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Malawi Policy Learning Event - Trade in Times of COVID-19 Pandemic - April 28, 2021

This presentation was delivered by Dr. Ismael Fofana, Director, Department of Capacity and Deployment at ‎AKADEMIYA2063

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Malawi Policy Learning Event - Trade in Times of COVID-19 Pandemic - April 28, 2021

  1. 1. TRADE IN TIMES OF COVID-19 PANDEMIC: EFFECTS OF GLOBAL PRIMARY COMMODITY MARKET DISRUPTION ON GROWTH AND POVERTY IN MALAWI Ismael FOFANA Director, Department of Capacity & Deployment AKADEMIYA2063 Country Policy Event - Malawi Virtual - April 28, 2021
  2. 2. OUTLINE 1. Introduction 2. Method 3. Scenario 4. Findings 5. Conclusion
  3. 3. 1. Introduction Why assessing the effects of global primary commodity market disruption? • The COVD-19 pandemic affects African economies through several channels including,  Global market disruption and the change in the international price of primary commodities. • The COVID-19 pandemic has driven most primary commodity prices down in 2020. • Heavy contribution of primary commodities in the export basket of Malawi.
  4. 4. 1. Introduction (Cont’d) The COVID-19 pandemic has driven most primary commodity prices down in 2020. -50 -40 -30 -20 -10 0 10 20 Coal, Australia Crude oil, avg Natural gas, Europe Natural gas, US Natural gas LNG, Japan Cocoa Coffee, Arabica Coffee, Robusta Tea, auctions (3), average Coconut oil Groundnut oil Palm oil Soybean meal Soybean oil Soybeans Barley Maize Rice, Thailand, 5% Wheat, US, HRW Bananas, US Meat, beef Meat, chicken Oranges Shrimp, Mexico Sugar, World Logs, Cameroon Logs, Malaysia Sawnwood, Malaysia Cotton A Index Rubber, Malaysian Tobacco DAP Phosphate rock Potassium chloride TSP Urea, E. Europe, bulk Aluminum Copper Iron ore Lead Nickel Tin Zinc Gold Silver Platinum Changes in predicted prices in 2020 for primary commodities prices between April 2020 and October 2019 forecast
  5. 5. 1. Introduction (Cont’d) Heavy contribution of primary commodities in Malawi exports 96 94 94 93 87 87 81 59 32 8 Angola Botswana Mozambique Zimbabwe Zambia Namibia Malawi South Africa Eswatini Lesotho 55 51 49 49 46 40 40 39 33 32 Angola Botswana Mozambique Zimbabwe Zambia Namibia Malawi South Africa Eswatini Lesotho Primary commodities imports, share of total imports Primary commodities exports, share of total exports
  6. 6. 1. Introduction (Cont’d) Objective of the Study Growth and poverty effects of the global primary commodity market disruption.
  7. 7. Key Messages • With African countries closely linked to global markets, disruptions in global trade have important effects on African economies. • Exposure to global trade shocks is a function of a country’s import and export basket as well as the capacity of the economy to respond. • The same disruption could have positive or negative impacts depending on how well the economy absorbs new costs or pursues new opportunities. • Responses to Covid-19 or other crises should not undermine the economy’s ability to respond to changes in the global economy. 7
  8. 8. 2. Method • Simulation models (Akademiya2063 / ReSAKSS)  Single-Country CGE Models  Micro-Simulation Models • Primary commodity price predictions (World Bank)  Commodity Markets Outlook: October 2019 and April 2020 • Statistics on international trade (United Nations)  Import and export data (2019/2018)
  9. 9. 3. Scenarios Changes in the international price of primary commodities Baseline Scenario Price forecasts for the year 2020 in October 2019 (pre-COVID pandemic) COVID Scenario Price forecasts for the year 2020 in April 2020 (onset of COVID pandemic)
  10. 10. 3. Scenarios (Cont’d) COVID Scenario  Changes in the international price of primary commodities (Price Shock)  Disruption of global trade conditions and international market access (Trade Shock)
  11. 11. 3. Scenarios (Cont’d) The price scenario is based on the composition of the basket of primary commodities exported and imported by Malawi Changes in predicted Prices for Top Ten Primary Commodities Exported by MALAWI Share of Top Ten Primary Commodities in MALAWI’s Total Exports, in 2017
  12. 12. Share of Top Ten Primary Commodities in MALAWI’s Total Imports, in 2017 Changes in predicted Prices for Top Ten Primary Commodities Imported by MALAWI 3. Scenarios (Cont’d) The price scenario is based on the composition of the basket of primary commodities exported and imported by Malawi (Cont’d) -37,5 -13,2 -4,1 -12,9 -1,7 3,9 -14,5 -7,8 -9,6 2,3 Petroleum oils Fertilisers, nitrogen Wheat and meslin Fertilisers, mixed Unmanufactured tobacco Flat-rolled products of iron Structures Maize (corn) Pneumatic tyres, of rubber Soya-bean oil
  13. 13. 4. Findings 2 Percent Decline in International Price of Commodities Exported by Malawi Angola -35.7 Zambia -13.7 Mozambique -10.4 Lesotho -6.5 Zimbabwe -4.7 South Africa -4.1 Malawi -2.3 Namibia -0.9 Botswana 7.5 Eswatini 8.0
  14. 14. Zimbabwe -25.8 South Africa -22.2 Zambia -21.0 Eswatini -18.4 Mozambique -18.4 Lesotho -18.3 Angola -16.4 Namibia -15.6 Malawi -15.5 Botswana -5.8 4. Findings (Cont’d) 16 Percent Decline in International Price of Commodities Imported by Malawi
  15. 15. 4. Findings (Cont’d) Impact of the world price changes on individual economies depends on the contribution of primary commodities in countries external trade Percentage point change in export and import weighted average prices, COVID scenario compared to the baseline scenario -35 -30 -25 -20 -15 -10 -5 0 5 10 Angola Zambia Mozambique Zimbabwe South Africa Malawi Namibia Lesotho Eswatini Botswana Export Price Index Import Price Index A B C C
  16. 16. 4. Findings (Cont’d) Slight Decline in GDP Growth in Malawi Percentage point change in GDP growth, COVID vs. BaU, Price and Trade Shocks -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 Angola Zimbabwe Zambia Mozambique South Africa Malawi Namibia Lesotho Eswatini Botswana A A A A B B B B C C
  17. 17. Change in Poverty Headcount Ratio, COVID vs. Baseline, Price and Trade Shocks (pp) 4. Findings (Cont’d) Slight Increase in Income Poverty in Malawi 8,0 0,3 3,1 -0,3 0,7 -0,5 0,0 0,2 Angola Zambia Mozambique South Africa Malawi Namibia Lesotho Eswatini
  18. 18. 4. Findings (Cont’d) Increased Urban Poverty More Than Rural Poverty in Malawi Changes in urban and rural headcount poverty rates, COVID vs. Baseline, Price and Trade Shock (pp) -2 0 2 4 6 8 10 12 Angola Zambia Mozambique Malawi Namibia Lesotho Eswatini Rural Urbain
  19. 19. • Decline in the international price of primary commodities traded by Malawi. • Negative effects on economic growth and (income) poverty in Malawi. • Increase in urban poverty more than rural poverty in Malawi. 5. Conclusion: Key findings
  20. 20. • Protect vulnerable populations  Expansion of social protection scheme • Diversify the external trade Export basket  More agri. commodities  More high value agri. commodities Import basket  More primary commodities for input use 5. Conclusion (Cont’d): Policy Recommendations
  21. 21. THANK YOU

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