality. For instance, agencies are often unaware of the supplies owing to poor logistics. This Mountain Hazelnuts—an agricultural range of financing tools they have makes a case for locating collection company in Bhutan—makes good access to. Many of these tools9, such as centers, with improved capabilities, use of technology to access expertise blended finance, political risk insur- closer to smallholder farmers. There located on the other side of the globe.7 ance, local currency from international is also a need to provide market Farmers’ literacy of digital tools will financiers, etc. remain underutilized information, especially to smallholder be paramount here, which can be or underdeveloped owing to unaware- farmers. The government can hand- strengthened through regular visits of ness of their availability to investors hold smallholder farmers to negotiate field monitors. and government agencies. with buyers and input providers. Pro- viding legal services to farmers and/ Budget agriculture intelligently Motivate financial institutions and or famers’ organizations in framing Agriculture, as a sector, is more than stock exchanges to participate formal contracts between buyers and just food. It is about stemming rural to actively in agribusiness farmers will be of great help. Contracts urban migration, creating jobs, reduc- South Asian financial institutions have for surplus produce could be facili- ing trade deficits, diversifying income dismally low exposure to the agricul-

Trade Insight Vol. 16, No. 1-2, 2020 23 covid-19

ture sector because the sector contrib- itary standards. In order to meet such rural areas can be stemmed by making utes substantially to their non-per- requirements, regulatory bodies need agriculture a worthwhile profession. forming loans. As governments help to be strengthened and everyone All the struggles of keeping up with de-risk the sector, financial institutions involved in the supply chain need increasing demands for adequate can respond appropriately. Many to be trained adequately. Regulatory supply of resources such as water and South Asian countries do not have a bodies must step up in their roles and infrastructure will be substantially developed warehouse receipt system proactively voice reforms to the gov- eased. South Asia must seize this of extending finance, for example. A ernment and facilitate investments the opportunity. Losing it will be a great warehouse reduces pressure on the sector desperately needs. They need mistake. n farmer to sell when prices are low to distinguish the services they render Mr. Bhandari works with the Interna- and when adequate supply in the to different market segments and look tional Finance Corporation in Bhutan. Views market exists. A recent development for opportunities to become as fiscally expressed are personal. in Bhutan called the Online Farmer’s independent from the government as Market System (OFMS)10 synergizes possible. Research and testing capacity the Bhutan Market Commodities Initi- for these agencies ought to be a top Notes ative of the stock exchange. It aims at priority. mapping production, spotting markets 1 Kuensel. 2020. “Urban agriculture and linking parties by disseminating Educate initiative rolls out in Thimphu”. Kuensel 8 May. https://kuenselonline.com/ market information to domestic and This is the time when governments urban-agriculture-initiative-rolls-out-in- international buyers. Established can help direct growers towards thimphu/ domestic aggregators reach interna- the right mix of food items, forestry 2 Ministry of Agriculture and Forests, Roy- tional buyers. Financial institutions and livestock products both from a al Government of Bhutan. 2020. “Min- and other financiers are being encour- commercial and a nutritional point of istry launched Urban and Peri-Urban Agriculture program in Thimphu”. http:// aged by the central bank to intensify view. This is happening to some extent www.moaf.gov.bt/ministry-launched- the priority sector lending programme urban-and-peri-urban-agriculture-pro- that focuses on agriculture and small gram-in-thimphu/ businesses. Some institutions, with 3 FAO, IFAD, UNICEF, WFP and WHO. assistance from development partners, 2019. The State of Food Security and Food regulatory Nutrition in the World 2019. Rome: are providing interest-free or reduced authorities in South Asia Food and Agriculture Organization of interest loans. Bhutan is ramping up the United Nations. the use of individual credit history need to provide more 4 The Bhutanese. 2020. “Economic and moveable collateral by making ex-ante support in the Contingency Plan for Agriculture looks at revamping the entire sector from pro- these systems robust and training food value chain. duction to the market”. The Bhutanese financial institutions to better serve the 16 May. https://thebhutanese.bt/eco- micro, small and medium enterprises nomic-contingency-plan-for-agriculture- (SMEs). The stock exchange is provid- looks-at-revamping-the-entire-sector- from-production-to-the-market/ ing platforms for crowd-funding of in Bhutan. The Japan International 5 Wangmo, C. 2020. “Agriculture ministry projects. “Angel investment” type of Cooperation Agency, for example, is discontinues leasing government land“. matchmaking is organized regularly helping a district grow sweet potatoes Kuensel 21 April. https://kuenselonline. by the central bank and the business for the first time.11 Similarly, online com/agriculture-ministry-discontinues- chamber. training to regulators on food hygiene leasing-government-land/ 6 and protecting food workers is being Wangmo, C. 2020. “Agriculture ministry discontinues leasing govern- Develop regulatory capacity imparted. Other general training, such ment land“. Kuensel 13 May. https:// The COVID-19 pandemic has made us as on negotiations, to SMEs, will also kuenselonline.com/covid-19-triggers- aware of the importance of protecting be helpful. agriculture-and-forest-policy-changes/ ourselves from pathogens and main- 7 https://www.mountainhazelnuts.com/ taining hygiene. Similar awareness Conclusion innovations-1 8 regarding the food we eat is neces- Reframing agriculture policies in re- ibid. Note 4. 9 sary. Food regulatory authorities in sponse to the COVID-19 pandemic to OECD. 2020. OECD DAC Blended Finance Principle 4 Guidance. https:// South Asia need a capability boost to make it more profitable through nec- www.oecd.org/dac/financing-sustain- enable them to provide more ex-ante essary support can provide solutions able-development/blended-finance- support in the food value chain rather for unemployment. Bhutan is seeing principles/principle-4/Principle_4_Guid- ance_Note_and_Background.pdf than serve as ex-post controllers. For signs of laid-off workers interested 10 example, for exports, exporters must in farming, not only currently but Kuensel. 2020. “Online farmers’ market system launched”. Kuensel 18 May. meet the required standards such as even after the situation improves. The https://kuenselonline.com/online-farm- those outlined by the Codex Alimen- spin-off of this would mean urban ers-market-system-launched/ tarius and the sanitary and phytosan- decongestion as out-migration from 11 ibid. Note 2.

24 Trade Insight Vol. 16, No. 1-2, 2020 country perspective covid–19 India

Fractured global value chains post COVID-19 Can India gain its missed glory?

India should make the best use of this time as an opportunity to attract investment from multi-national enterprises looking to diversify their production facilities away from China.

Rajesh Chadha

he global economy is facing an markets and developing economies at in second quarter of 2019-20 estimated Tunprecedented crisis of COV- 4.4 percent, India at 5.8 percent and at 4.5 percent.2 The aftermath of COV- ID-19, which might impact the world China at 6 percent. It did not have ID-19 might put India’s growth rate in terms of deteriorating human any mention of the novel coronavirus. for 2020-21 anywhere below 2 percent, health, worse than the Spanish Flu COVID-19 has seriously impacted or even lower. These are guess-esti- pandemic of 1918 (till 1920) and the these growth numbers. The corre- mates and would very much depend Great Depression of 1929 (till 1939). sponding numbers, as per IMF WEO on the peak, length and the likely There is no way yet to compute the (April 2020) are projected at -3 percent returning waves of COVID-19 after its peak and duration of health and (world), -6.1 percent (advanced econ- first phase gets flattened. However, it economic downturns. As the Interna- omies), -1 percent (emerging markets is just not feasible to put economic cost tional Monetary Fund’s (IMF) World and developing economies), 1.9 per- to the human lives lost. Economic Outlook (WEO) April 2020, cent (India) and 1.2 percent (China). India must consider various puts it, “Depending on the duration, The world trade volume, which, in options to invigorate the domestic global business confidence could be January 2020, was expected to expand economy in the coming months/years. severely affected, leading to weaker by 2.9 percent, is now estimated to One of the options lies in strengthen- investment and growth than projected experience a decline of 11 percent. The ing its manufacturing sector through in the baseline. Related to the uncer- drastic downward revision within one greater participation in the fractured tainty around COVID-19, an extended quarter must be a record slippage in global value chains (GVCs). Such par- risk-off episode in financial markets the history of the IMF.1 ticipation is expected to boost jobs and and tightening of financial conditions The Indian economy has already income. China is currently the most could cause deeper and longer-lasting been facing serious deceleration in important hub of GVCs for many mul- downturns in a number of countries.” economic growth, quarter after quar- tinational enterprises (MNEs). While In January 2020, the WEO Update ter, since the first quarter of 2018-19 the SARS coronavirus had impacted had projected the 2020 world econo- when it posted a growth of 8 percent GVCs in 2003, the impact of COVID-19 my to grow at 3.3 percent, advanced in GDP at market prices. The decline in 2020 is going to be much worse. economies at 1.6 percent, emerging has been sharp with expected growth India has great awaited potential for

Trade Insight Vol. 16, No. 1-2, 2020 25 covid-19 Flickr

attracting investment from multi-na- companies across the world, including ed due to the spread of COVID-19. tional enterprises (MNEs) which may 163 Fortune 1000 companies, have Nearly three-fourths of the companies now be looking for diversifying/ one or more direct or Tier-1 suppliers have reported disruptions in their shifting their production facilities in the impacted region. The number supply chains. Close to 57 percent away from China. It should make the of companies having one or more responses reported longer lead times best use of this opportunity, which has Tier-2 suppliers in the impacted region for components sourced from Tier-1 evaded it during the last two decades. exceeds five million, including 938 sources in China. About 60 percent of Fortune 1000 companies.3 the companies, which normally travel Disequilibrium of The big MNEs relying on ‘just in to China for business, do not intend to global value chains time’ deliveries through GVCs have travel over the next six months.5 China gained the maximum advan- faced serious supply chain risks. The There is intense discussion around tage from the process of production after-effects of the SARS outbreak in the world about diversifying GVCs fragmentation since the early 1990s 2003 were much less severe. China’s with many of the MNEs considering and attracted investments into manu- share in world GDP, which was 4 shifting parts of their production facturing via the global value chains. percent in 2003, has quadrupled to 16 platforms away from China. The US is Of course, while China facilitated the percent now. Its exports of textiles and contemplating creation of an Eco- assembly for many MNEs, these MNEs apparel account for 40 percent of the nomic Prosperity Network through as well as their home countries ben- world exports. China now is a major an alliance with trusted partners. efited from having their production importer of metals and minerals. Its The likely alliance countries include platforms located in China. The US share in world mining imports has Australia, India, Japan, New Zealand, has been one of the top beneficiaries. risen to 20 percent compared with 7 South Korea and Vietnam. The effort Wuhan in Hubei province of China percent in 2003.4 would be to move global value chains was the epicentre of the novel coro- A survey of 628 US companies, production away from China into navirus outbreak. By February 2020, including 52 percent manufacturing friendlier countries.6 the virus had spread to 18 additional and 48 percent non-manufacturing Japan has announced a US$2.2 provinces. Over 90 percent of all units, conducted by the Institute of billion stimulus package to help its active businesses in China are located Supply Management, reveals that companies for shifting out their pro- in these provinces. More than 51,000 the companies are seriously impact- duction bases away from China into

26 Trade Insight Vol. 16, No. 1-2, 2020 other countries.7 This would enable at about 17 percent for more than two of MNEs and could benefit from Japanese firms to move away from the decades. increased productivity and incomes risk of unexpected failures in dealing The US-China trade war ten- resulting in steep declines in poverty. with China. sions in 2019 led to some of the firms Much of the growth in GVCs came While many MNEs and countries shifting production out of China. A from trade-led comparative advantage might wish to diversify their produc- Nomura study reported relocation of originating from labour-intensive tion platforms away from China, it 56 firms, during April-August 2019, manufacturing/assembly. is easier said than can be done. Post shifting production away from China. The WDR 2020 highlights two COVID-19, many of the companies Twenty six of these firms went to Vi- major factors that can potentially shall be starved of cash and may not etnam, eleven to Taiwan and eight to threaten the GVCs growth model, viz. be able to move away from China to Thailand. Only three companies came labour-saving technologies, including invest in other countries in an abrupt to India and two went to Indonesia.9 automation and 3-D printing, and short-term manner. The World Bank’s flagship World trade conflict between the large coun- Development Report (WDR) 2020 is tries, the US and China in particular. Can India gain titled Trading for Development in the Age Little did the world know that COV- its missed glory? of Global Value Chains. It was released ID-19 would take the intensity of trade The Global Value Chain Development in mid-November 2019, the eve of and foreign policy conflict between Report 2019 published by the World COVID-19 crisis. It carried a clear the US and China to an unprecedented Bank, jointly with WTO, IDE-JETRO, message, “GVCs can continue to boost threat level. Given that many other OECD and UIBE discusses technolog- growth, create better jobs, and reduce countries have also been affected ical innovation, supply chain trade, poverty provided that developing seriously, all eyes are now on how the and workers in a globalized world. countries undertake deeper reforms evolving global trade and foreign pol- It states that the share of GVCs in and industrial countries pursue open, icy order would evolve with regards global trade has declined since the predictable policies.”10 to their respective relationships with financial crisis of 2008. Many of the China. The realities would emerge developing countries have been able as the world starts coming out of the to integrate into the global economy COVID-19 fatalities. Incidentally, with gains in jobs and income. While India must integrate India’s Economic Survey 2019-20 also GVCs have moved up the technologi- ‘Assemble in India for has a chapter on exports of network cal sophistication, consumer demand products (NP) through global value has also grown, thus leaving scope for the world’ into ‘Make in chains.11 developing countries to participate India’ programme. Post-liberalization, India’s share in low-skilled labour-intensive tasks in global merchandise trade increased that need human dexterity. However, three times, from 0.6 percent in 1991 the new technologies are posing a to 1.7 percent in 2018. China’s share at challenge, the impact of which is not The share of GVC trade in world 12.8 percent in 2018 is 7.5 times that of yet known. Automation and digital trade had increased from about 37 per- India. It is time that India must partici- technologies might disrupt the current cent in 1970 to a little over 41 percent pate in GVCs through a sharp focus on GVC arrangements and widen dispari- in 1990, a gain of about 4 percentage labour-intensive ‘network products’ ties across countries. However, these points in 20 years. The next 18 years for which the production processes provide SMEs with opportunities to witnessed an impressive rise of 12 of MNEs are globally fragmented. play a more active role. Trade open- percentage points and the share of These products include equipment for ness continues to remain a facilitating GVC trade in world trade touched the IT hardware, electricals, electronics route as compared to import-sub- peak of 52 percent in 2008, i.e. in the and telecommunications, and road stituting efforts to raise the share of year of the global financial crisis. It has vehicles. domestic value-added.8 been declining thereafter. The growth India must integrate ‘Assemble in Much of the extant literature has in trade has been sluggish with a slow- India for the world’ into ‘Make in In- identified India as one of the major ing down of expansion of GVCs. India dia’ programme. The Survey estimates potential countries which could have could have played a major role but creation of 40 million well-paid jobs by participated actively in GVCs but it could not due to its own lacklustre 2025 and 80 million by 2030. However, could not. Indian industry, as well as domestic reforms. A lot more needs to the post-COVID estimates are likely to the government, have been quite keen be done on logistics and infrastructure be at variance with these numbers. to play a major role. It is unfortunate fronts. India has the potential to integrate though that while labour-intensive Some of the poor countries, includ- with global trade through exports of manufacturing could have created ing Bangladesh, China and Vietnam, traditional buyer-driven networks many more jobs, the share of manu- could take advantage of establishing of labour-intensive goods, including facturing in GDP has remained sticky manufacturing/assembly platforms toys, footwear, textiles, garments,

