Trade: LDCs hit hard by fall in global trade due to COVID-19, says WTO

The Least Developed Countries (LDCs) have been hit hard by the decline in world trade triggered by the COVID-19 pandemic, with the value of LDC merchandise exports falling by 16% during the first half of 2020, the World Trade Organization has said.

In a report to a meeting of the WTO Sub-Committee on LDCs last week (WT/COMTD/LDC/W/68), the WTO Secretariat said that data from 97 economies, which include most of LDCs' key trading partners, show that the value of LDC merchandise exports dropped by 21% during March-June 2020 year-on-year.

Exports declined for more than two-thirds of LDCs with certain LDCs experiencing a particularly severe export slump compared to the LDC group's average.

The WTO said the two largest LDC exporters Angola and Bangladesh experienced sharp contractions in their top export destinations, i.e. Angola recorded a 46% decline in exports to China while Bangladesh's exports to the European Union (27) dropped by 30%.

In an update on the trends in trade and market access conditions of the 47 LDCs, the WTO Secretariat report said that based on the reported monthly import data of 97 economies, which include the most important destination markets of LDCs, the value of LDCs' merchandise exports dropped to levels of 74% (April 2020), 59% (May 2020) and 71% (June 2020) in comparison to January 2019.

The LDCs registered a larger drop in their exports to these economies than respective exports by the world, in particular in May 2020, said the report.

Over the first half of 2020, this has resulted in a decrease in exports of LDCs to these economies by 16% year- on-year, compared to a 13% decrease of respective world exports, said the WTO.

Furthermore, the LDCs' imports decreased during January-June 2020, even though the decline of 13% was slightly less severe than for exports.

Nevertheless, the overall trade deficit of the LDCs improved by 7% year-on-year since in absolute terms the decline in import values was higher than that of export values.

At the product level, the WTO said the value of imports of fuels and mining products as well as of manufactures from LDCs dropped most during the COVID-19 pandemic.

The 97 economies from the sample imported fuels and mining products from the LDCs for less than half of the respective value of January 2019 in May 2020 and for 63% in June 2020.

Imports of manufactures from the LDCs went down by 52% in May 2020 compared to January 2019 and by 44% in June 2020, while imports of agricultural products from the LDCs showed some resilience, with levels of 81% in May 2020 and of 88% in June 2020.

According to the report, not all LDC members have been hit to the same degree by the effects of COVID-19 on world merchandise trade.

Twelve out of the 47 LDC members showed even increases in exports to the 97 economies from the sample, ranging from +1% (Cambodia) up to +239% (Timor-Leste).

For Timor-Leste, this mainly resulted from reported imports of butane and propane by Japan during May and June 2020.

Burkina Faso exported especially gold to Switzerland during this period resulting in high export growth, while the high export growth of Comoros was particularly influenced by imports of ships by Greece in June 2020.

On the other hand, 35 out of the 47 LDCs showed decreases in their exports during these four months of 2020, ranging from -5% (Central African Republic) to -91% (South Sudan), with South Sudan experiencing strong declines in Chinese imports of fuels.

While LDCs' merchandise exports to all 97 economies fell by 23%, the drop was even larger for their exports to India (-46%), the United Kingdom (-32%), China (-28%), the European Union (-28%), the Russian Federation (-23%) and the United States (-23%), said the WTO.

The decrease in exports was smaller for the markets of Japan (-19%), the Republic of Korea (-18%), Canada (-6%) and Thailand (-6%).

According to the report, the export values of agricultural products have dropped relatively less compared to other sectors during the pandemic.

LDCs' agricultural exports to 97 importing economies decreased by 3% year-on-year during March-June, and by 1% during the first half of 2020.

Nevertheless, a number of agriculture-dependent LDCs experienced big drops in their exports. For instance, exports of Tuvalu (-80%), Afghanistan (-57%), The Gambia (-53%), Guinea-Bissau (-46%) and Burundi (-43%) dropped by more than 40% during March-June.

On the other hand, a few LDCs such as Tanzania (+24%), Rwanda (+17%), Niger (+12%), Vanuatu (+10%), Benin (+6%) and Central African Republic (+3%) registered an increase in their exports of agricultural products during March-June 2020.

The COVID-19 pandemic aggravated the decline in energy prices that had set in at the beginning of 2020, said the WTO.

The value of LDCs' exports of fuel and mining products dropped by a third (33%) during March-June, and by more than a quarter (26%) in the first half of 2020.

