Previous economic shocks changed way the world trades

The pace of Covid-19 spread and the enormity of associated country-by-country restrictions means by the time this column goes to print whatever I write will be out of date.

What will remain true is that the world has a history of significant pandemics ranging from the Black Death (the Bubonic Plague) which killed 200million people from 1347-1351, to HIV Aids which has killed 25 to 35million people since 1981.

At the time of writing this column, Covid-19 has killed 7174 people — much lower than the Bubonic Plague — but rising.

I’m not a virologist, nor an epidemiologist, so like most of us, I’m reading and following media to try to make sense of how long, and how widespread this pandemic will become.

As we ride out Covid-19, I can’t help but wonder, how will this pandemic change the modern world?

In my last column, I wrote about India and its rationale for resisting a free-trade agreement (FTA) with New Zealand. For the Indian Government, rural poverty is real and given that over half its population live rurally, any threat to their existence is resisted.

We term their resistance to an FTA ‘‘protectionism’’, and right now, perhaps we understand that protectionism more than at any other time in recent history — after all, we have temporarily closed our borders trying to isolate ourselves at the bottom of this crazy world.

Our world will stay connected — many of the fundamentals of globalisation will be difficult to unravel. In New Zealand we export a lot, but we also import a lot — total self-sufficiency is unlikely, nor is it desirable.

However, it is likely the Covid-19 pandemic will add to the shifts towards greater protectionism. These changes were already happening according to McKinsey Global Institute partner Susan Lund, an expert in globalisation:

‘‘After the global financial crisis of the mid-2000s, trade flows plunged in 2008, 2009. A lot of us thought, ‘‘Well, when the recovery gets going in the US and Europe, then trade will ‘go back to normal’.’’

‘‘Now we’re 10 years out from that point, and we can look back and see, in fact, we’re in a very different chapter of globalisation.

‘‘The trade intensity of manufactured goods is going down. That means more goods that are produced are now sold in the country they’re produced in. They’re not traded or exported and imported. But at the same time, we see services trade continues to grow much faster than goods trade.

‘‘So, increasingly, globalisation is about trade in various forms of services, like IT services and telecommunications, transportation, business services, and these types of things’’ (excerpt taken from https://www.mckinsey.com/business-functions/strategy-and-corporate-finan... ).

For New Zealand, as a long-term exporter of food, what does an in increase in services trading mean?

There will continue to be demand for food. A challenge for many countries is that they do not have the natural resources needed to feed growing populations, but to support tangible food products, the export of services will increasingly be part of our export basket — this will mean IT and education services, also agri-tech and food security services.

The challenge we have is that services and technologies are not always cookie-cutter and easy to lift directly from New Zealand into another country, even into neighbouring Australia — that path is littered with more failures than others.

Any company or goods manufacturer wanting to wrap services into their offering will still need to spend significant time in marketing and re-think their business models and capability mix. Right now, that’s not easy, as feedback from a potential Middle Eastern buyer of AbacusBio services said to us last week — ‘‘no we don’t want to have this meeting via Zoom. We want to speak to you face-to-face. We will wait until you can travel again’’.

It is too early to predict the long-term ramifications of the Covid-19 pandemic, but it’s probably safe to say the world of trade which was already changing, is likely to change faster — the speed and agility of our response post-pandemic, will be critical and all companies, including those exporting goods, need to assess how they can extend their offerings to include services so they can continue to prosper.

Anna Campbell is managing director of AbacusBio Ltd, a Dunedin-based agri-technology company.

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