Trade Insight Vol. 16, No. 1-2, 2020 27 covid-19

ic-and-industry-insight/DNB_Business_ Impact_of_the_Coronavirus_US.pdf 4 The Economist. 2020. “The new coronavirus could have a lasting impact on global supply chains”. The Economist 15 February. 5 Institute for Supply Management. 2020. “COVID-19 Survey: Impacts On Global Supply Chains”. https:// www.instituteforsupplymanage- ment.org/news/NewsRoomDetail. cfm?ItemNumber=31171&SSO=1 6 Pamuk, H. and A. Shalal. 2020. “Trump administration pushing to rip global supply chains from China: officials”. Reuters 4 May. https://www.reuters. com/article/us-health-coronavirus-usa- china/trump-administration-pushing- to-rip-global-supply-chains-from-china- officials-idUSKBN22G0BZ 7 Business Today. 2020. “Coronavirus Impact: Japan to offer $2.2 billion to

12 firms shifting production out of China”. etc. Examples include Walmart, take deeper domestic policy reforms, Business Today 10 April. https://www. Adidas, Nike, etc. India also has great particularly the factor market reforms, businesstoday.in/current/world/corona- potential to assemble and export land, labour and capital. Focused virus-impact-japan-to-offer-22-billion-to- ‘network products’ through final attention must be given to the ease of firms-shifting-production-out-of-china/ story/400721.html assembly.13 These are producer-driven doing business, efficient logistics and 8 World Bank. 2019. Global Value Chain GVC networks controlled by leading infrastructure. India must also get Development Report 2019: Techno- MNEs such as LG, Samsung, Apple, future-ready for greater participation logical Innovation, Supply Chain Trade etc. These products have fragmented in technology and capital-intensive and Workers in a Globalized World. production across many different sectors of GVCs through upgradation Washington DC: The World Bank. countries. Each country specializes in of requisite skills, and research and 9 ANI. 2019. “Trade War: Why manu- one or more fragments of the process development on patents and designs. facturers are not rushing into India, Indonesia”. The Economic Times 7 with final sophisticated parts and Looking only at labour-intensive October. https://economictimes.india- components produced in capital and sectors would be a rather short to me- times.com/news/economy/indicators/ skill-intensive countries and final as- dium-term effort. The longer-run suc- trade-war-why-manufacturers-are-not- sembly done in developing low skilled cess lies in paying attention to trade in rushing-into-india-indonesia/article- show/71474941.cms?from=mdr labour-intensive countries like China sophisticated network products. One 10 World Bank. 2019. World Development and Vietnam. MNEs, headquartered in of the most important enablers is inter- Report 2020. Washington DC: The developed countries including Japan, national cooperation and keeping the World Bank. https://www.worldbank. South Korea, the US and EU own the trade open. n org/en/publication/wdr2020 intellectual property and specialize in Prof. Chadha is Program Director, Natural 11 ibid. Note 2. capital-intensive stages of fragments. Resources, at Brookings India, New Delhi. This 12 Veeramani, C and G. Dhir. 2016. NPs may be divided into two main piece was first published on the Brookings India “India’s export of unskilled labour-intensive products: a comparative analysis” website. categories, viz. parts and components in C. Veeramani and R Nagaraj (ed) and assembled end products. International Trade and Industrial De- The Economic Survey predicts the Notes velopment in India: Emerging Trends, NP exports to grow from US$5.6 tril- Patterns and Issues. New Delhi: Orient Blackswan. lion in 2018 to US$6.9 trillion in 2020, 1 IMF. 2020. World Economic Outlook, 13 US$24.8 trillion in 2025 and US$49.1 April 2020: The Great Lockdown. Athukorala, Prema-chandra, 2014. "How India Fits into Global Production trillion in 2030. The share of India’s Washington DC: International Monetary fund. Sharing: Experience, Prospects, and NP exports in world NP exports is Policy Options". India Policy Forum, 2 expected to rise from about 1.2 percent MoF, GoI. 2020. Economic Survey National Council of Applied Economic 2019-20, Volume I. New Delhi: Ministry in 2020, to 3.6 percent in 2025 and up Research, vol. 10(1):57-116. http://test- of Finance, Government of India. new.ncaer.org/image/userfiles/file/IPF- to 6.1 percent in 2030. However, these https://www.indiabudget.gov.in/econom- Volumes/Volume%2010/2_Prema%20 numbers have gone through a drastic icsurvey/ Chandra%20Athukorala.pdf; and revision post-COVID-19. 3 Dun & Bradstreet. 2020. Business Veeramani, C and Dhir, Garima. 2017. What is the way forward for ena- Impact of the Coronavirus: Business “Make What in India?” in S Mahendra and Supply Chain Analysis Due to the Dev (ed) India Development Report bling new opportunities to succeed in Coronavirus Outbreak. https://www. 2017. New Delhi: Oxford University GVC integration? It is time to under- dnb.com/content/dam/english/econom- Press.

28 Trade Insight Vol. 16, No. 1-2, 2020 country perspective covid–19 Nepal Economy in the time of COVID-19

While national efforts are crucial to address the impacts of the COVID-19 pandemic, the role of neighbourhood cooperation should also be emphasized.

Paras Kharel

epal’s economy was slowing workers’ remittances from abroad. India. Nepali citizens working in India Ndown even before COVID-19 About a quarter of households receive are already returning home by the tens struck. Gross domestic product (GDP) remittances from at least three million of thousands. At least 400,000 Nepalis had grown at an average rate of 7.3 Nepali citizens working abroad, and are projected to return home from percent in the three-year period 2016- such remittances amounted to 26.2 countries other than India on account 17 to 2018-19, largely on the back of percent of GDP in 2018-19. The size of of the pandemic, as per a quick survey a reconstruction boom following the the labour force in Nepal was about by the government’s Foreign Employ- 2015 earthquake. A slackening of eight million in 2017-18, with another ment Promotion Board. The World demand, partly due to reconstruction 2.6 million people in the potential Bank projects remittance inflows to activities petering out, a dismal rate of labour force category. About 500,000 Nepal to fall by at least 14 percent in capital expenditure execution by the people enter the labour force each the calendar year 2020. government, a fall in agricultural pro- year, and in the last three years (2016- Providing jobs to returnee mi- duction due to adverse weather, and 17 to 2018-19), on average 334,956 peo- grants is a challenge confronting a a reduction in remittance inflows—all ple have annually received permits to country that, as per the Third Nepal these indicated that growth would work abroad (in countries other than Labour Force Survey, already has an come down in the fiscal year 2019-20 India). Remittances from abroad have unemployment rate of 11.4 percent (ending mid-July 2020), notwithstand- contributed to rising living standards, (about one million people) and ing the ambitious target of 8.5 percent including poverty reduction. has 39.3 percent of its labour force set by the government. In October Enter the pandemic, and the spec- underutilized (about 4.2 million). 2019, three months into the fiscal year tre of an adverse shock that would Informal employment is pervasive, 2019-20, the World Bank and the Asian force a significant number of Nepali with some 84.6 percent of the total Development Bank had projected GDP people working abroad to return home employed people in informal employ- growth at around 6.5 percent. and largely foreclose the option of for- ment (Table 1, Page 30). These have eign employment to many job seekers, borne the brunt of the lockdown and Return migration spectre playing havoc with everything from other coronavirus containment meas- Even abstracting from the economic macroeconomic stability to consump- ures introduced since mid-March. slowdown in Nepal that preceded the tion at the household level, is set to be- global pandemic, there was always come a reality. The major employment Bleak outlook a nagging concern about the vulner- destinations for Nepali migrants are Those working in hotels, restau- ability of an economy kept afloat by Malaysia and Western Asia, besides rants and other sectors related to the

Trade Insight Vol. 16, No. 1-2, 2020 29 covid-19

Table 1 employment will see a contraction in value added: hotels and restaurants Formal and informal employment (in ’000) by 16.3 percent; transport, storage and Formal Informal Total communications by 2.45 percent; man- Agriculture, forestry and fishing 47 1,476 1,523 ufacturing by 2.27 percent; and con- Mining and quarrying 2 57 59 struction by 0.31 percent. Agricultural value added growth is expected to Manufacturing 134 938 1,072 slow down to 2.48 percent, compared Electricity, gas, steam and air conditioning supply 14 20 34 to 5.05 percent the previous year. Water supply 9 33 42 These projections are very likely to Construction 24 954 978 be underestimates given that they are Wholesale and retail trade; repair of motor vehicle- 278 962 1,240 based on the assumption that the lockdown would be significantly relaxed sand motorcycles from mid-May, which did not happen. Transportation and storage 70 252 322 The impact would have been greater Accommodation and food service activities 66 305 371 still if Nepal were deeply connected to Information and communication 21 39 60 global value chains and (gross) goods Financial and insurance activities 43 75 118 exports were much higher than the 3.2 percent of GDP observed in 2018-19. Real estate activities 2 15 17 The recovery in 2020-21 is expect- Professional. scientific and technical activities 16 28 44 ed to be tepid, even if the disease is Administrative and support service activities 24 40 64 contained in Nepal by mid-July. Public administration and defence; 83 50 133 compulsory social security Agriculture and public works in focus Education 148 410 558 An adverse external economic climate Human health and social work activities 64 107 171 makes for dim prospects for foreign Arts. entertainment and recreation 11 23 34 employment (and the resultant remit- Other service activities 32 124 156 tance inflows), international tourism, and merchandise exports. Agriculture Private households - 73 73 and public works are the two key Activities of extraterritorial organizations and bodies 5 12 18 potential sources of job creation to Total 1,093 5,994 7,086 contain unemployment in these trying Note: Employment includes only work performed for pay or profit. Production for own final use is excluded. About times. 60.3 percent of the economically active population is involved in agriculture, forestry and fishing (Economic Survey, The government, as per its 2020), if subsistence-level activities in this sector are also included. recently unveiled budget for 2020- Source: CBS. 2019. Report on the Nepal Labour Force Survey 2017/18. Kathmandu: Central Bureau of Statistics, Government of Nepal. 21, aims to create some 736,000 jobs through, inter alia, the expansion of public works programme at the local tourism industry are likely to be the lockdown has been such that even level, provision of agriculture credit, hardest hit in the days ahead because agricultural supply chains, although forestry-based programme, youth the industry will be among the last to deemed to be part of essential goods self-employment programme, micro recover as some mobility restrictions and services, were brutally disrupted, entrepreneurship, technical and vo- and social distancing measures will be with vegetables rotting in the fields cational education and training, skill in place for a while. At the enterprise and farmers being forced to cull chick- training with industry involvement, level, the containment measures have ens and throw away milk. About 31.2 concessional credit, and seed capital battered micro, small and medi- percent of the population is estimated for innovation. An arrangement has um-sized enterprises (those where to live on between US$1.9 and US$3.2 been made for a refinance fund worth less than 100 people are engaged), a day. These people are at a high risk NPR 150 billion, to provide credit to which, as per the Nepal Economic of being pushed into extreme poverty, COVID-19-hit enterprises at a conces- Census 2018, account for 99.8 percent as per the World Bank. sional interest rate of no more than of economic establishments and 84.7 Nepal’s Central Bureau of Statis- 5 percent. Of this amount, NPR 50 percent of the persons engaged in tics projects GDP growth for 2019-20 billion has been set aside specifically such establishments. Establishments to fall to 2.3 percent, compared to 7 for small and cottage enterprises and where less than 10 people are engaged percent in the previous fiscal year the tourism industry. Reductions in employ about two thirds of the people (Table 2, Page 31). Four sectors that income taxes for enterprises have also engaged thereof. The severity of the are major sources of non-agricultural been announced.

30 Trade Insight Vol. 16, No. 1-2, 2020 As external demand conditions A calibrated relaxation of the and the resulting impact on economic for agriculture and food products lockdown to allow economic activ- activities. could be less inclement than those ities to resume, while stepping up l Access to a vaccine for COVID-19, for other goods, these should be testing and contact tracing, is a must once it is developed, will be crucial accorded priority through an export to avoid an economic disaster. to restoring normalcy. China—an lens, in line with an overall empha- observer at the South Asian Asso- sis on agriculture. The new budget Neighbourhood cooperation ciation for Regional Cooperation also points to this direction. When While national efforts are crucial to (SAARC)— and India are among providing incentives to the food-pro- address the impacts of the COVID-19 the few countries attempting to cessing industry, domestic value pandemic, the role of neighbourhood develop such a vaccine. Making the addition and employment creation cooperation should also be em- vaccine, once developed, immedi- must be taken into account to avoid phasized. This article concludes by ately available to South Asian na- encouraging businesses that rely flagging some areas for cooperation tions as a public good will be in the heavily on imported agricultural at the bilateral and regional level true spirit of regional cooperation. raw materials and export them with in Nepal’s neighbourhood, from l SAARC countries should agree not minimal processing by arbitraging Nepal’s perspectives, based on the to restrict exports of medical goods on tariff differentials. experiences during the health crisis and basic food stuffs to one another

Table 2 Growth rates by sectors (in percent) 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Agriculture and forestry 4.49 4.58 1.07 4.54 1.00 0.01 5.14 2.72 5.05 2.48 Fishing 5.88 7.53 2.71 4.90 7.09 11.76 8.02 7.42 5.60 7.17 Mining and quarrying 2.01 5.03 1.98 11.85 2.34 -2.79 13.74 8.88 8.91 -0.69 Manufacturing 4.05 3.63 3.72 6.28 0.37 -8.00 9.70 9.17 6.82 -2.27 Electricty gas and water 4.43 8.30 0.28 3.27 0.78 -7.59 20.47 9.64 9.15 28.75 Construction 4.79 0.22 2.45 9.08 2.85 -4.36 12.43 10.02 8.05 -0.31 Wholesale 1.41 3.50 7.25 10.89 2.42 -2.16 11.89 12.54 11.06 2.11 and retail trade Hotels and restaurants 6.20 7.38 5.50 6.77 3.33 -9.68 7.33 9.77 7.33 -16.30 Transport, storage and 5.21 8.10 7.65 5.24 6.23 2.02 6.47 4.65 5.90 -2.45 communications Financial intermediation 3.30 3.47 -0.91 3.70 2.91 8.55 9.09 6.38 6.18 5.15 Real estate, renting and 2.25 2.97 5.19 3.64 0.77 3.72 5.67 5.24 6.12 3.25 business activities Public administration 3.85 3.67 5.53 5.04 8.84 2.52 9.06 5.07 5.54 6.91 and defence Education 3.01 5.58 5.92 4.81 5.09 7.33 7.39 5.02 5.11 4.88 Health and social work 5.02 6.43 4.48 4.50 11.37 3.25 7.34 6.33 6.75 7.07 Other community, 7.11 6.36 4.79 4.77 12.52 5.55 5.58 5.54 5.73 4.70 social and personal service activities Agriculture, 4.51 4.63 1.10 4.55 1.10 0.23 5.20 2.82 5.06 2.59 forestry and fishing Non-agriculture 3.64 4.53 5.01 6.41 3.89 0.38 9.00 7.74 7.37 2.27 Total GVA 3.94 4.57 3.64 5.77 2.95 0.33 7.74 6.15 6.65 2.37 including FISIM Gross Domestic 3.42 4.78 4.13 5.99 3.32 0.59 8.22 6.70 6.99 2.28 Product (GDP) Source: CBS. 2020. National Accounts Statistics 2019/20. Kathmandu: Central Bureau of Statistics, Government of Nepal.