During March-June, exports of fuels and mining products dropped by 70% or more for South Sudan, Bhutan, Togo and Sudan; by close to 60% for Yemen; by more than 40% for Liberia and Angola; and by 30% or more for Zambia, Rwanda and Mozambique.

The exports of clothing products, which dominate the LDCs' manufacturing exports, have also been hit hard by the pandemic, said the WTO.

The value of LDCs' exports of clothing dropped by 28% during March-June 2020, and by 18% in the first half of 2020.

Nepal (-58%) has seen the biggest decline during March-June, followed by Lesotho and Haiti (each -49%), while Madagascar (-33%) and Bangladesh (-32%), the biggest LDC clothing exporter, saw their exports drop by around a third.

In the first half of 2020, the volume of world merchandise trade as measured by the average of exports and imports was down 3.4% year-on-year in the first quarter and 17.2% year-on-year in the second, said the WTO.

On average, the volume of trade was down 10.2% in the first half of the year compared to 2019.

Monthly statistics indicate that merchandise trade bottomed out in May before rebounding in June and July, said the WTO.

Despite a partial recovery in June, the 14.3% quarter-on-quarter drop in the volume of world trade in Q2 (in the second quarter) was the largest on record, it added.

By comparison, trade only fell 10.2% in the first quarter of 2009, at the height of the financial crisis.

Peak-to-trough declines were similar in both episodes (-17.6% during the financial crisis and -17.5% during the COVID-19 outbreak).

Overall, both trade slumps are of similar magnitude, but the fall during the pandemic was more abrupt, it said.

The volume of merchandise exports of LDCs was down 14.2% year-on-year in the second quarter, while the volume of LDC imports fell 14.7%.

In the first half of the year, LDC export volumes were down 8.1% compared to 2019, while LDC imports were 7.7% lower.

The drop in LDCs' exports was larger in value terms (-16% to 97 economies), which mainly reflected the decline in energy prices (gas and oil) in the first half of 2020.

The performance of LDC exports during the COVID-19 pandemic resembles their record during the financial crisis, but the behaviour of LDC imports has been markedly different, said the WTO.

The volume of LDC merchandise exports fell 14.2% from peak to trough in 2019-20 compared to 17.9% in 2008-09.

The volume of LDC imports also fell sharply during the pandemic (-15.7% peak-to-trough), although they only registered a small decline during the financial crisis (-4.0%).

The WTO said the divergent performance of LDC exports and imports may be partly explained by the fact that financial crisis was mostly a demand-side shock while the pandemic hit both the demand and supply sides of the global economy.

Demand-side effects include reduced consumption and investment while supply constraints were mostly in the form of lockdowns and travel restrictions, it added.

The WTO said it now expects a 9.2% decline in the volume of world merchandise trade in 2020, followed by a 7.2% rise in 2021.

Market-weighted real GDP growth is expected to shrink by 4.8% in 2020 before growing 4.9% in 2021.

"If current GDP projections are realized, LDCs' export volumes could see a 6.8% decline in 2020, followed by a 7.6% rebound in 2021."

Like the forecast for world trade, these estimates are subject to a high degree of uncertainty since they depend to a large extent on the evolution of the pandemic, said the WTO.

Outcomes could be worse if the number of COVID cases and deaths continues to rise. However, there is also some upside potential, notably if an effective vaccine can be made available in the near future. Overall, risks to the outlook are considered to be mostly on the downside, it added.

Trade in services

According to preliminary Secretariat estimates, LDCs' services exports declined by around 13-15% in the first quarter and by 60-65% in the second quarter, resulting in a year-on-year drop of around 38-40% in the first half of 2020.

The sharp decline in overall services exports was driven by a slump in LDCs' travel exports, which have dropped by 28-30% in the first quarter and by 90-92% in the second quarter, resulting in a 58-60% year-on-year drop in the first half of 2020.

Travel restrictions implemented globally to fight the spread of COVID-19 significantly affect the ability of LDCs to export services, said the report.

"While international travel is vulnerable to local shocks such as natural disasters, political unrest, and health- related concerns, the COVID-19 pandemic is different from other health-related crises that hit LDCs in the past."

It affects directly also outbound tourism. According to the UN World Tourism Organization (UNWTO), global international tourist arrivals decreased by 25% year-on-year in the first quarter of 2020 and dropped 95% in the second quarter following suspension of international flights and worldwide lockdown measures.

