Francois Fouche shares with us news titbits from various sources from across the world which will impact on trade and investment issues on the African continent…
South African economic activity is bouncing back – but the void to fill is intimidating
Remember the OECD Weekly Tracker of GDP growth, we shared a while back? Access the tracker by clicking this link: https://www.oecd.org/economy/weekly-tracker-of-gdp-growth/
It provides a real-time high-frequency indicator of economic activity using machine learning and Google Trends data. South Africa is one of the countries covered in this analysis.
The sad anniversary of the first economic impact of the pandemic is now passing in many countries.
However, this can make it difficult to interpret recent movements in the Weekly Tracker because it is based on GDP growth compared to the same week a year earlier. Think base effects among many others.
In particular, recent sharp upturns in the Tracker may reflect the fact that GDP is being compared with a period a year earlier when GDP had fallen sharply as the first set of lockdown measures was imposed.
In order to provide a clearer visual representation of recent movements in activity, a new version of the Tracker was recently introduced, which measures the percentage difference in GDP relative to a pandemic-free counterfactual (where the counterfactual is taken to be the OECD Economic Outlook forecast published in December 2019).
To be clear, this Counterfactual Tracker is a simple transformation of the original Tracker and so continues to be essentially based on recent data on Google Trends.
For some countries (for example France and Italy) recent upturns in the Weekly Tracker do not appear in the Counterfactual Tracker, indicating that there is no sign of any recent recovery, whereas for other countries (for example the United States) the upturn is also present in the Counterfactual Tracker and so suggests some recent strengthening in activity.
Below is the most recent version of the South African Counterfactual Tracker, which shows our economy is grew MUCH faster during the last week of April this year (original tool’s forecast) compared to the same week a year ago, BUT, from the counterfactual GDP nearcast, it is clear that South Africa did not recover sufficiently (during the last week of April 2021) to make up for the massive gap in output, which developed in our domestic economy during the early days of the lockdowns in April 2020.
So, also our economy is recovering at present, BUT it needs to maintain a far great and more intense and sustained level of recovery to fill the economic void created by our reaction to the pandemic (not the virus itself).
So, be happy – but no too happy – more work lies ahead – a lot more – especially re-establishing a more business- and thus growth friendly economic environment.
The blue confidence band shows 95% confidence intervals. The Weekly Tracker is the % difference in GDP between a week and the same week a year earlier.
The Counterfactual Tracker is the % difference in GDP for the same period in a pandemic-free counterfactual represented by the December 2019 OECD Economic Outlook forecasts.
The darkness of the grey background reflects stay-at-home confinement requirement based on the Oxford Blavatnik database
(0 – no measures, 1 – recommend not leaving house, 2 – require not leaving house with exceptions, 3 – require not leaving house with minimal exceptions).
Source: OECD Weekly Tracker (Woloszko, 2020); and Oxford COVID-19 Government Response Tracker (Hale et al., 2020).
Access the tracker by clicking this link: https://www.oecd.org/economy/weekly-tracker-of-gdp-growth/
About the GDP tracker
It has a wide country coverage of OECD and G20 countries.
The Tracker is particularly well suited to assessing activity during the turbulent period of the current global pandemic.
The Tracker provides estimates of year-on-year growth rate in weekly GDP. It applies a machine learning model to a panel of Google Trends data for 46 countries, and aggregates together information about search behaviour related to consumption, labour markets, housing, trade, industrial activity and economic uncertainty.
China – another large trade deal in the making
“China is pushing ahead with behind-the-scenes talks to join a major trade deal that originally aimed to exclude Beijing and cement US economic power and trade ties in the Asia-Pacific region.
Officials from Australia, Malaysia, New Zealand and possibly other nations have held technical talks with Chinese counterparts on details of the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP. That’s according to officials from four member countries with knowledge of the discussions, who asked not to be named as they weren’t authorized to comment on the talks.
China announced in February it had held informal talks with some of the members, but didn’t release details. It’s not clear how far China has progressed in preparing an application, but the people see Beijing as seriously interested in joining, with multiple officials pointing to comments last year from President Xi Jinping as an indication of intent.
Many of the CPTPP members are heavily dependent on trade with China, but the country’s increasingly poor image in some nations may make it harder to agree on entry. Concerns over labour practices, state-owned companies and its economic confrontation with America also loom as potential roadblocks for entry.
If it does join, China would become the largest economy in the partnership and further cement its position at the centre of trade and investment in the region.
Beijing already helped lead a separate regional trade deal known as RCEP to a successful conclusion last year, but joining the CPTPP would require it to make additional concessions and gain the agreement of all 11 members — US allies, including Australia, Canada and Japan, countries with which it has increasingly difficult relations.
That Chinese success with regional US partners has prompted some in Washington to start pushing the Biden administration to return to the deal, or at least to re-engage on trade with the region.
“We must deepen our engagement in the Asia-Pacific or risk losing US allies there to China’s predations,” Senator Michael Crapo told U.S. Trade Representative Katherine Tai last week. “We must start thinking about how to modernise the TPP or what other structures we can use for US engagement in the Asia-Pacific. We cannot simply take a time-out from the region.”
He was one of several lawmakers to push Tai on the topic of CPTPP last week. In her confirmation, Tai wasn’t particularly positive about the deal.
“The basic formula of TPP, which was to work with our partners with whom we have very important shared interest economically and strategically, and with the challenge of China in mind, is still a sound formula,” she said in February. But “a lot has changed in the world in the past five or six years.”