Trade Insight Vol. 16, No. 1-2, 2020 31 covid-19 Pixabay

during times of crisis such as the whether during the remainder of similar state. This is also an oppor- pandemic. the current pandemic or in future tunity to operationalize the transit l SAARC should review the modal- such pandemics. This is doubly agreement with China, which ities for the operationalization of important for a landlocked country entered into force early this year, the SAARC Food Bank so that the like Nepal. For several weeks to conduct Nepal’s overseas trade reserves prove practically helpful when both Nepal and India were through China. during crises in future accompa- under lockdown, the government l During the pandemic, India tem- nied by food scarcity. of West Bengal did not allow the porarily waived the requirement l A mechanism at the SAARC movement of cargo vehicles, infor submission of some physical level for sharing information and cluding those carrying food stuffs documents for customs purposes. experiences during viral outbreaks and other essential items such as The scope for facilitating trade would help member states to better petroleum products, bound for Ne- through electronic means should respond to such crisis. pal via the Kakarbhitta/Panitanki be further explored. Through l The crisis has raised the question customs point. Similarly, Nepal's bilateral and regional coopera- of how to build a public distribu- cargoes imported from third coun- tion, adopting the use of digital tion system and introduce a cash tries could not be released from technology in customs clearance, transfer system in Nepal that can Indian sea ports and transported to movement of transit cargo and cushion the impact of the loss of the Nepal-India border for months. other areas of trade facilitation on livelihoods (whether due to such a l Given that the disease is in the a permanent basis can help reduce pandemic or other internal/exter- course of being under control trade costs for landlocked Nepal. nal factors) on especially the poor in China, more so than in other l Nepal and India host hundreds of and the most vulnerable. Experi- hard-hit countries, the govern- thousands of each other’s nationals ences of other South Asian coun- ment, together with the private as workers. Learning from this tries would be valuable lessons for sector, should explore the option pandemic, with an eye to such Nepal. of importing critical supplies from situations in the future, the two l Introducing and implementing ap- China by air and land, including countries should work out a plan propriate protocols, in cooperation stuffs previously imported from to enable the return of each other's with bilateral and regional part- elsewhere, if the lockdown in India citizens to their homes in a safe ners, smoother cross-border cargo continues and intensifies and/ and swift manner. n movement should be possible, or other import sources are in a Dr. Kharel is Research Director, SAWTEE.

32 Trade Insight Vol. 16, No. 1-2, 2020 country perspective covid–19 Pakistan

Issues associated with COVID-19

Driving regional response to COVID-19 can act as a stepping-stone towards promoting regional alliances on health, climate change, disaster risk reduction, etc.

Mobeen Ali Khan and Vaqar Ahmed

he first case of COVID-19 surfaced loss in export orders while 89 percent The Ministry of National Health Ton 26 February 2020 in Pakistan. enterprises reported facing severe cash Services, Regulations and Coordi- Since then the reported number of flow issues. These developments are nation, and the National Disaster cases has increased rapidly despite bound to have an impact on poverty Management Authority (NDMA) social distancing measures put in and inequality.4 are helping provincial health depart- place by the federal and provincial Against this backdrop, as we ments in expanding surveillance to governments.1 Pakistan’s Prepared- approach the decade of action, the capture and monitor disease outbreak ness and Response Plan (PPRP) out- investment gap required to finance trends. The Ehsaas programme plans lines measures required to strengthen the Sustainable Development Goals to disburse around US$900 million Pakistan’s capacity and reduce gaps in (SDGs) has increased due to COV- to 12 million households6 through emergency, prevention, preparedness, ID-19. Thus, the availability of timely unconditional cash transfers. A labour response and relief and build health financing, coupled with prudent insti- portal has been launched under this systems. Until now US$4 billion has tutional measures, has become even programme to identify people who been pledged by foreign partners to more relevant in the context of devel- became unemployed after the COV- support PPRP. oping countries such as Pakistan.5 ID-19 pandemic but are not listed in The International Monetary Fund any existing socio-economic databases (IMF) predicts that Pakistan’s econo- Pakistan’s response of Ehsaas. It is estimated that there my will experience a contraction of 1.5 Pakistan’s response to COVID-19 has are around four million people in this percent in the fiscal year 20202 with been four-pronged. First, the health group and PKR 75 billion has been the recovery expected to be gradual and social safety net programme (Eh- allocated to provide them relief. (Table, Page 34). The lockdown, with saas) was expanded. Second, support The central bank will be providing moderate restrictions in Pakistan, has was made available for micro, small subsidized loans to SMEs, including affected 15.5 million jobs.3 A survey and medium enterprises (MSMEs). collateral-free lending to micro busi- by the Small and Medium Enterprises Third, there was a country-wide effort nesses. To cover the risks of commer- Development Authority (SMEDA) to improve health systems. Fourth, to cial banks, a credit risk-sharing facility stated that 95 percent enterprises revive jobs for the poorest of the poor, is available, with the government experienced a reduction in operations the construction sector was allowed to bearing up to 40 percent of the first and 23 percent reported a 100 percent open and operate. loss to banks. This facility currently

Trade Insight Vol. 16, No. 1-2, 2020 33 covid-19

staff. It has taken time to scale up PPE Table availability; however, supply chain Macroeconomic framework of Pakistan distribution still remains a challenge Indicators 2019-20 2019-20 2020-21 in some regions. In the coming federal Pre-COVID Projections and provincial budgets, increased fiscal space will need to be created to Real GDP growth ( percent) 2.4 -1.5 2.0 augment health sector capacities. Fixed investment (as percent of GDP) 13.2 12.9 11.4 Addressing exclusion will require Public investment (as percent of GDP) 3.3 2.3 2.7 improvements to statistical bodies and Inflation (CPI, Period Average, Growth percent) 11.8 11.3 8.0 their databases, which will have to be a medium-term agenda. The survey Government revenue (percent of GDP) 16.0 14.3 15.8 tools available with the Pakistan Government expenditure (percent of GDP) 23.2 23.5 22.3 Bureau of Statistics (PBS) or provin- Budget deficit (percent of GDP) 7.2 9.2 6.5 cial bureaus need upgradation from Primary deficit (percent of GDP) 0.8 2.9 0.4 the lens of improving targeting of the marginalized. The National Socio-eco- General government debt ( percent of GDP) 80.4 85.4 83.3 nomic Registry at Ehsaas was also not Exports fob (US$ billion) 25.5 23.7 24.8 updated for around a decade. Such Imports fob (US$ billion) 48.3 44.4 45.8 data gaps make it difficult to identify people without civil registration docu- Remittances (US$ billion) 22.6 20.8 20.5 ments. Similarly, current data collect- Current Account Deficit ( percent of GDP) 2.2 1.7 2.4 ed on migrant, informal and disabled Gross reserves (US$ billion) 12.6 12.0 15.0 workers are not comprehensive. Gross reserves (Months of Imports) 2.5 2.7 3.3 Safer trading practices now introduced at logistics and port networks in Source: Finance Division, State Bank of Pakistan & IMF Country Report No. 20/114. the country are bound to slow down commercial and transit traffic across Pakistan. This has also impacted cargo has a limit of PKR 40 billion, which over US$12 billion of debt repayment traffic bound for Afghanistan. This will be expanded over time. Addi- obligations from G20 countries until calls for an urgent regional dialogue tional central bank measures include December 2020. on how to keep the trade flows mov- lowering the interest rates to 8 percent ing swiftly and what additional invest- and increasing the regulatory limit on Challenges ments may be required to upgrade extension of credit to SMEs. Currently there are three major chal- trade-related infrastructure facilities. A fiscal stimulus for the construc- lenges facing Pakistan in responding In the absence of COVID-19 vac- tion sector has also been announced. to COVID-19. These include the deci- cine, there are uncertainties regard- Investors wishing to contribute to this sion to relax the lockdown and ensure ing the timeline of this crisis. It is, sector will have tax privileges. It is ex- that social distancing is practised, therefore, important for developing pected that this measure will also give supporting public health care systems countries such as Pakistan to plan a boost to 40 allied industries besides as the number of patients increase, ahead keeping in mind that in the spurring employment for daily-wage and addressing instances of exclusion coming days there will be constraints and ad hoc workers. in social safety nets. to traditional aid flows. The advanced As trade disruptions and uncertain Local administrations have been economies will be overstretched with outlook of remittances threatened the found weak at places, in turn, leading their own response to the pandemic balance of payments stability, Pakistan to poor compliance with procedures and need to utilize their resources had to request multilateral partners for formulated for lockdowns. The coun- prudently at home. immediate help. Gross reserves of the try lacked information management central bank have now improved on systems at the local level, which could Way forward the back of Rapid Finance Instrument inform the federal government re- Discovering ways to enhance domes- facility of US$1.386 billion provided garding any food or medical supplies tic resource mobilization and finance by the IMF. The World Bank and the shortages. This information reached immediate and future COVID-related Asian Development Bank have also after a lag, thus making public unrest needs will help Pakistan fight the repurposed their assistance to fight at places imminent. crisis better. However, this is not easy COVID -19. In addition to this, Paki- The weak health care infrastruc- during times of low economic growth stan has formally sought debt relief of ture at the local level and shortages in domestically and abroad. Moreover, as US$1.87 billion from 11 bilateral cred- personal protective equipment (PPE) suggested by the Sustainable Develop- itors and obtained a moratorium on has affected the morale of doctors and ment Policy Institute, there is a need

34 Trade Insight Vol. 16, No. 1-2, 2020 to lower the direct and indirect tax within the overall digital economy. if politically this is not feasible at this burden on micro and small enterpris- For them, slow implementation of the stage, we propose that a virtual heads es.7 Nevertheless, with innovative use e-commerce policy during the past of state summit may be convened to at of technology and data, potential tax year has resulted in several missed op- least break the ice and keep countries payers or those not fulfilling complete portunities. It is necessary to expedite in the region engaged. n tax liability may be brought into the measures in this policy, revisit stifling Mr. Khan and Dr. Ahmed are associated tax net. foreign exchange rules and online with Sustainable Policy Development Institute To increase resource mobilization, payment mechanisms. (SDPI), Islamabad. the government will have to resort to Successful implementation of the non-tax source of revenue. Reliance stimulus package will require sus- should be on those sources that would tained financing (at least until liveli- Notes lead to least economy-wide distor- hoods and vulnerable businesses are 1 As of 18 May, 2020 there were 42,125 tions and do not lead to expansion of out of danger), distribution channels cases of which 29,300 were active. public debt beyond sustainable levels. that ensure speedy receipt of uncon- There are 215 medical facilities with A more liberal tariff regime will be ditional or conditional support, and 2,942 isolation beds and 57 functional required to encourage industries to monitoring. Perhaps the last aspect, labs with a testing capacity of 16,414 tests per day catering for a population repurpose and respond to COVID-re- i.e. monitoring, has been the weakest of more than 220 million people. lated needs. In this regard, tariffs, until now. Proper attention of moni- 2 https://www.imf.org/en/Countries/PAK para-tariffs and non-tariff measures toring and evaluation of interventions 3 ul Haque, N. and D-e-Nayab. 2020. imposed on medical supplies, health by the central bank, Ehsaas, health PIDE COVID-19 E-book. Islamabad: products such as PPEs, pharmaceu- ministry and departments at the fed- Pakistan Institute of Development ticals and related sectors may be eral and provincial levels is desired to Economics. https://www.pide.org.pk/ pdf/PIDE-COVID19-EBook.pdf revisited. improve the delivery of stimulus. 4 Vaqar Ahmed & Cathal O’ Donoghue, In the coming days, kickstarting 2010. "Case Study: Global economic economic growth will be a priority. crisis and poverty in Pakistan". Inter- For this, attracting local and foreign national Journal of Microsimulation, International Microsimulation Associa- investment will be essential. Both Slow implementation of tion vol. 3(1):127-129. federal and provincial governments the e-commerce policy 5 Khan, A., A. Javed, S. Batool, F. Hus- need to come together and revisit the during the past year sain, H. Mahmood, and V. Ahmed. regulatory burden on businesses. A 2016. The role of youth in sustainable regulatory impact assessment is much has resulted in several development: Perspectives from South Asia. Islamabad: Sustainable Develop- desired to help sustainability of micro missed opportunities. ment Policy Institute. http://hdl.handle. and small enterprises, social enterpris- net/11540/9293. es, and women-led businesses. Ra- 6 Nishar, S. 2020. “COVID-19: Using tionalization of regulatory costs could cash payments to protect the poor in help reduce the overall cost of doing Finally, the COVID-19 pandemic Pakistan”. World Economic Forum Agenda 05 May. https://www.weforum. business in Pakistan. This is a major also presents a case for normalizing org/agenda/2020/05/using-cash-pay- demand of Chinese enterprises willing trade with India and look into deeper ments-protect-poor-pakistan/ to invest in Pakistan during the second regional cooperation across member 7 There is room to make overall fiscal phase of the China Pakistan Economic countries of the South Asian Asso- policy more progressive. For example, Corridor.8 ciation for Regional Cooperation see: Ahmed, Vaqar; Talpur, Mus- tafa. 2016. Corporate Tax Reforms in 9 To help improve efficiency of (SAARC). The SAARC COVID-19 Pakistan. Sustainable Development public spending, it is important to dig- Emergency Fund can be effectively Policy Institute. http://hdl.handle. italize social safety net programmes. used as a building block to revive net/11540/9306. 8 Currently, over 100 social safety net regional cooperation. Equally impor- For details see: Naqvi, Wasif; Hayat, Daheem; Javed, Maaz; Ahmed, Vaqar. programmes exist across the country, tant is to empower the leadership at 2019. A Review of Export Promotion often targeting the same areas and the SAARC Secretariat and capacitate and Exemption Schemes. Sustainable beneficiaries. Digitalization will also them towards driving the process of Development Policy Institute. http://hdl. guide non-government organizations regional response to COVID-19. This handle.net/11540/11523. 9 (NGOs) to help identify communities can act as a stepping-stone towards For normalizing trade with India in services, we offer some suggestions here: that may not have received public promoting regional alliances on Rabia Manzoor, S.K.Toru, V. Ahmed. sector support or where the quality of health, climate change, disaster risk 2017. Health Services Trade between support may be sub-optimal. reduction, etc.10 The relevant institu- India and Pakistan. The Pakistan Jour- Within the services sector there are tions also need to rekindle cooperation nal of Social Issues. Volume VIII. 10 encouraging prospects for firms able in science and technology spheres. Arshad, Y., and V. Ahmed, Vaqar. 2018 “Corridors for Competition or Coopera- to pivot and provide online services The SAARC heads of state summit tion? Perspectives from Southern Asia”. or engage in any other value chain has not taken place since 2014. Even Criterion Quarterly. Vol. 13, No. 3.