In Cambodia, the leading travel exporter among the LDCs, international tourist arrivals contracted on average by 65% in the first half of 2020, with arrivals from China, the top source market, down 79%.

However, said the Secretariat report, tourist inflows remained largely intra-regional (74% of total arrivals), with China continuing to account for the largest share of arrivals (23.3% from 47.4% in the same period of 2019), followed by Vietnam (15.2%), Thailand (13.6%), the Republic of Korea (4.4%), Japan (3.4%), and the Lao People's Democratic Republic (2.9%).

Other main source countries were the United States (4.5%), the United Kingdom (3.7%), France (3.5%), and Germany (2.3%).

Myanmar, the second largest travel recipient, saw international visitor arrivals drop 66% year-on-year during January-July 2020.

Tourist arrivals from China, the main source country with a share of 37%, fell 72%, while arrivals from Japan and Thailand were both down 63%.

Arrivals from Asia, making up for 84% of tourist arrivals in 2019, declined by 68% in the first seven months of the year. In the same period, visitors from Europe, with a share of 9.5%, contracted by 45%.

LDCs in Asia were among the first to be affected by travel restrictions. In the first quarter, travel exports were already down 34% in Cambodia, 42% in Myanmar, and 37% in Bhutan, somewhat less in Bangladesh, Nepal, Timor-Leste and Lao People's Democratic Republic, said the WTO.

To a large extent, the recovery of tourism in LDCs in Asia will depend on the ability to fight the virus internally, just like for any other country, and on neighbouring Asian economies' propensity to travel abroad, as well as the lifting of travel restrictions, said the WTO.

On a positive note, monthly data show that China's and the Republic of Korea's travel imports had their low point in May 2020 and started to rebound during June-August 2020.

Tourism is also mainly intra-regional for LDCs in Africa, accounting on average for at least 65% of all arrivals, said the WTO.

However, European tourists, whose travel-related spending is higher, represent an important share for several LDCs, i.e. one-third of total arrivals in Tanzania, almost half in Madagascar and two-thirds in Comoros.

Following travel and transport restrictions and lockdown measures, foreign tourist arrivals to LDCs in Africa dropped.

The UNWTO estimates an overall decline of 11.7% for the first quarter and 99.5% for the second quarter for Sub-Saharan Africa.

For LDCs in Africa, which depend on European tourist inflows, the outlook for the tourism sector is bleak, said the WTO.

As travel restrictions were gradually eased in May and June in Europe, travellers largely opted for domestic tourism or intra-regional travel. The resurgence of COVID-19 cases in Europe in August has put long-haul international travel on hold again, it added.

As a result of declines in global travel demand, air transport operators in LDCs are suffering losses. According to the International Air Transport Association (IATA), global revenues from air passenger transport will drop by 66% in 2020.

Consumer sentiment towards air travel did not improve in recent months and forward booking for the last quarter of 2020 were down 78% year-on-year.

Services trade data for the second quarter of 2020 are not yet available for Ethiopia, the leading LDC transport exporter (a 32% share in LDCs' transport exports in 2019), said the WTO.

However, its national airline lost USD 550 million just from January to April due to the COVID-19 outbreak, it added.

Notwithstanding the downturn of travel and transport services, some LDCs had registered positive growth in information technology and business services.

Bangladesh saw its computer services exports increase by 13% and 10% in the first and second quarter of 2020, while Uganda's exports of ICT services, essentially computer services, rose 96% and 39% in the first quarter and the second quarter, said the WTO.

Trade profile of LDCs in 2019

According to the WTO report, LDC exports of goods and services increased at an average annual rate of 1.3% between 2011-2019, slightly less than the exports of other developing economies (+1.5% per year).

In 2019, LDC exports of goods and commercial services declined by 1.5% compared to 2018, reaching a nominal value of USD 236.2 billion, while the LDCs' imports grew by 3.6% to USD 336.3 billion.

After two years (2017 to 2018) of positive developments, LDCs' exports went back to negative growth in 2019, though at a lower rate than during 2015 and 2016, said the WTO.

LDC commercial services exports reached a value of USD 43.4 billion in 2019, which represented a share of only 18% of LDC goods and commercial services exports, up from 17% in 2018.

LDCs' overall trade deficit deteriorated from USD 99 billion in 2018 to USD 100 billion in 2019, said the WTO.