As China steps up its efforts to join the CPTPP, the discussions in Washington about what the US should do only get louder.”
This article first appeared on this link: https://www.bloomberg.com/news/articles/2021-05-17/china-steps-up-efforts-to-join-trade-pact-created-to-exclude-it
Using global trade to fight the pandemic: Manufacturing and distributing vaccines
All countries need vaccines but not all can produce them. Vaccine production is highly specialised, subject to comparative advantages, and concentrated in few countries, making trade a vital means to deploying vaccines broadly. Keeping markets open by reducing tariffs, streamlining trade-related processes at and behind the border while ensuring better co-ordination of logistical processes will be key to ensuring timely access to vaccines for all. This new research note from the OECD discusses trade and trade policy considerations underpinning access to the final and intermediate goods needed to effectively produce, deliver and administer COVID-19 vaccines. It focuses on the international aspects of the vaccine supply chain, discussing the sourcing, production, distribution and need to expedite international border crossing and transportation, including in the context of the cold supply chain. Below is a summary of the note’s key message and a few useful infographics of the global trade in vaccines.
Announcements on the efficacy of emerging COVID-19 vaccines have provided a glimmer of light at the end of the tunnel. However, mass manufacturing and distribution of vaccines will continue to pose challenges. An analysis of the international aspects of the vaccine supply chain shows that:
All countries need vaccines, but not all are able to produce them. Vaccine production is highly specialised and subject to comparative advantages. Trade will therefore play a key role in enabling access to COVID-19 vaccines, especially for developing countries.
There are strong trade interdependencies in the goods needed to produce, distribute and administer vaccines. Besides the active ingredients needed to produce vaccines, distribution and administration requires access to goods produced across a range of countries: vials to move the vaccines, syringes to administer, cold boxes to transport, dry ice to maintain cold temperatures, and freezers to store.
The production of COVID-19 vaccines is likely to be geographically concentrated, but the demand is global.
Distributing vaccines poses significant logistical challenges that could be addressed by:
- Promoting online communications hubs to share information on existing manufacturing facilities and connecting potential distributors.
- Keeping markets open. Despite strong trade interdependencies, tariffs on vaccines and key inputs remain and will negatively impact the ability to get vaccines to where they are needed. Duties on vaccines exist in 22% of economies, with 8% applying duties above 5%. Average world tariffs on vaccine ingredients such as preservatives, adjuvants, stabilisers, antibiotics range between 2.6% and 9.4%. It will also be important that countries avoid export restrictions on both intermediate and final goods to ensure vaccines can be effectively distributed.
- Increasing international co-operation and co-ordination to enable vaccines to move seamlessly across borders. Focus might be best placed on streamlining processes at the border, ensuring better co-ordination of logistical processes, and relaxing, where possible and without prejudice to safety, trade-related regulatory burdens.
Global cargo bookings go online
Global airlines are pushing deeper into the frontier of digital transactions for cargo, aiming to strengthen a financial lifeline while the pandemic continues to ravage passenger revenue.
The latest example is Turkish Cargo, which soon will connect with freight forwarders to offer real-time bookings online. The rollout will begin in Spain and India.
Few freight markets were jolted more severely than air cargo when the pandemic began, with the grounding of passenger planes erasing capacity. Rates more than tripled on some routes.
Years of technological neglect in air freight only made the shock harder to absorb.
Unlike passenger travel, air cargo has been much slower to digitize pricing and booking. The pandemic is changing that. With the addition of Turkish Cargo, airlines representing about 22% of global air-cargo capacity will be online, up from less than 10% at the end of 2019.
There are still big efficiency gains to be made.
A gauge of capacity in use compiled by the International Air Transport Association has steadily risen over the past 14 months to levels that are high by industry standards, but it still was less than 60% in February.
The holy grail for where this is all going is direct connectivity from an airline to a freight company and from the freight company to the importer.
According to a McKinsey report released earlier this month, cargo accounted for about 12% of industry revenue before the pandemic. That share tripled last year, and the market is likely to stay tight for the foreseeable future.
“As commercial flights gradually return, belly supply will increase, although not to pre-Covid-19 levels for at least a few years, as the industry is expected stay smaller than before the pandemic for several years,” McKinsey said.
China outperforms the world on manufacturing output
According to data published by the United Nations Statistics Division, China accounted for 28% of global manufacturing output in 2019.
That puts the country more than 10% ahead of the USA, which used to have the world’s largest manufacturing sector until China overtook it in 2010.
With total value added by the Chinese manufacturing sector amounting to almost $4 trillion in 2019, manufacturing accounted for nearly 30% of the country’s total economic output.
The USA economy is much less reliant on manufacturing these days: in 2019, the manufacturing sector accounted for just over 11% of GDP.
Births have plunged, the ranks of those 60 and over have ballooned and the working population is quickly shrinking.
While the country has fewer working-age adults, that cohort is better educated and more productive.
Almost 9 million people graduated from Chinese colleges last year, versus just 1 million in 2000.
The ratio of urban residents also rose to 63% of the population last year from 49% a decade earlier, meaning an ever larger number of workers are employed in industries more economically fruitful than agriculture.
China’s retirement age is currently 60 for men and 50 for women, ranking it among the world’s lowest.
BNP Paribas estimate that by lifting the universal retirement age to 65 and loosening restrictions on internal migration, Beijing could add 150 million to the country’s urban workforce by 2035.
The idea of raising that threshold, however, is deeply unpopular.
Whether Beijing has the political will to make the changes that China’s rapidly aging population demands is a question no census can answer.