Trade Insight Vol. 16, No. 1-2, 2020 35 covid-19

country covid–19 perspective Sri Lanka A first look at the Impact of COVID-19

The magnitude of the stimulus and policy package to stabilize the economy is likely to be less in Sri Lanka given the lack of fiscal space and debt overhang.

Ganeshan Wignaraja and Angela Hüttemann

ri Lanka has faced many exter- first reported COVID-19 positive case the wake of the COVID-19 outbreak Snal shocks—such as the oil price on 11 March 2020, with an average (Table, Page 37). Individual forecasts shocks of the 1970s, the 2004 Tsunami of 16 new infections reported daily. for 2020, however, vary from positive and the 2008-2009 global financial Positive cases per million population to negative projections reflecting di- crisis—over which it had little control. stand at approximately 55, compared verse estimates of domestic and global The COVID-19 global pandemic is to South Asia’s average of 465, whilst risks. A simple average of poll projec- being labelled as the worst external the mortality rate accounts for 0.85 tion from these forecasters suggests shock hitting the Sri Lankan economy percent (compared to 1.25 percent that Sri Lanka’s growth is estimated to in its four decades of outward-looking regionally).2 Sri Lanka’s strong relative be 0.7 percent in 2020, which is much economic policies. Against this back- positioning in South Asia can be lower than 2019’s growth rate of 2.3 drop, this article takes a first look at attributed to factors such as relatively percent. Furthermore, Sri Lanka’s pub- the impact of the COVID-19 pandemic high nutrition levels of the population, lic debt to GDP ratio in 2020 is likely on Sri Lanka during the three-month a universal health care system that ex- to increase following a COVID-19-re- period (March–May 2020). It charts tends free healthcare to all citizens and lated increase in fiscal spending and emerging health, economic and social comprehensive lock down measures a fall in revenue. Inflation is expected impact of the pandemic on Sri Lanka, (e.g. strict social distancing measures, to remain within the central bank’s explores initial national and regional travel bans, and the imposition of a envisaged 4-6 percent corridor based policy responses and concludes with two-month island-wide curfew from on an inflation targeting framework. some policy implications. 20 March). It is also a small country In the short- to medium-term, with a centralized administrative COVID-19 is impacting Sri Lanka, Mapping economic system. via two main transmission channels: and social impacts i) fall in production and trade, and As on 25 May 2020, 1,182 COVID-19 Economic impact ii) weakening of the country’s finan- positive cases have been confirmed in The Central Bank of Sri Lanka (CBSL), cial position, limiting fiscal stimulus Sri Lanka, with 477 reported recover- international financial agencies and measures. In the longer-term, subdued ies and 10 deaths.1 Cumulative cases rating agencies (e.g. Fitch) have down- investor and business confidence may have increased gradually since the graded Sri Lanka’s growth outlook in delay the country’s path to recovery.

36 Trade Insight Vol. 16, No. 1-2, 2020 Fall in production, trade Pixabay and business sentiment On the demand-side, lock down of economies internationally and the associated decline in consumption weigh on Sri Lanka’s exports, while Sri Lanka’s interconnectedness with global supply chains and COVID-19-related supply chain disruptions negatively impact manufacturing on the supply-side. Sri Lanka recorded a 17 percent drop in exports in March 2020 against dwin- dling demand for key exports such as garments, agri-food and tourism.3 The garment sector, one of the country’s growth engines over the past decades, provides approximately 9.5 percent of total employment and generates US$5.3 billion export revenue (26 percent of total exports).4 The sector expects a US$1.5 billion loss Lingering uncertainty about future local companies of important access to in export earnings between April and economic developments, both locally capital. June 2020, and a 50 percent decline in and globally, is likely to weigh on demand over the next 1.5 years.5 In an Sri Lanka’s economic recovery. Sri Weakening of fiscal position attempt to remedy the projected fall Lanka’s Purchasing Managers’ Indices Sri Lanka has had twin deficits for in revenues, major firms are shifting (PMI) for manufacturing and servic- decades. In 2019, it had an estimated production towards protective and es, which estimate the direction of 6.8 percent fiscal deficit and a 2.2 per- medical gear. economic trends and inform business cent current account deficit.11 An over- Sri Lanka’s tourism sector has and investment decisions, declined all debt-to-GDP ratio of 87 percent12 faced a significant year-on-year drop to 24.2 and 29.8, respectively, in April limits the fiscal space to tackle the pan- in tourist arrivals in March (-71 per- 2020.8 Levels below 50 indicate an demic and may increase Sri Lanka’s cent) and April (-100 percent) with the anticipated economic contraction. The dependency on external financing. A closing of borders and suspension of country’s major stock market index, series of COVID-19-related develop- air travel since 18 March.6 The sector CSEALL, has declined 22 percent year- ments may put additional pressure on contributes around 13 percent to GDP, to-date9, reflecting investors’ height- the country’s fiscal position and pose and accounts for more than 4.8 percent ened risk sentiment. In a flight to saf- financial risks. As of 26 May 2020 the of total employment.7 A prolonged er-haven assets, foreign investors were Sri Lankan Rupee has depreciated closure of borders will severely impact net sellers of US$29 million worth of 2.6 percent year-to-date against the the industry, which had recently start- stocks during the first quarter of the US dollar, increasing the real value of ed to recover from the impact of April year.10 Lower investor confidence and dollar-denominated debt repayments 2019 Easter Sunday attacks. reduced portfolio investments deprive (totalling US$4.8 billion in 2020, which

Table Preliminary estimates of Sri Lanka’s key economic variables for 2020 2019 2020 CBSL ADB 2020 Fitch 2020 IMF 2020 Real GDP growth (percent) 2.3 1.5 2.2 -0.4 -0.5

Inflation rate (annual percent change) 4.3 4.5 5.0 5.2 4.7

Debt to GDP ratio 86.8 92.4 N/A 94.0 N/A

Budget deficit (percent of GDP) -6.8 -7.9 N/A -9.3 -9.4

Current account balance (percent of GDP) -2.2 -3.1 -2.8 N/A -3.6

Sources: Asian Development Bank’s Asian Development Outlook (April 2020) ; Central Bank of Sri Lanks’s Recent Economic Developments: Highlights of 2019 and Prospects for 2020 (April 2020); Fitch Ratings (March 2020); and Inetnational Monetary Fund’s World Economic Outlook (April 2020).

Trade Insight Vol. 16, No. 1-2, 2020 37 covid-19

is 5.4 percent of GDP).13 Following fiscal, monetary, financial and trade owned financial institutions (e.g. Bank a rising risk sentiment, Sri Lanka’s policy measures to cushion the neg- of Ceylon and Sri Lanka Insurance capital market has seen a large decline ative impact of the pandemic, while Corporation) are supporting the mon- in foreign-owned debt stock, lowering increasing resilience of the country’s ey market interest rate by purchasing fiscal space and putting additional health care system and improving treasury bonds and bills.23 pressure on the exchange rate. overall policy coordination. A loss in government revenue Trade policy measures following a decline in production and Fiscal stimulus Import of all non-essential items was consumer demand further restricts Sri Lanka is attempting to accelerate prohibited to stabilize foreign ex- fiscal stimulus measures. Remittanc- the implementation of certain capital change reserves and tax exemptions es, which account for approximately investment projects (e.g. express- were granted for imported masks and 8 percent of GDP14, are expected to ways and airport modernization) and disinfectants. decline as around 70 percent of it are provide emergency relief (totalling earned in West Asia (51 percent) and around 0.2 percent of GDP) to around Healthcare measures Europe (19 percent)15, both of which 5.7 million vulnerable households in The military and health authorities have been severely impacted by COV- the form of monthly payments (LKR are operating 41 quarantine centres ID-19. Thus, foreign exchange reserves 5,000, approximately US$26), food across the country and the state has could decline in the medium term. allowances and concessional loans.18 donated 0.6 percent of GDP to a newly Furthermore, Sri Lanka has an interim Furthermore, deadlines for tax pay- introduced COVID-Healthcare and So- government with parliamentary elec- ments were extended until the end of cial Security Fund, inviting local and tions scheduled for mid-2020, which April and price ceilings on essential foreign tax-free donations to the fund. further limits the government’s ability food and medical items were put in to provide extensive fiscal support. Policy coordination To speed up implementation of the Social impact policy package and improve coor- COVID-19 poses heightened risks for Policy attention dination, a powerful Presidential Sri Lanka’s poor, particularly chil- should now turn to Task Force on Economic Revival and dren, the elderly and persons with Poverty Eradication was established disability. Many formal and informal a comprehensive on 22 April consisting of permanent businesses are cutting jobs, affecting programme to revive secretaries of key economic ministries, livelihoods. The United Nations’ the economy. heads of economic promotion agen- Children Fund estimates that aver- cies, other specialized state institutions age household incomes in Sri Lanka and the military. could decline between 12 percent and In addition to the above policies, 27 percent over a six-month period, place.19 However, reflecting Sri Lan- Sri Lanka has emphasized bilateral depending on the severity and length ka’s restricted fiscal space, the size of and regional cooperation efforts in of the pandemic.16 This in turn strains the stimulus measures is limited com- South Asia. For instance, in late April, the purchasing power of vulnerable pared to its neighbours such as India Sri Lanka was set to obtain US$400 groups and may pose a threat to food and Bangladesh, where fiscal stimulus million from the Reserve Bank of India security for the affected. amounts to approximately 10 percent (RBI) under the SAARC currency Sri Lanka’s annual (headline) and 4 percent of GDP, respectively.20 swap arrangement to boost its foreign inflation was subdued in March, ben- reserves and ensure financial stability. efitting from a global reduction in oil Monetary stimulus At the time of writing, discussions prices and easing of food supply con- In order to lift liquidity constraints with the RBI were also underway on ditions. Sri Lanka’s bountiful 2019/20 and alleviate exchange rate pressures, a further currency swap worth US$1 paddy harvest is likely to sustain the Central Bank of Sri Lanka lowered billion. Furthermore, in mid-March, demand till September 2020.17 How- policy rates by 100 basis points across Sri Lanka supported India’s leader- ever, a prolonged period of COVID-19 three rate cuts21 since the beginning of ship to establish a SAARC COVID-19 and the associated fall in agricultural March. It also introduced a six-month Emergency Fund to mitigate the production may pose risks to food debt repayment moratorium on bank risks associated with the pandemic. security for vulnerable groups. loans for small and medium enterpris- It donated US$5 million to the fund, es and vulnerable groups, including which has received total voluntary National and regional three-wheeler drivers.22 Similarly, contributions of about US$22 million policy responses a ‘Special Deposit Account’ was set from all South Asian countries.24 This Sri Lanka acted quickly to implement up with attractive interest rates for signals an important step towards an initial domestic policy package to foreign currency deposits from Sri reinvigorating regional cooperation stabilize the economy. This included Lankans and foreigners while state- in South Asia, which was at a stand-