Imports exceeded exports by USD 77.0 billion in the case of goods, and by USD 23.0 billion in the case of commercial services.

The LDCs' 2019 trade deficit was more than two times higher than in 2011 (USD 40.5 billion), when the trade balance of goods was slightly positive.

LDC merchandise exports fell by 1.1% in volume terms in 2019, while merchandise imports increased by 2.8%.

Thus, LDCs exports fell less in volume terms than in value terms (-3.1%), and imports increased more in volume terms than in value (+0.9%) - reflecting the impact of price developments on the nominal trade figures of LDCs' merchandise trade, said the WTO.

The LDCs' total trade volume (turnover, i.e. exports plus imports) increased by 1.3% in 2019 while the volume of total trade of other developing economies decreased by 4.0%.

The share of LDCs in world exports of goods and commercial services increased slightly, from 0.95% in 2018 to 0.96% in 2019.

According to the WTO, LDCs' merchandise exports rose from USD 189 billion in 2011 to USD 190 billion in 2019, corresponding to an average annual increase of 0.1% (compared to 0.3% for world exports).

In 2019, LDCs' exports, partly due to a distinct decrease in prices for fuels and mining products, fell by 3.1% compared to 2018, while world exports declined by only 2.7%. Merchandise imports of the LDCs increased by 0.9%.

The share of LDCs in world merchandise exports remained above 1% in 2019, declining slightly from 1.04% in 2018 to 1.03% in 2019. The share of imports grew from 1.41% in 2018 to 1.46% in 2019.

In 2019, the merchandise trade deficit of LDCs increased from USD 76 billion in 2018 to USD 85 billion but still remained below the record deficit of 2015 (USD 89 billion).

The deficit in 2019 was mainly due to a decrease in LDC oil exporters' trade surplus (from USD 12 billion in 2018 to USD 6 billion in 2019) as well as an increase in the deficit of LDC exporters of non-fuel minerals (USD 10 billion in 2019 versus USD 7 billion in 2018).

The deficits of agriculture and manufactures exporters stood at around the same levels as in 2018, said the WTO.

The economies with the highest trade surpluses in 2019 were Angola (+USD 20.6 billion), the Democratic Republic of the Congo (+USD 0.6 billion) and Chad (+USD 0.5 billion), while the LDCs with the highest trade deficits were Bangladesh (-USD 19.8 billion), Ethiopia (-USD 11.8 billion) and Nepal (-USD 11.3 billion).

While Angola was the top LDC exporter in both 2011 and 2018, it was overtaken by Bangladesh in 2019.

Angola's share in 2011 was more than 35% but fell to 18% in 2019, while Bangladesh's share increased from almost 13% in 2011 to almost 21% in 2019.

Also, Myanmar (9%) and Cambodia (8%), which were on third and fourth place in 2019, have seen their shares in LDC merchandise exports increase significantly since 2011.

In 2011, the three leading importers were Bangladesh (share of 18%), Angola (10%) and Yemen (6%). Eight years later, the top three consisted of Bangladesh (22%), Cambodia (8%) and Myanmar (7%).

China was the top destination for total LDC merchandise exports both in 2011 (share of 26%) and 2019 (share of 28%), followed by the European Union (27) with a share of 22% in 2019.

The top ten importers accounted for 84.5% of LDCs' total exports in 2019, more than in 2011 (83.4%).

The WTO said in 2019, China was the main destination of LDCs' exports of agricultural products (share of 21% in LDCs' exports of this product) as well as fuels and mining products (share of 57%), while the European Union (27) was the main importer for LDCs' exports of manufactures (share of 37%).

The United States was the top third destination market for overall LDC exports (share of 10%) and the top two destination for manufactured goods exports (share of 20%).

In 2019, LDCs' exports of commercial services increased by almost 10% to USD 43.4 billion, continuing the positive trend from 2018 (+14%) and 2017 (+7%).

"Since 2011, LDCs' services exports growth has been more rapid than in the rest of the world. As a result, the LDCs' share in global services exports increased from 0.59% in 2011 to 0.72% in 2019."

In 2019, LDCs' services exports remained concentrated within a few economies, with Myanmar being the largest exporter, with a 15.5% share, followed by Cambodia (13.9%) and Ethiopia (10.4%), said the WTO.

By Kanaga Raja.

Source: SUNS - South North Development Monitor, SUNS #9234 Tuesday 17 November 2020.