Immediate solutions required for disruption to global value chains

Most of the industrialised economies around the world have moved towards Global Value Chains (GVCs). Gone are the days when manufacturing and product development was isolated to the domestic supply chains.

Global value chains refer to a phenomenon of international product sharing where manufacturing is broken into activities and tasks including making, supply and distribution as well as after sales to be coordinated and carried out across different countries.

The development of complex and dense global value chains is perhaps the hallmark of 21st-century globalisation. They bring together global firms and production value in this almost borderless world. The disruptions brought by Covid-19 have put all this into question.

Most nations have supply chain dependencies in strategic sectors. Reintegration of supply chains within the region is a strategy many trading blocs and neighbouring countries are looking at.

Nonetheless, cross-country production processes do have adverse effects on domes­tic economies and societies, especially over the recent past due to the Covid-19 pandemic. Many economies are left asking themselves “do we need to re-localise our supply chains and do we have the means to do so?”

Tourism

Kenya has developed value chains across various industries. These range from textiles, automotive production, floriculture, leather, manufacturing, music industry and tourism among others. How much is Kenya genuinely benefiting from the Global Value Chains?

The country has been incorporated in the global leather value chain for instance. About 70 per cent of the leather exports from Kenya to the rest of the world are skins and rawhide. The effects of disruption caused in the value chain has affected manufacturing and various industries in Kenya and beyond.

Across the world, the pandemic continues resulting in unexpected situations of lockdowns and force majeure causing firms not to fulfil contractual agreements on time citing multiple reasons including lack of raw materials, increased costs, restrictions on businesses and movement of goods and persons.

There has been a cascade effect. If we think of the value chain across inputs, production, distribution, retailer, consumer, a disruption in one place can have a major impact later on, or at a different point in the chain.

Disruption to the logistics and transport has led to a shortfall in supplies of certain products at outlets. Britain is currently facing a fuel shortage with empty fuel pumps across the country created by a shortage of truck drivers. This dearth has caused problems for all industries and households within the UK.

Stores are running out of groceries and supplies, restaurants are unable to purchase required supplies or carry out home deliveries, taxi drivers are left queuing endlessly at almost empty gas stations with the hope of getting their cars refuelled. Britain’s transport system has been derailed. Government policy amendments are urgently required to accommodate the needs of the drivers and get the situation resolved.

Governments across the world have been flailing about how to deal with the economic and social impacts of the Covid-19 especially with regards to global value chain disruption. The impact differs based on the scale of production and according to the country and government response and policy.

The pandemic has uncovered how fragile the global trade network which sustains the Global Value Chains are. Early disruptions in supply chains for essential medical goods due to a huge upsurge in demand and the implementation of new trade barriers on the onset of the pandemic compelled policymakers throughout the world to query their country’s dependence on imported supplies and international production networks.

Fortune 1,000 companies

About 94 per cent of the Fortune 1,000 companies witnessed major disruptions during the year 2020 and these disruptive challenges continue. Over 14 per cent of facilities that make active pharmaceutical ingredients are in China. In the supply chain it is important to note that through the chaos of recovery it is going to be very easy to overlook the root causes of the gaps within the supply chain which may have paralysed business during this event.

Building towards a resilient supply chain will be at the epicenter of future discussions for years to come. Covid-19 is only the latest in the increasing number of unexpected disruptions that have been hitting supply chains including various calamities, cyber-attacks, crop disease, weather changes, government policy changes, civil unrest such as in Chile which affected copper mining.

Globally, millions of workers and migrant staff across industries were forced to return to villages or countries of origin due to loss of jobs and impact on livelihood. Due to the Covid-19 disruption, many of the big buyers refused to pay for orders which were produced and in transit.

Goods no longer have a single nationality with components being manufactured and assembled across various international partner nations. There is a strong concern that international competition hurts local firms, causing the deindustrialisation of manufacturing and job losses.

There must be a complementary relationship between access to international intermediate inputs and production to bring a balance to the story on competitive effects of international trade.

Ritesh Barot is a business and financial analyst, humanitarian, conservationist, occasional artist, recipient of OGW honor. [email protected]