38 Trade Insight Vol. 16, No. 1-2, 2020 still in recent years. However, the Notes https://economynext.com/sri-lanka-to- size of the fund is limited in relation repay-us4-8bn-in-2020-already-part- financed-37958/. to regional needs and its operational 1 Epidemiology Unit Sri Lanka. 2020. 14 details remain unclear. National Epidemiological Report – Sri Central Bank of Sri Lanka. 2020. Lanka. Colombo: Ministry of Health. Monthly Economic Indicators – March Government of Sri Lanka. 2020. Colombo: Statistics Department, Conclusion Central Bank of Sri Lanka. https:// 2 John Hopkins University & Medicine. www.cbsl.gov.lk/sites/default/files/ Sri Lanka has earned praise from COVID-19 Dashboard by the Centre cbslweb_documents/statistics/mei/ the World Health Organization and of Systems Science and Engineering. MEI_202003_e.pdf. development partners for efficiently https://coronavirus.jhu.edu/map.html. 15 Department of Census and Statistics. 3 Sri Lanka Export Development Board. managing the public health emergency 2019. Economic Statistics of Sri Lanka 2020. Export Performance – March related to COVID-19. 2019. Colombo: Department of Census 2020. https://www.srilankabusiness. and Statistics, Ministry of Finance, Nonetheless, coming through com/news/export-performance percen- Government of Sri Lanka. http://www. the trade and finance channels, the tE2 percent80 percent93march-2020. statistics.gov.lk/EconomicStat/Econom- html. economic fallout from the pandemic icStatistics2019.pdf [14 May 2020]. 4 Department of Census and Statistics. is likely to be significant. Sri Lanka’s 16 Daniels, L. M. 2020. “Economic re- 2019. Annual Survey of Industries growth in 2020 is likely to be less covery begins with children (and older 2018. Colombo: Department of Census people, and people with disabilities): than that in 2019 and may be at best and Statistics, Ministry of Finance, The urge for universal lifecycle cash tepid in 2021 in the face of mounting Government of Sri Lanka. transfers as a response to COVID-19”. domestic and global risks. Further- Department of Census and Statistics. https://www.socialprotection.org/ more, while a domestic policy package 2018. Sri Lanka Labour Force Survey. learn/blog/economic-recovery-begins- to stabilize the economy is being Annual Bulletin – 2018. Colombo: children-and-older-people-and-people- Department of Census and Statistics, rapidly implemented in Sri Lanka, the disabilities-urge-universal Ministry of Finance, Government of Sri 17 magnitude of the stimulus and related Lanka. United Nations World Food Programme measures is likely to be less than those and International Water Management Central Bank Sri Lanka. Exports – An- Institute. 2020. Climate & Food Security of regional peers given the lack of nual (1990 to Latest). Monitoring Bulletin – Maha Season fiscal space and debt overhang. https://www.cbsl.gov.lk/en/statistics/ 2019 -2020. In the latter half of 2020, once statistical-tables/external-sector 18 IMF. 2020. Policy Responses to parliamentary elections are over, 5 Economynext. 2020. Amidst COVID-19, COVID-19 – Policy Tracker Sri Lanka. and the pandemic is under control, Sri Lanka apparel is fighting for its life. https://www.imf.org/en/Topics/imf-and- Economynext 24 April. covid19/Policy-Responses-to-COVID- policy attention should turn to a 6 SLTDA. 2020. Monthly Tourist Arrivals 19#S. comprehensive programme to revive Report. Colombo: Sri Lanka Tourism 19 KPMG. 2020. Sri Lanka: Tax relief mea- the economy. Key policy priorities, Development Authority. sures (COVID-19). https://home.kpmg/ as identified in a recent report by an 7 World Travel and Tourism Council. us/en/home/insights/2020/04/tnf-sri-lan- eminent persons group of academ- 2020. Total Contribution to GDP. Sri ka-tax-rate-changes-measures-2020. ics and business, are to i) improve Lanka. https://www.wttc.org/datagate- html. 20 food security and provide enhanced way. ibid. Note 18. 8 21 social protection; ii) continue with Central Bank of Sri Lanka. SL Purchas- Central Bank of Sri Lanka. 2014. ing Managers’ Index – April 2020. “Economic, Price and Financial System macroeconomic stabilization efforts https://www.cbsl.gov.lk/sites/default/ Stability, Outlook and Policies”. Annual and more effectively manage external files/cbslweb_documents/press/pr/ Report 2013. https://www.cbsl.gov.lk/ debt through a new IMF programme news_20200519_pmi_april_2020_e. sites/default/files/cbslweb_documents/ and emergency assistance from other pdf. publications/annual_report/2019/en/5_ 9 Chapter_01.pdf#page=29. international financial institutions and Bloomberg. 2020. CSEALL:IND - CSEALL Index. https://www.bloomberg. 22 ibid. Note 18. bilateral donors; iii) undertake eco- com/quote/CSEALL:IND 23 ColomboPage. 2020. “President an- nomic reforms, including streamlining 10 Colombo Stock Exchange. 2020. CSE nounces several relief measures due red tape and promoting digitisation of Monthly – 03/2020. https://cdn.cse.lk/ to Covid-19 outbreak effective from all public services; and iv) improve the cmt/upload_cse_report_file/monthly_re- today”. ColomboPage 23 March. http:// coordination of economic policies.26 port_669_31-03-2020.pdf www.colombopage.com/archive_20A/ These measures, along with efforts to 11 International Monetary Fund. 2020. Mar24_1584988408CH.php [14 May 2020]. improve regional cooperation, should Press Release No. 20/42 – IMF Staff Concludes Visit to Sri Lanka. 24 Outlook India. 2020. “Sri Lanka pledges be kept in place for the medium term https://www.imf.org/en/News/Ar- USD 5 mn to SAARC COVID-19 Emer- to help Sri Lanka on the road to eco- ticles/2020/02/07/pr2042-sri-lanka-imf- gency Fund”. Outlook India 23 March. staff-concludes-visit-to-sri-lanka. nomic recovery. n 25 Pathfinder Foundation. 2020. Path- Dr. Wignaraja is the Executive Director 12 Fitch Ratings. 2020. “Fitch Downgrades finder Beyond the Box: A New Eco- and Ms. Hüttemann is Research Fellow at the Sri Lanka to ‘B-’; Outlook Negative”. nomic Visions for Post-COVID-19 Sri Fitch Ratings 24 April. Lanka. https://www.lki.lk/wp-content/ Lakshman Kadirgamar Institute of Interna- 13 Economynext. 2019. “Sri Lanka to uploads/2020/05/Pathfinder_Be- tional Relations and Strategic Studies (LKI), repay US$4.8bn in 2020, already part yond_The_Box_A_New_Economic_Vi- Colombo. Views expressed are personal. financed”.Economynext 30 December. sion_for_Post_Covid_19-SL.pdf

Trade Insight Vol. 16, No. 1-2, 2020 39 climate change

Negotiating the climate What’s next after COVID-19

The synergies created to address the impacts of the COVID-19 pandemic should be used simultaneously to address the climate crisis.

Imran Saqib Khalid

he world is in the midst of a Agreement, in terms of the amount ature rise is not limited to 1.5°C, 36 Tpandemic. COVID-19 has wreaked of emissions that each country will percent of the glaciers along the Hindu havoc across the world. It is also a sign reduce, were not sufficient to tame Kush Himalayan (HKH) range will be of things to come if the global commu- global temperature rise to well below depleted by 2100.2 A business-as-usual nity does not act on time to address 2°C above preindustrial levels as approach with little to no reduction in the climate crisis. One of the regions agreed. Furthermore, resurgence of emissions will virtually see the elim- to be most affected by the impacts of the fossil fuel lobby, decision by the ination of two-thirds of the glaciers. global warming is South Asia. Home US to withdraw from the Agreement According to Phillipus Wester, a sen- to nearly two billion people, the effects and a lack of commitment by devel- ior researcher at ICIMOD who led the of climate change are already being oped countries for climate financing study, “in the best of possible worlds, felt across the region in the form of mean that the world today is in an if we get really ambitious, even then changing monsoons, extreme flood- increasingly precarious state. we will lose one-third of the glaciers ing, heat waves and droughts. This is and be in trouble.”3 the case despite collectively having Grim facts As they stand, the global commit- the smallest carbon footprint besides The current global temperature rise, ments in the shape of Nationally De- sub-Saharan Africa. Perhaps this on average, is around 1°C above termined Contributions (NDCs) will common threat is the reason why the pre-industrial level. A special report result in 38 percent more emissions countries across South Asia, in spite of the Intergovernmental Panel on than required to meet the 1.5°C target of their geo-political differences, have Climate Change (IPCC), Impacts of by 2030.4 This puts the world at large often coalesced during climate negoti- Global Warming of 1.5°C, cautions that and South Asia in particular in a very ations as part of Like-Minded Group commitments under the Paris Agree- precarious position. Given the HKH of Developing Countries (LMDC). Yet, ment will not limit global warming to region’s importance as the ‘water climate change remains a global crisis 1.5°C even if supplemented by greater towers’ of South Asia, the report is a and as such warrants a global and ambition after 2030.1 Hence, the report grave warning to the people across the collective response that has thus far has called for enhanced ambitions and region. The resulting impacts of van- been missing. increment in the scale of emissions ishing glaciers in terms of changes in The 2015 Paris Climate Agreement reduction immediately. riverine flows will affect food security, was hailed as a game changer in the Similarly, a landmark report energy sustainability and livelihoods fight against global warming. How- published by the International Centre of the people of South Asia, which is ever, it was soon realized that the for Integrated Mountain Development one of the most heavily and densely global commitments made under the (ICIMOD) has warned that if temper- populated regions in the world.

40 Trade Insight Vol. 16, No. 1-2, 2020 Climate negotiations to the failure of COP25. While devel- the GCF is already short of the US$100 Given the urgency to act soon but oped countries viewed ‘ambition’ as billion target set at Paris. Moreover, the lack of progress to that end, key primarily a means to reduce emissions the GCF has been primarily set up stakeholders from around the world after 2020, others such as India and its to cater to adaptation needs. Using assembled in Madrid in December partners in the LMDCs argued for a it for loss and damage will curtail its 2019 for the 25th Conference of the broad-based interpretation of ‘ambi- utility for climate change adaptation, Parties to the United Nations Frame- tion’ such that it encompasses climate especially for countries most affected work Convention on Climate Change finance as well as capacity enhance- by climate change. Ultimately, around (COP25). The meeting, which was also ment for climate adaptation in devel- the end of COP25, developed coun- called the ‘ambitions COP’, was ini- oping countries.5 The LMDCs wanted tries agreed to scale up financing to tially scheduled to be held in Santiago, developed countries to shoulder more help developing countries mitigate but the venue was later changed to financial responsibility to meet the loss and damage arising from climate Madrid owing to prolonged protests cost of mitigation and adaptation in change impact. It was also agreed that in Santiago. The ‘ambitions COP’ was the LMDCs. They argued that this was an expert group will be formed to look so called because the Chilean govern- a reasonable demand given that the into ways of enhancing action and ment had focused on collecting com- developed countries are to be blamed support to that end. However, these mitments from countries and raising for the precarious situation the world measures are much weaker than what their ambitions related to the NDCs. is in today. developing countries had wanted to The aim of COP25 was to ratchet see, necessitating continued discus- up the ambition on climate change. Ignoring loss and damage sions on the issue. The participating countries, repre- The discourse around loss and dam- senting 195 nations, were supposed age started nearly three decades ago Differences over Article 6 to demonstrate their will to improve when small island states highlighted COP25 could not decide also on the the NDCs and formulate long-term their concern about the impacts of much contentious issue of Article 6. strategies in the upcoming COP26 to Article 6 of the Paris Agreement, com- be held in Glasgow. Moreover, the monly known as the ‘markets article’, nearly 27,000 delegates had met in was the focus of COP25 as it involved Madrid to finalize the so-called ‘Paris The tension between carbon markets and issues pertaining Rule Book’, an operational manual or developing and to international cooperation. It forms guidebook to take forward the Paris the basis of legal frameworks to allow developed countries Climate Agreement. However, COP25 the use of market-based mitigation ended without any tangible result as contributed to the strategies and offers stakeholders the the countries put off major decisions failure of COP25. chance to cooperate with each other in for COP26. The countries concluded implementing their NDCs. the conference with the agreement Negotiations on Article 6 were that they would strengthen their focused on agreeing on an effective commitments to lower emissions in rising sea levels. It helped amplify the accounting mechanism, which would COP26. There are several reasons for concern that impacts of climate change prevent double counting—an issue the uninspiring result. are irreversible and beyond our adap- that was one of the most contentious tation limits. This was mainstreamed in the Clean Development Mechanism Discord in ambition and institutionalized as part of what under the Kyoto Protocol. Parties to the Paris Agreement have is known as the Warsaw Internation- The negotiators failed to reach an committed to submitting and thereaf- al Mechanism on Loss and Damage agreement on the matter, primarily ter updating their NDCs by 2020. They (WIM), adopted in 2013. due to the hesitancy of a few coun- are supposed to regularly monitor While the UNFCCC does not tries. Their objection was because their progress in meeting the goals of have an official definition of ‘loss and this would discredit the carbon credit the climate agreement and submit re- damage,’ this term is understood to they have collected from the previous newed and improved NDCs. Howev- include losses from floods, heat waves, Kyoto Protocol system. This issue will er, only about 80 small and developing hurricanes and other climate-induced now be taken up at the next interces- nations have stated their intention to events. Developing countries have sional meeting and once again at the enhance their NDCs by 2020. These called for improved visibility of loss next COP. commitments represented only 10.5 and damage in financial mechanisms percent of the global emissions. The and capacity building efforts of devel- Non-uniform timeframes largest emitters were conspicuously oped countries. At COP25, there were NDCs define a country’s ambitions absent in making their commitments. suggestions to use the Green Climate and plans to meet the Paris Agree- The tension between developing Fund (GCF) to address these concerns. ment’s mitigation, adaptation and and developed countries contributed However, this idea was shot down as finance-related goals. Timeframes set

Trade Insight Vol. 16, No. 1-2, 2020 41 climate change

by individual countries to implement too threatens to envelop the whole doubt have serious repercussions for the NDCs are not uniform. While world with grave consequences. It an already stressed climate scenario. some countries have set the deadline is here that forums like SAARC can Without a commitment from industri- to implement them as 2025 and some facilitate a coherent and effective alized nations to limit their emissions as 2030, others have used a combi- response to climate change. Such a and provide financial support to nation of both for different commit- response would include mechanisms developing countries, the future looks ments with their NDCs. A common that facilitate the exchange of data bleak for the ambitions of the Paris timeframe will help allow uniform between local and regional research Agreement. Initiatives such as ‘Fri- reporting and implementation of the institutions. It would also entail days for the Future’ and ‘Extinction NDCs, thus resulting in improved cooperation on mainstreaming of re- Rebellion’ have been at the forefront understanding of the metrics and newable energy initiatives. Moreover, of a growing climate movement. And the global progress in relation to enhanced coordination with respect young campaigners led by activists meeting the commitments under the to disaster response across the region such as Greta Thunberg continue to Paris Agreement. After having been can be very effective. In this context, be vocal even during the pandem- discussed in Katowice in 2018 and in SAARC can set up a fund to mitigate ic. While this alone is not enough, it Madrid in 2019, the issue still remains climate-induced emergencies. Anoth- does keep the issue front and centre unresolved, and will be taken up dur- er area where a regional forum such at a time when the world is facing ing subsequent meetings. as SAARC can be instrumental is in numerous challenges. The synergies COP25 in Madrid ended with a dec- bringing together research institutes created to address the impacts of the laration to come together in Glasgow and academia that is already working COVID-19 pandemic should be used (COP26) to resolve the outstanding on responding to climatic threats. simultaneously to address the climate issues. However, the intricacies of cli- This will ensure that country-level crisis. n mate negotiations aside, it has become Dr. Khalid is Research Fellow at Sustain- increasingly clear that the dissonance able Development Policy Institute (SDPI), between the largest emitters and those Islamabad. who are the most affected by the cli- The risk of a global mate crisis is growing. The Green Cli- recession will have mate Fund is well short of the US$100 Notes serious repercussions billion benchmark. Moreover, besides withdrawing from the Paris Agree- for an already stressed 1 IPCC Intergovernmental Panel on Cli- ment, the US has played an increas- climate scenario. mate Change. 2018. “Global Warming of 1.5°C. An IPCC Special Report on ingly divisive role in the negotiations. the impacts of global warming of 1.5°C The result has been an overwhelming above pre-industrial levels and related criticism of the negotiations process.6 global greenhouse gas emission path- ways, in the context of strengthening best practices in terms of mitigation the global response to the threat of Road ahead for South Asia and adaptation can be mainstreamed climate change, sustainable develop- Countries across South Asia are sig- at the regional level. The synergies ment, and efforts to eradicate poverty.” nificantly at risk from the impacts of developed through the cooperative IPCC Special Report 15. Geneva, Switzerland, World Meteorological climate change. It is therefore very im- mechanism can lead to improved Organization. portant that the region comes together coordination in the lead-up to inter- 2 Wester, P et al. 2019. The Hindu Kush to collectively deal with the problem. national climate meetings, where a Himalaya Assessment—Mountains, The South Asian Association for united stand among the countries in Climate Change, Sustainability and Regional Cooperation (SAARC) could South Asia can serve their collective People. Springer Nature Switzerland AG prove to be a useful avenue in this interests. 3 Quakenbush, Casey. 2019. “A Third regard. The organization had virtually The next iteration of the climate of the Himalayan Glaciers Will Melt by become moribund over the past many negotiation, COP26, planned to be the End of the Century, a New Report years (the last high-level SAARC meet held in Glasgow, UK, in November Finds”. The Time Magazine 05 Febru- ary. https://time.com/5521000/climate- happening in 2014) until it was woken 2020, has been postponed due to the change-himalayan-glaciers-melt-2100/ from its slumber due to the global COVID-19 pandemic. The interces- 4 Hausfather, Z. 2019. “UNEP:1.5 C tar- onset of the coronavirus epidemic. An sional meetings to be held in Berlin get slipping out of reach”. https://www. emergency online meeting, held on 15 in June have similarly been post- carbonbrief.org/unep-1-5c-climate- March 2020, highlighted the impor- poned. The question now is whether target-slipping-out-of-reach 5 tance of an interactive regional forum the world faced with the perils of a Carbon Brief. 2019. “COP 25: Key Out- comes Agreed at the UN Climate Talks that can be utilized in developing col- global disease will pay attention to in Madrid”. https://www.carbonbrief.org/ laborative responses to global crises. the climate crisis. There is a risk of cop25-key-outcomes-agreed-at-the-un- The climate crisis is similar to a global recession taking hold in the climate-talks-in-madrid the COVID-19 pandemic in that it current circumstances. This will no 6 ibid.

42 Trade Insight Vol. 16, No. 1-2, 2020 blue economy

Climate change and Sri Lanka’s blue economy

Considering the overall importance of coastal and marine areas in Sri Lanka, implementing policies to establish sustainable blue economy is of utmost importance.

Athula Senaratne

ceans play an important role dioxide is also absorbed by oceans, the southern tip of India, and its prox- Oin maintaining global climate making them more acidic. Whereas imity to busy international sea routes systems. Simultaneously, they provide warmer and acidic oceans have their connecting the east and the west, numerous ecosystem services to pro- own impacts on the blue economy, create the possibility of it becoming a tect global biodiversity. Unfortunately, the threat of rising sea levels due to maritime hub in the region. The coun- oceans and their ecosystem services melting glaciers and ice sheets is going try’s endowment of marine resources are being threatened by human activ- to aggravate them further. Moreover, is comprised of Exclusive Economic ities. The recently published Special these changes are likely to result in Zone (EEZ), Contiguous Zone, Territo- Report on the Ocean and Cryosphere in more severe and frequent incidents of rial Sea and Historical Waters (Figure, a Changing Climate (SROCC) by the extreme events in the future. page 44).1 United Nations Intergovernmental Forty percent of Sri Lanka’s Panel on Climate Change (IPCC) Sri Lanka’s blue population is concentrated in its 1,700 provides a comprehensive assessment economy potential km long coastline. The coastal zone is of the impact of global warming on Blue economy refers to creating a rich in numerous types of ecosystems the planet’s oceans and frozen regions. healthy ocean ecosystem as a way to such as mangroves, salt marshes, The SROCC provides overwhelming ensuring the sustainability of ocean- dunes, coral reefs, seagrass beds, and evidence on how the impacts of global based economies. Naturally, island estuaries. The coastal and marine warming on oceans and frozen regions nations have the highest potential for resources provide the support base for will cause significant repercussions to becoming sustainable blue econo- the country’s blue economy, which is ocean-based economic activities that mies due to closer association of their mainly comprised of fisheries, tour- are now widely known as the ‘blue economies with ocean resources. On ism, and ports and shipping services. economy’. the other hand, island nations are Over 800,000 people, living in 183,000 The report highlights that oceans also destined to suffer more due to households, are dependent on fishing are rapidly getting warmer since more impacts of global warming on oceans. activities that are mainly based in than 90 percent of the excess heat Sri Lanka’s potential to become a coastal, off-shore and deep-sea areas.2 generated due to global warming is sustainable blue economy depends on Similarly, in 2018, the tourism sector absorbed by oceans. Even if the world a number of factors. Among them, the is estimated to have employed around community manages to limit the rise most important are Sri Lanka’s unique 169,000 people directly and 219,000 in global temperature under 2°C, it is geographical position in a central people indirectly.3 In addition to these likely that oceans will still continue location of the Indian Ocean, closeness blue economy sectors, which are to get warmer in coming years. It is to major sea lanes, endowment of sig- directly based on marine and coastal estimated that by 2100 oceans will be nificant coastal and marine resources, resources, the country’s infrastructure 2-4 times warmer than what they were high diversity of coastal and marine facilities, special zones for manufac- 50 years ago. ecosystems, and the country being an turing industries, urban utilities, and Not only the excess heat generated attractive tourist destination. key power generation facilities are also by global warming, but a significant Sri Lanka’s central location in the concentrated in the coastal zone or share of human-induced carbon Indian Ocean, just a few kilometers off surrounding areas. According to one

Trade Insight Vol. 16, No. 1-2, 2020 43 blue economy

Figure ocean warming, ocean acidification, sea level rise and rising incidents of Marine resources endowment of Sri Lanka extreme events, appear to be the great- est challenge that Sri Lanka’s blue economy will face in the long run. Sri Lanka’s fish production is based on three sources—coastal fisheries, offshore/deep sea fisheries and inland fisheries. The highest share of fish production comes from coastal fisheries, which is more than 50 percent on average. This is followed by offshore/deep sea fisheries (around 30–35 percent). This implies that the country’s fishing sector is overwhelmingly dependent on marine sources. However, recent periods have witnessed rising incidence of extreme weather events that disturbed marine fishing operations with significant damages to life and fishing assets. Tourism is another vulnerable sector in Sri Lanka. The tourism sector, by its nature, is sensitive to disasters and adverse weather conditions, thereby rendering it vulnerable to the impacts of climate change. Sri Lanka is a unique tourist destination with multiple attractions that are highly dependent on marine and coastal resources, which increases the possibility of getting severely impacted by climate change. For instance, coral reefs, a major tourist attraction, will be severely affected by marine heatwaves and Source: Survey Department of Sri Lanka. Note 1. acidification. This will have a major impact on Sri Lanka’s economy overall estimate, Sri Lanka’s coastal region fishing industry by 2050 in fishing because, prior to the terrorist attacks generates around 44 percent of the countries around the world. Likewise, of April 2019 in Sri Lanka, tourism country’s GDP.4 oceans have come under threat due was the country’s third highest source to human activities such as illegal-un- of foreign exchange earnings after Impacts of climate change on reported-unregulated (IUU) fishing remittances and readymade garment the blue economy activities, marine and coastal pollution exports. It will also severely affect Sri The SROCC highlights various risks and overexploitation and destruction Lanka’s population dependent on the posed by climate change on the blue of marine and coastal habitats. It has tourism sector for its livelihood. economy. One of the risks, and a been estimated that the extent of over- Moreover, sea level rise and asso- major one, is declining productivity fishing might be 30 percent more than ciated increases in extreme weather of oceans because of the disruption the sustainable limit. events such as flooding and storms and damage to marine life caused by Sri Lanka might not be immune to will likely reduce the utility of coastal warming and acidification. The report these impacts. Although local scientif- tourism facilities, disrupt fishing activ- highlights that fish populations are ic evidences are yet to emerge, policy ities and adversely affect shipping and declining, especially in tropical areas. makers need to be mindful of the port services. Thus, the threats arising It warns that the global fish catch can adverse impacts of warming and acid- from climate change are expected to drop to 25 percent due to decline in ification of oceans, such as significant risk the sustainability and economic the total mass of marine animals by losses to coastal and marine fisheries, viability of the blue economy. 2100. This can result in a 10 percent as predicted by international studies. Besides the direct hit on the econ- fall in the revenue potential of the Impacts of climate change, such as omy, climate change impacts could

44 Trade Insight Vol. 16, No. 1-2, 2020 disrupt livelihoods through increased with growing marine traffic connected however, a strong coordinated effort risks of disasters. Although Sri Lan- to global trade. Furthermore, Sri Lan- to benefit from the opportunities of ka’s coastal zone is rich in numerous ka is strengthening its efforts on oil blue economy and overcoming the types of ecosystems, they occur in exploration in offshore regions in the challenges posed by climate change is low-lying coastal areas in most parts. Mannar basin. These developments yet to emerge. The devastating Indian Ocean tsunami will invariably aggravate problems Sri Lanka plans to initiate a re- of 2004 exposed the vulnerability such as oil spills and increase in other search to assess the impacts of sea lev- of the country’s low-lying coastal marine pollutants, thereby disturbing el rise on coastal habitats over short-, areas to sea level rise. Major impacts marine ecosystems and organisms medium- and long-term horizons. The of sea level rise, in the long run, are further. research is expected to identify appro- increased coastal erosion, inundation priate protection measures in relation of low-lying areas and intrusion of salt Increasing the climate to climate change. Similarly, establish- water into freshwater bodies, and soil resilience of the blue economy ing mechanisms to continuously moni- salinization. Several erosion-prone ar- Considering the overall importance of tor shoreline changes, and preparing eas have been identified in the coastal coastal and marine areas in Sri Lanka, maps and databases of low-lying belt around the country. implementing policies to sustain the areas vulnerable to inundation could Observed and projected threats blue economy is of utmost impor- be effective in designing mitigation related to climate change are being tance. The country has been aspiring and adaptation plans. To this end, further aggravated by human actions to become a maritime hub in the encouraging participatory manage- that compromise the sustainability region, taking advantage of its unique ment of sensitive coastal habitats by of coastal and marine environments. geographical position and closeness involving coastal communities could Among the major human actions that to major sea routes. Sri Lanka is yet to be highly effective. Such participatory undermine the country’s blue econ- come up with a viable strategy for de- programmes are also essential for the omy are sand mining, destruction of veloping a sustainable blue economy conservation and rehabilitation of coral reefs, poorly designed coastal that can realize the country’s potential. sensitive coastal habitats such as man- protection structures and removal of The scientific evidence made grove, salt marshes, sea grass beds coastal vegetation. These have acceler- available by SROCC and other inter- and coral reefs. Since maritime area ated coastal erosion, marine and coast- national studies indicates that impacts conservation involves many countries, al pollution and rapid degradation of of climate change can be the foremost establishing regional collaborations in coastal habitats. Both land-based and challenge that threatens Sri Lanka’s research and monitoring will promote ocean-based pollutants are responsible ambitions to develop a sustainable technology transfer and multidisci- for the pollution of coastal and marine blue economy in the long run. Ob- plinary research in these areas. These environments. Land-based pollutants served and projected threats identified plans, if implemented earnestly, can include garbage and wastewater/ by these studies stress the necessity of help Sri Lanka derive maximum sewerage from coastal townships and taking appropriate and timely adap- benefits from a sustainable coastal and tourism facilities, pollutants from tive measures to increase the climate marine economy. n nearshore industrial facilities, and resilience of the blue economy in Sri Dr. Senaratne is Research Fellow and chemical pollutants from prawn farm- Lanka. Carefully planned adaptation Head, Environmental Economics Policy Re- ing and coastal agriculture, among measures are necessary for overcom- search, Institute of Policy Studies of Sri Lanka, others. Major causes that increase the ing the challenges posed by climate Colombo. load of pollutants are rapid urban- change on the blue economy. ization, poor waste management, The Government of Sri Lanka Notes growing industrial activities, spread introduced the blue economy ini- of tourism facilities, uncontrolled tiative under the ‘Sri Lanka NEXT’ 1 Survey Department of Sri Lanka. 2007. aquaculture operations and a growing programme in 2016 and has kept the The National Atlas of Sri Lanka. Co- lombo, Sri Lanka number of underserved settlements in idea alive since then. It has prepared 2 https://www.fisheriesdept.gov.lk/web/ the coastal belt. the National Adaptation Plan for images/pdf/Fisheries_Statistics_2018. The same set of drivers can be Climate Change Impacts: 2016-20255 pdf identified as being responsible for and submitted the Nationally Deter- 3 Sri Lanka Tourism Development Au- the degradation of coastal habitats mined Contributions for both miti- thority. 2018. Tourism Growth Trends 1970-2018. Colombo, Sri Lanka too. Major sources of marine-based gation and adaptation to the United 4 pollutants are oil/chemical spills from Nations Framework Convention on Defined as the collection of all Divi- sional Secretariat (DS) areas that have shipping and accidents, non-degra- Climate Change in 2016. Both policy a coastal boundary dable litter from vessels, dry docking documents contain adaptive actions 5 Ministry of Mahaweli Development and and servicing of vessels, and ballast aimed at coastal and marine sectors, Environment. 2016. National Adapta- water discharges. Sea routes around which are complementary to each tion Plan for Climate Change Impacts in Sri Lanka 2016-2025. Colombo, Sri the country are getting ever busier other. Despite these preparations, Lanka.

Trade Insight Vol. 16, No. 1-2, 2020 45 intellectual property

Governance of intellectual property over plant varieties Time has come for Asia to revisit its unique approach

In devising their plant variety protection laws, Asian countries need to gather insights from the experiences of local pant breeders, farmers and relevant stakeholders.

Kamalesh Adhikari

he creation of legal regimes to are distinct from developed countries’ and developments that countries in Tprotect intellectual property rights framing of PBR laws. The uniqueness this region are facing. In so doing, the (IPRs) over plant varieties1 is not a of the Asian intellectual property article focuses on the fi ndings derived recent phenomenon. National intel- laws is that they move beyond the from the case studies of two types lectual property laws to protect plant logic of the conventional UPOV-based of Asian countries: i) countries that varieties originated decades ago in PBR model. In so doing, these legal have already introduced intellectual North America and Europe. The fi rst instruments do not limit their scope property laws for plant varieties such of these laws took the form of a spe- to the protection of plant breeders’ as Cambodia, India, Indonesia, Laos, cialized plant patent regime, which the novel, distinct, uniform and stable Malaysia, Pakistan, the Philippines, US introduced in the form of the Plant varieties. Instead, these national laws and Thailand; and ii) countries that are Patent Act in 1930. also recognize exclusive rights that in the process of drafting or debating A few decades later, laws to farmers may obtain in relation to other such laws such as Myanmar, Nepal, protect plant varieties as intellectual different categories of plant varieties. Sri Lanka and Timor-Leste. property appeared in the form of A few examples include varieties that national plant breeders’ rights (PBR) have been cultivated traditionally and Challenges and regimes, initially in Europe and later developed by farmers in their fi elds, developments in Asia in other regions. A major motivation or that are landraces or wild relatives Although Asian countries are at differ- for European and other developed of crop varieties about which farmers ent levels of development, they face a countries to embrace PBR laws was possess common knowledge (India); number of common challenges in their the advent of the 1961 Convention of local domestic plant varieties that exist attempt to implement a national law to the International Union for the Pro- in a particular geographic area of the protect plant varieties. A key common tection of New Varieties of Plants (the country (Thailand); and tradition- challenge is to identify ways to make UPOV Convention). al varieties that have been bred or their intellectual property regime Mainly after the mid-1990s, an discovered and developed by farmers work for sustained and inclusive ag- increasing number of developing and (Malaysia). ricultural development. For example, least-developed countries in Asia also In the context of the evolution how can they frame their intellectual began to draft or implement national of unique intellectual property laws property regimes to ensure: legislation to grant intellectual proper- for plant varieties in Asia, this article z that there is greater involvement ty to plant varieties, albeit in ways that discusses a set of emerging challenges of public-private seed entities in

46 Trade Insight Vol. 16, No. 1-2, 2020 the breeding and development of Convention on Biological Diversity sition to develop unique plant variety plant varieties that would improve (CBD), the 2010 Nagoya Protocol on protection regimes in Asia is based yields and provide better resil- Access to Genetic Resources and the on the concern that UPOV-compat- ience to pests, diseases and climate Fair and Equitable Sharing of Benefi ts ible PBR frameworks only reward change? Arising from their Utilization (Nagoya the innovators of new plant varieties. z that these new regimes would Protocol) and the 2001 International More specifi cally, the concern is that contribute to the conservation, Treaty on Plant Genetic Resources UPOV-based PBR schemes do not take sustainable use, breeding, devel- for Food and Agriculture (the Plant into consideration important endeav- opment and commercialization of Treaty). ours of other international agreements indigenous plant varieties? Because these international treaties such as the CBD and the Nagoya z that they are supportive of the have a major infl uence on the gov- Protocol in relation to protecting the rights of local and indigenous ernance of breeding, development rights of local and indigenous farming farmers who rely on customary and circulation of plant varieties, communities, for instance, by requir- forms of seed use, exchange and debates about the ways to protect ing users (plant breeders) to obtain circulation for food security and plant varieties as intellectual property prior informed consent, and to share livelihood enhancement? have evolved substantially in several the benefi ts accrued from the access, Another major common challenge Asian countries over the past two use and commercialization of local that Asian countries face relates to the decades or so. The initial focus of these and indigenous plant varieties. An- need to use intellectual property as a debates centred on the legal obligation other concern is also that UPOV-com- tool to protect domestic interests and, that the TRIPS Agreement created for pliant PBR schemes undermine the at the same time, address a range of countries to protect plant varieties provisions of the Plant Treaty, for obligations under relevant internation- by patent, a sui generis system, or a instance, by restricting farmers’ ability al treaties. The international treaties combination of both. One of the major to continue their customary practic- that require these countries to address outcomes of these debates was to sug- es of saving, using, exchanging and diverse obligations for the governance gest Asian countries to conceptualize selling seeds or other propagating of plant varieties include the 1995 a sui generis law that is distinct from materials of plant varieties. Agreement on Trade-Related Aspects UPOV-compatible PBR laws. Although the initial focus of the of Intellectual Property Rights (TRIPS), It is evident that since the 1990s, debates about intellectual property for the 1991 UPOV Convention, the 1992 the inherent logic behind the propo- plant varieties centred on the obliga-

Trade Insight Vol. 16, No. 1-2, 2020 47 intellectual property

tions under TRIPS and other interna- suffi cient policy space to develop its However, so far, the corporate seed tional agreements, recent debates in sui generis legislation on plant variety system that is managed by public and Asia have advanced to also consider a protection. In addition to learning private seed entities in these countries number of pertinent, additional ques- from the experiences of Nepal, Asian has not been able to drive out farmers’ tions and concerns. These include: countries also need to evaluate the fac- seed systems, which rely more on the z What could be the implications for tors that have impelled them towards customary farming practices of saving, these countries’ sui generis laws, UPOV membership. Of these, a set of using, exchanging and selling of plant agricultural sectors, and custom- hard and soft factors are particularly varieties than on the purchase of seeds ary farming practices if they join important for these countries to assess. supplied by the corporate sector. In UPOV due to bilateral, regional, Hard factors are often embodied in other words, the corporate seed sys- and trans-regional trade agree- formal legal obligations that various tem and farmers’ seed systems contin- ments? bilateral, regional and trans-regional ue to co-exist in these countries. One z What challenges have Asian coun- free trade agreements contain, for of the key reasons why farmers’ seed tries experienced when they have example, by requiring developing systems are still dominant in these drafted and implemented sui gener- and least-developed countries to countries is that their sui generis laws is plant variety protection laws? agree to implement UPOV-compatible are supportive of the needs of local z Have these countries perceived PBR laws. Soft factors constitute the farmers, and thus, contain provisions any benefi ts from the implemen- pressure that the UPOV Secretariat, to allow them to continue customary tation of their sui generis plant various UPOV-supportive seed in- farming practices. But because Indone- variety protection laws? dustry groups and developed-country sia, Malaysia and the Philippines are z How might other national laws, governments exert on lawmakers and likely to join the UPOV Convention such as seed laws or policies, seed agencies in Asia, for example, in the near future, it is uncertain how complement or complicate the through bilateral negotiations, foreign UPOV-oriented future reforms to their implementation of sui generis plant national sui generis laws could impact variety protection laws in these farmers’ seed systems. countries? Based on an analysis of develop- Corporate seed Protection of local, ment and implementation trends of system and farmers’ domestic plant varieties plant variety protection laws in select seed systems continue Thailand is one of the few countries in Asian countries, below I discuss some Asia that has developed its sui generis important developments and challeng- to co-exist in many law to protect new plant varieties, es that these countries may need to Asian countries. as well as varieties that belong to consider if they intend to make their the categories of ‘local domestic,’ unique approach of protecting plant ‘general domestic’ and ‘wild’ plant varieties serve the interests of both varieties. Despite this, so far, not a plant breeders and farmers. aid, workshops, trainings, and assur- single local variety has been registered ance that there would be increased for protection under the 1999 Plant UPOV membership investment for plant breeding. Variety Protection Act of Thailand. In Asia, a growing number of coun- Whether this is due to the unwilling- tries such as Cambodia, Laos, Myan- Co-existence of corporate and ness of Thai farmers to register their mar, Malaysia and Thailand are under farmers’ seed systems local domestic varieties, or because pressure to join UPOV. It is important Asian countries such as Indonesia, the criteria for registration of farmers’ for these countries to realize that they Malaysia and the Philippines have varieties are stringent, is an issue that must fi nd innovative ways to support implemented sui generis laws to recog- Thai lawmakers and other domestic farmers’ customary seed systems. nize intellectual property rights over stakeholders need to examine. In this In so doing, one option is to fend off new plant varieties. An analysis of the process, it may be useful for Thailand the pressure to join UPOV. Although trends of the protection of new plant to learn from the experiences of India, there could be certain challenges to varieties in these countries suggests which has registered more than 1,500 fend off such pressure, these countries that over the past two decades or farmers’ plant varieties under the may benefi t to learn from the success- so, they have witnessed remarkable 2001 Protection of Plant Varieties and ful example of Nepal’s ‘No to UPOV’ growth in the registration and use Farmers’ Rights Act. India has been campaign. of intellectual property-protected able to do so through various meas- Because the ‘No to UPOV’ cam- plant varieties. As a result, in these ures. These include the availability of paign mobilized a number of domestic countries, both public and private fi nancial and administrative support actors during Nepal’s negotiations for seed entities are participating in the for farmers and the relaxation of the accession to the World Trade Organi- commercialization of new plant varie- scientifi c criteria for the registration zation, the country was able to secure ties under the corporate seed system. of farmers’ varieties. For instance, in

48 Trade Insight Vol. 16, No. 1-2, 2020 India, compared to other varieties Policy. Accordingly, the National and protect farmers’ varieties as that can be protected under the plant Seed Policy contains provisions for intellectual property, to the implica- variety protection law, up to double the conservation and sustainable use tions that participatory plant breeding the number of off-types/mixtures is of plant genetic resources; the protec- programmes between farmers and permitted for farmers’ varieties to tion of breeders’ and farmers’ plant non-farmer entities may have for meet the threshold of uniformity. In varieties as intellectual property; and obtaining intellectual property rights addition, once farmers’ varieties have the production, reproduction, sale and for locally bred varieties. Of equal met the uniformity criterion, there is commercialization of quality seeds. importance are other questions and no need for these varieties to pass any Although this policy is yet to be imple- concerns, such as: Should farmers’ stability test. mented, it aims to address a range of varieties be subject to any protection concerns associated with the possible period as in the case of PBR-protected Seed law vs. plant contradictions between the seed and varieties, or should these varieties be variety protection law plant variety protection laws. in the public domain? What kinds of While seed laws aim to regulate the exclusive rights do farmers need to production, reproduction, distribu- Conceptualization of farmers’ commercialize their varieties? What tion, sale, export and import of seeds varieties as intellectual property are the access and beneﬁ t sharing that meet quality standards, plant va- Plant variety protection laws of India, obligations of the owners of farmers’ riety protection laws focus on granting Thailand and Malaysia are often varieties in cases where they use PBR over newly bred or developed discussed as the model sui generis laws other farmers’ local varieties as source plant varieties, including seeds and that other countries can adapt based germplasm? Should the rights of other propagating material. In India on their local needs. This is mainly be- consumer-farmers to receive compen- and Pakistan, seed and plant variety cause they have developed their laws sation and to access protected varieties protection laws are operational with to protect farmers’ (or local) varieties through compulsory licensing apply their own mandates and institutional to farmers’ varieties? structures. Despite this, concerns have been expressed recently that their Conclusion seed and plant variety protection laws Plant variety protection In the light of various developments contradict each other. For example, in laws of India, Thailand and complex challenges associated India, there are concerns that the seed with the governance of intellectual and Malaysia are law is stringent for farmers to register property over plant varieties, time has and sell the seed of farmer-improved considered as model come for Asian countries to revisit plant varieties and to realize the rights sui generis laws. their unique approach of protecting that are protected under the Indian breeders’ and farmers’ plant varie- plant variety protection law. In Paki- ties. In so doing, probably a better stan as well, there are concerns that approach would be to learn from the the seed law needs to be amended to as intellectual property. Based on the experiences of each other and gather enable farmers to actively participate learnings from these countries, other further insights from the experiences in seed business, for example, through countries such as Sri Lanka and Nepal of local plant breeders, farmers and the development of a set of relaxed are in the process of developing a law other relevant stakeholders. criteria for the registration, sale and to protect both breeders’ and farmers’ Dr. Adhikari is Research Fellow, ARC commercialization of farmers’ plant varieties as intellectual property. Training Centre for Uniquely Australian Foods varieties. However, several concerns that and Member of the ARC Laureate Project ‘Har- These concerns suggest that have emerged from the implementa- nessing the Potential of Intellectual Property to the tensions between the seed and tion of plant variety protection laws Build Food Security, TC Beirne School of Law, PBR laws, which are two different, in India, Thailand and Malaysia and The University of Queensland. The article is yet inter-related regimes, must be a review of the Sri Lankan Draft Bill based on the ﬁ ndings of Adhikari, Kamalesh resolved by India and Pakistan, and on the Protection of Plant Varieties and Jefferson, D. J. (eds.). 2019. Intellectual where relevant, by other countries (Breeder’s Rights) and the Nepali Property and Plant Protection: Developments in Asia. In this regard, the initiative Draft Bill on Plant Variety Protection and Challenges in Asia. Abingdon, United taken by Timor-Leste is relevant. and Farmers’ Rights suggest that Kingdom: Routledge. Before developing a separate seed there are a number of questions and law or a plant variety protection law, concerns associated with the concep- Notes the Timorese government and other tualization of farmers’ varieties as national stakeholders conceptualized intellectual property. These questions 1 These entail a set of exclusive rights that intellectual property owners exer- the model for plant variety protec- and concerns range from whether cise to prevent others from producing, tion as well as production and sale of farmers have the ability to leverage reproducing and selling the seed of seeds in the country’s National Seed the necessary resources to develop new and distinct plant varieties.

Trade Insight Vol. 16, No. 1-2, 2020 49 knowledge platform

Economic policy cooperation in SAARC: A primer on SAARCFINANCE

New economic reality brought forth by the impacts of COVID-19 pandemic calls for more active regional economic cooperation to deal with region-wise economic disruptions.

Kshitiz Dahal

he South Asian Association for network of central bank governors Objectives of SAARCFINANCE TRegional Cooperation (SAARC), and finance secretaries after the 10th The broad objective of SAARCFI- established in 1985, aspires to im- SAARC Summit, which had agreed, in NANCE is greater regional economic prove the welfare of eight South Asian principle, to establish a “Network of cooperation for collective economic countries through regional coopera- Central Bank Governors and Finance reforms through the sharing of ex- tion. It aims to accelerate economic Secretaries (SAARCFINANCE)”.3 It periences on economic and financial growth, social progress and cultural was formally recognized by the 11th policies. development in the region. In the SAARC Summit, held in Kathmandu Specifically, SAARCFINANCE initial years of its establishment, core in January 2002. Same year, the twen- strives to: economic issues took a backseat as ty-second session of SAARC Council l promote cooperation among cen- SAARC mostly focused on non-eco- of Ministers approved the terms tral banks and finance ministries in nomic areas such as women and child of reference of SAARCFINANCE, SAARC member countries through affairs, health, tourism, etc.1 It was making it a permanent body, which staff visits and regular exchange of only after the operationalization of the would report to the SAARC Council of information; 4 SAARC Preferential Trading Arrange- Ministers. l consider and propose harmoniza- ment (SAPTA) in 1995 that economic The Chair of SAARCFINANCE tion of banking legislations and cooperation came to the forefront. The rotates along with the Chair of the practices within the region; 10th SAARC Summit, held in Colom- SAARC. Activities of SAARCFI- l work towards a more efficient pay- bo in July 1998, supported greater NANCE are coordinated through ment system mechanism within regional economic cooperation and ‘cells’ established by each member the SAARC region and strive for led to an accelerated interest in core state central bank. The cell of the higher monetary and exchange economic issues such as trade, invest- central bank in the country chairing cooperation; 2 ment and finance. The path towards SAARCFINANCE functions as the l forge closer cooperation on macro- greater economic cooperation required secretariat. It also acts as the central economic policies of SAARC mem- new institutions, one of which was coordinator.5 Currently, Nepal’s cen- ber states and to share experiences SAARCFINANCE, a regional network tral bank is performing this role. and ideas; of central bank governors and finance SAARCFINANCE meetings, which l study global financial develop- secretaries, which aspires to achieve are the core activities of this network ments and their impact on the economic reforms in the region and are participated by member states’ region, including discussions through dialogues and experiences central bank governors, finance sec- relating to emerging issues in the sharing on economic policies among retaries and other nominated govern- financial architecture, IMF and the member states. ment officials, are supposed to be held World Bank and other internation- at least twice a year—on the sidelines al lending agencies; Institutional structure of the annual and spring meetings l monitor reforms of the internation- SAARCFINANCE was established of the International Monetary Fund al financial and monetary system on 9 September 1998 as a regional (IMF) and the World Bank. and to evolve a consensus among

50 Trade Insight Vol. 16, No. 1-2, 2020 SAARC countries in respect of the NANCE. For instance, the SAARC worse time since the new economic reforms; Payments Initiative, a regional forum reality brought forth by the impacts l evolve, whenever feasible, joint to strengthen national payment and of COVID-19 pandemic calls for more strategies, plan and common ap- settlements systems of member states active regional economic cooperation proaches in international fora for and to establish a regional payment to deal with region-wise economic mutual benefit, particularly in the system to facilitate trade and invest- disruptions. Hence, SAARCFINANCE context of liberalization of financial ment in the region, was launched on needs to revitalize itself. It needs to en- services; 28 March 2008, after the idea emerged gage actively in the sharing of national l undertake training of staff of the at the SAARCFINANCE conference in economic policies designed to address ministries of finance, central banks July 2007 and after the proposal was the current crisis, and forge a path and other financial institutions of approved by the SAARCFINANCE towards greater regional economic co- the SAARC member countries in meeting in October 2007.7 operation. There is a need to develop subjects relating to economics and Likewise, another important a common approach and strategy for finance; achievement of SAARCFINANCE what analysts are referring to as the l explore networking of training is the establishment of the SAARC new global order in the post-COV- institutions within the SAARC Swap Arrangement Facility. SAARC- ID-19 world. n region, specializing in various as- FINANCE meeting in September pects of monetary policy, exchange 2011 had unanimously approved the rate reforms, bank supervision and memorandum on SWAP arrange- Notes capital market issues; ment, which was approved by the 1 l promote research on economic and 5th SAARC Finance Ministers Meet- Dasgupta, Amit, and Nephil M. Maskay. financial issues for the mutual ben- ing in January 2012.8 Consequently, 2003. “Financial Policy Cooperation in SAARC: A First Step towards Greater efit of SAARC member countries; the SAARC Swap Arrangement Monetary Integration in South Asia”. l consider any other matter on Facility worth US$2 billion offered South Asia Economic Journal 11(1): the direction/request of SAARC by the Reserve Bank of India came 133-143. finance ministers, Council of Min- into operation in 2012. This provides 2 ibid. isters or other SAARC bodies.6 a backstop line of funding (in US 3 For instance SAARCFINANCE e-news- dollars, Euro, or Indian rupee) for letters or SAARCFINANCE’s website at https://saarcfinance.org/SaarcBriefHis- Activities SAARC member states in the case of a tory.html. So far, SAARCFINANCE activities balance of payment or other liquidity 4 SAARCFINANCE Terms of Reference. 9 have mainly been in the areas of shar- crisis. Under this arrangement, the Sri http://www.sbp.org.pk/ecopd/saarc_ ing of experiences on policy reforms Lankan government recently sought terms.pdf. through the organization of different currency swap worth US$1.5 billion in 5 SAARCFINANCE e-newsletters https:// meetings and conferences and pub- two tranches from the Indian central www.saarcfinance.org/enewsletter.html lication of newsletters. Thirty-seven bank to deal with the foreign currency 6 ibid. SAARCFINANCE meetings have been shortage in the wake of the COVID-19 7 See SAARC Payments Initiative’s web- conducted since its establishment (the pandemic.10 site at https://www.saarcpaymentsinitia- tive.org/ last one being held in October 2018 Recent SAARCFINANCE meet- 8 SAARCFINANCE e-newsletter, June in Bali), which have covered various ings have focused on developing a 2012. https://www.saarcfinance.org/ economic and financial issues of inter- SAARCFINANCE database, reducing June2012.pdf est to SAARC. Similarly, there have the cost of cross-border remittances, 9 The Hindu. 2012. “RBI to set up $2 been 14 governors’ symposium, an and cooperation in banking regulation billion swap facility for SAARC na- annual event organized by SAARC- and supervision.11 tions”. The Hindu 16 May. https://www. thehindu.com/business/Economy/rbi-to- FINANCE that hosts discussions set-up-2-billion-swap-facility-for-saarc- on a special theme of interest to the Need for revitalizing nations/article3425845.ece region. Furthermore, the 13th meeting SAARCFINANCE 10 Roche, E. 2020. “Sri Lanka requests of SAARCFINANCE introduced the It appears that SAARCFINANCE India for currency swap arrangement provision of every member (except meetings have not taken place since of up to $1.1 billion”. Mint 23 May. https://www.livemint.com/news/india/ Bhutan and the Maldives) organizing the last meeting held in October 2018. sri-lanka-requests-india-for-currency- seminars at least once a year. Also, Even the publication of SAARCFI- swap-arrangement-of-up-to-1-1-bil- there have been several half-year- NANCE e-newsletters seems to have lion-11590252888557.html ly editions of SAARCFINANCE stopped since June 2018. Moreover, 11 See the list of SAARCFINANCE e-newsletters, up to June 2018, which SAARCFINANCE activities, due to activities archived at Nepal’s SAARCFI- NANCE cell: https://archive.nrb.org.np/ disseminate information regarding the deadlock in the SAARC process, saf/p_sf_pastact.php. SAARCFINANCE activities. remain mostly subdued since 2014.12 12 Raihan, S. 2020. “Case for a united There have been some notable The decline in SAARCFINANCE South Asian response to COVID-19”. outcomes as a result of SAARCFI- activities could not have come at a The Daily Star, 9 April.

Trade Insight Vol. 16, No. 1-2, 2020 51 book review

India looks East for prosperity

Title: Act East to Act Indo-Pacific: India’s Expanding Neighbourhood Author: Prabir De Publisher: KW Publishers ISBN: 9789389137309

Arvind Kumar

n the last two decades, India has but are interlinked, which enables the gic presence in the subregion, India is Iemerged as a significant economic reader to get an insight into the evolu- uniquely placed to assist in strength- power and security provider in the tion of India’s strategic and economic ening regional economic cooperation Indo-Pacific region. As India’s capabil- engagement with Southeast and East in the region and beyond, with a larg- ities to shape its external environment Asia and beyond. The common thread er goal of uniting vast economic space increase, how India makes external of economic cooperation and integra- straddling the Indian Ocean and the policy choices assume importance, tion runs through all sections. Pacific for sustainable development. not just for India but also for oth- The Indo-Pacific is a subject of As the persistent slowdown becomes er stakeholders in the Indo-Pacific intense debate, contestation and spec- the new normal for advanced econ- region. There is a growing body of ulation. It has been referred to as “the omies and as the centre of gravity of scholarly literature focused on the var- vast and single geostrategic arc and the world economy shifts eastwards, ious aspects of India’s Look/Act East geo-economic span from the eastern the Indo-Pacific becomes critical for policy. India adopted the ‘Look East’ Pacific Ocean to the western Indi- sustaining global growth. policy in 1991, which it transformed to an Ocean along the eastern coast of Arguing along these lines, the an ‘Act East’ policy in 2014. These are Africa”. The idea of Indo-Pacific is not book provides detailed analytical important milestones in the journey about excluding or downplaying Asia accounts on various facets of policy of the modern Indo-Pacific region. or any particular Asian country. In issues related to Southeast and East It is in this context that Prabir De’s fact, this is a definition of a maritime Asia. The book offers insights into latest book, Act East to Act Indo-Pacific: region with Asia at its heart. various stages of development and India’s Expanding Neighbourhood, is a In his address to the 11th Delhi emerging challenges in India’s quest valuable addition. Dialogue, India’s Foreign Minister S towards strengthening the Indo-Pacif- The book consists of 41 chapters Jaishankar pointed out that India’s ic. Most importantly, various chapters divided into 10 thematic sections, view of the Indo-Pacific includes provide lessons and actionable policy namely, Bangladesh, Bhutan, India the Western Indian Ocean as well as inputs to reinforce the idea of closer and Nepal (BBIN) Initiative; Bay of neighbours in the Gulf, the island regional development and integration Bengal Initiative for Multi-Sectoral countries of the Arabian Sea and in the Indo-Pacific space. The author Technical & Economic Cooperation partners in Africa. India’s approach must be commended for this timely (BIMSTEC); South Asian Association to this concept recognizes that both ge- and valuable scholarly contribution. for Regional Cooperation (SAARC); ographical extremities of the Indo-Pa- The book is very helpful in under- Association of Southeast Asian cific and everything in between should standing the economic and strategic Nations (ASEAN); Mekong Ganga ideally have their own indigenously dynamics and potential of this vast Cooperation (MGC); Act East-North evolved approach to the Indo-Pacific. economic space. It also provides East, Bangladesh, China, India & In this context, it is pertinent to recall insights into ways of addressing Myanmar Economic Corridor (BCIM); Prime Minister Modi’s intervention at emerging challenges effectively and Belt & Road Initiative (BRI); and Act the 14th East Asia Summit in Bang- efficiently. The book is an invalu- Far East and Indo-Pacific. The book kok, where he called for establishing able companion for policymakers, is an economist’s insight and field a free, open and cooperative platform academia, students of international experience-based analysis that offers to respond to a range of maritime chal- relations, diplomats and general read- guidelines for international cooper- lenges and needs. ers interested in the topic. n ation. Its main strength is that the 10 With its convening authority, mul- Dr. Kumar is adviser at The Energy and thematic sections are not stand alone ti-sectoral agenda of work and strate- Resources Institute (TERI), New Delhi.

52 Trade Insight Vol. 16, No. 1-2, 2020 network news

Leveraging remittances for economic transformation

A research undertaken by South Asia search found that a doubling of remit- The empirical analysis, which Watch on Trade, Economics and En- tances led an individual to supply, on builds on a nationally representative vironment (SAWTEE) on the relation average, 2.7 fewer hours to non-farm household survey in Nepal conduct- between remittances and self-employ- self-employment per week. Similarly, ed in 2010-11, indicates that this may ment calls for strong policy measures as pointed out by Dr. Paras Kharel, have happened because those oper- to create conditions that make non- Research Director, SAWTEE, who led ating non-farm enterprises, mostly farm self-employment a vocation of the research, “A doubling of remit- micro- or small-scale, were ‘reluctant enthusiastic entrepreneurs rather than tances led an individual to supply an entrepreneurs’ who were engaged the occupation of reluctant ones. average of nearly 1.6 fewer hours per in the vocation out of desperation. The research findings, which week to agricultural self-employment Hence, there is a need to look into showed that higher remittances have and nearly 2.4 fewer hours to salaried policy measures to incentivize such reduced labour hours in Nepal, were employment”. entrepreneurs. presented at an interaction pro- The findings showed that higher The research was carried out gramme ‘Leveraging remittances for remittance amounts were strongly with financial and technical support economic transformation’ organized linked to left-behind women working received from the Partnership for on 17 January in Kathmandu. The re- fewer hours. Economic Policy. n

Re-defining governance model

Experts have pointed out a Professor Adeel Malik, a Globe coalition that favours open access need to re-define the governance Fellow in Economies of Muslim to the economy. model of Pakistan for sustainable Societies at the Department of Most of the participants of the economic growth through a com- International Development of event viewed that almost every prehensive dialogue amongst all Oxford University, said that the sector of the national economy stakeholders, including the elite, popular discourse on the economy is captured by the elite, who the civil society, political parties, in Pakistan lacks an associative enjoy even greater control over academia and other stakehold- debate on political economy. He domestic power politics and ers. This was discussed during a further said that major challeng- economic policies. They said lecture on ‘Economy and national es for such a political economy that the rent-seeking economic security: Political economy choic- on choices for reforms include governance model, which serves es for reform’ organized by the re-allocating power that promotes the vested interests of a few has Sustainable Development Policy the greater interests of industry become unsustainable for nation- Institute (SDPI) on 10 March. and creating a sustainable political al growth. n

Trade Insight Vol. 16, No. 1-2, 2020 53 network news

Report on cultural Digitalization of and creative economy & bridging industries in Sri Lanka the digital divide a must The Institute of Policy Studies of Sri Lanka (IPS) and the British Council of Sri Lanka launched a report on cultural and creative CUTS International and CUTS Institute for Regulation and industries in Sri Lanka on 2 May, via a webi- Competition (CIRC) released their flagship biennial report nar. It is a first attempt to create a framework on Competition and Regulation in India 2019 on 5 February. and develop an understanding of the current Speaking at the event ‘Digital Economy: Hitting the situation and challenges facing Sri Lanka’s reset button on competition and regulatory governance’, cultural and creative industries at a time Injeti Srinivas, Secretary, Ministry of Corporate Affairs, when the creative sector is growing in global confirmed that the Indian government will provide a significance. window of three weeks for public consultation on the The research leading to the report identi- proposed Competition (Amendment) Bill 2019. He also fied the current size and locations of creative pressed the need for digitalization of the economy and and cultural industries in Sri Lanka and bridging the digital divide to achieve India’s target of specific challenges, while providing policy becoming a US$5 trillion economy by 2024-25. recommendations to promote the sector’s Ashok Kumar Gupta, Chairperson, Competition development. It found that 2.9 percent of the Commission of India, stressed the need for evidence-based workforce in Sri Lanka is involved in the crea- research driving policy making in India. tive industry, of which 36 percent are women. Pradeep Mehta, Secretary General, CUTS Internation- The report also noted that creative and cul- al, noted competition and regulatory regimes as tools to tural industries generate future-proof liveli- guide fair markets to function efficiently and promote hoods, as they are agile and often low-cost. economic growth. Similarly, Payal Malik, Adviser (Eco- This report provides recommendations to nomics), Competition Commission of India, highlighted address some specific challenges as well as for the importance of competition in fostering innovation. the overall growth of the sector. The event witnessed participation of representatives The webinar saw the participation of from civil society organizations, industry players, acade- several UK’s and Sri Lanka’s creative industry micians, bureaucrats, policy influencers, media etc.n sector specialists, industry professionals and other stakeholders. n

Awareness workshop on gender dimensions of trade facilitation

SAWTEE, in association insights into managing with Manushi-Nepal, accounts, calculating organized a half-day taxes and becoming workshop on 6 March in credit-worthy. Mr. Kathmandu to generate Rajan Sharma, former awareness among Nepali President, Nepal Freight women entrepreneurs Forwarders Association, regarding participating shared information in international trade. on export procedures, Mr. Arun Raut, General search for markets Secretary, Association abroad, and other re- of Chartered Account- quirements to become ants of Nepal, provided export-ready. n

54 Trade Insight Vol. 16, No. 1-2, 2020 South Asia Watch on Trade, Economics and Environment (SAWTEE) is a regional network that operates through its secretariat in Kathmandu and member institutions from five South Asian countries, namely Bangladesh, India, Nepal, Pakistan and Sri Lanka. The overall objective of SAWTEE is to build the capacity of concerned stakeholders in South Asia in the context of liberalization and globalization. www.sawtee.org Trade Insight Vol. 16, No. 1-2, 2020 55