WTO director-general says supply chain problems could last months
Ngozi Okonjo-Iweala, the first African head of the World Trade Organization, tells the FT Africa Summit that she expects global supply chain difficulties to last several months. She tells FT editor Roula Khalaf that the rhetoric about a decoupling of the US and Chinese economies is not matched by reality on the ground, and she blames a lack of global leadership for Covid-19 vaccines not ending up where they are needed most
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Welcome back. I'm here with Dr Ngozi Okonjo-Iweala, who's the seventh director-general of the WTO. She took over on the 1st of March, 2021, becoming the first woman and the first African to serve as director-general. It's wonderful to have you with us, Dr Ngozi.
Back in March, you told the FT, if you really look at what's happening objectively, you'll see that supply chains have been resilient. Indeed they were during the pandemic. They held up very well. But as the Covid crisis has receded, strains have emerged. We have bottlenecks everywhere. We have problems of ports, ships that are stuck. So what's going on?
Well, Roula, I think the issue is a supply-demand mismatch. It looks like from the demand side, the appropriate stimulus, trillions of dollars that was implemented by many of the developed countries, putting cash into the hands of households and businesses has led to increase in demand by consumers as the Covid-19 pandemic has abated in several countries and they've opened up.
At the same time, I think there's also an increase in demand by businesses for inventory. There is inventory accumulation. I think when I speak to some business people, there's a bit of panic. They fear that their supply chain is going to be impacted in future. So they are buying more and accumulating inventories as a risk management technique.
And that's exacerbating the problem, in a way.
That's exacerbating the problem. And if you put that against the fact that at the beginning of the pandemic, shipping lines felt that there would be lower demand so they cut down on availability of freight containers were left in the wrong places, so now there is a container shortage. So all of these supply issues with the demand increase, is resulting in what we see now as an exacerbation.
From where you're sitting, how long do you think these bottlenecks and the shortages and the supply chain problems will last?
Well, it's very difficult to say, but it looks like it's going to go on for several months, Roula. We are going into the holiday season in many countries, again with very high demand, and the container mismatch has not yet being solved. So we expect at the WTO that this will continue for several months, but that it is transitory. Perhaps sometime later next year we will see this now being made much better also, but I'm afraid we're in for several months of difficulties.
OK. Let me ask you about the state of the world today, where we are in a phase of decoupling between the US and China, a new geopolitical reality and a new Cold War. Do you think that the differences between the US and China can be bridged? And to what extent do you worry that they're going to endanger the global recovery?
Well, Roula, let me get back to this issue of decoupling. When you listen to the rhetoric from both countries, from other all the big powers, you start thinking of this decoupling. But the evidence we see on the ground with respect to trade does not support this decoupling theory. Trade between the EU and China, for instance, is at highs. And the US is trending in the same direction.
We talked of this demand push that I mentioned before with supply chain. The statistics on merchandise trade between the big powers is very robust. There is very robust trade. So when people talk of decoupling, we need to look at the numbers. So that's the first thing. But the rhetoric is really hot and moving away from what the realities are on the ground.
Secondly, it's not so easy to unwind supply chains. They are very complicated for many products. If you take vaccines, for example, there are so many components manufactured across multiple countries. And avoiding that and decoupling that would not be easy.
Now, on the issue of the growth and what is happening, I will say that we see that vaccines are a critical factor in the different growth patterns or recovery patterns that we see now in the world. You see that those rich countries that have access to vaccines have vaccinated more than 50 per cent of their population and have implemented very strong fiscal stimulus, trillions of dollars, are on a better recovery path than the poorer countries who have no fiscal space and who also have very little access to vaccines.
The fact that 60 per cent or more of people in many rich countries have been vaccinated versus slightly below two per cent in poor countries just gives you the rate of the divergence with respect...
Very, very relevant, obviously, for Africa. And despite a lot of calls by politicians, by experts, we've published so many aspects in the FT calling for more equality on vaccines, that does not seem to be happening. Is this for you a failure of global leadership?
I think so. It really is. I think for me, it's really difficult to see that we have the technology to save lives and yet we can't seem to get that to where it's needed. And look, many rich countries have pledged hundreds of millions of doses of vaccines. The US president Biden recently pledged another 500 million. The EU president Von der Leyen has just pledged another 500 million.
So we have all these pledges, but they're just not translating into distribution in the countries where they are needed. So that's what we really need to look at. We need to look at the more transparency on the contracting for these vaccines from the producers. How do we get them into the arms of people in developing countries?
And I have to say that in this regard, I'm quite proud of some of the work we're doing at the WTO where we're working directly with manufacturers to look at their supply chain issues, and at the same time trying to get from them some of these numbers, transparency on what is being done so we can see why we have these problems.
Do you think that, and do you support the waiver on intellectual property? Do you think it would make a big difference?
Roula, let me say what I've said before. As DG WTO, I have members on both sides of this issue. So I cannot take sides. My job is to bring them together.
And what I do want to make clear is that easier access for developing countries to vaccines, and including to manufacture, is something that we just need to support now because it's part of building resilience for the future. At the same time, we don't want a disincentivize research and innovation. So we are looking for that happy middle ground in the trips arrangement where we can have a pragmatic approach that meets both these objectives. And I think it can be done.
Members are trying to reach such a pragmatic conclusion. It's not easy. Actually, formal negotiations on this are stick. But there are informal discussions going on, which I hope can help unlock some of the difficulties.
There are two issues that I want to ask you about. One is COP26. And you wrote a piece for us just last week. You advocate for a price for carbon, but you also say that carbon border adjustment schemes of the sort that are being advocated in Europe could penalise African economies, especially carbon intensive ones. What do you think developing countries should be saying at COP26, both in terms of what they're pledging to do but also what they are demanding from rich nations?
Well, Roula, let me correct something. I didn't say the carbon border adjustment penalised developing countries. I say may, that they are afraid it may penalise them. We won't know until the detailed design of these are done whether they are WTO compatible or not.
But the point I was trying to make is there are fears that these mechanisms may hurt some members. And the sooner we can find an approach for a global carbon price that will be fair to everyone, the better that would be. So that's what I was trying to really say. And I've advocated that all the international institutions should be asked by the G20 to come together to develop such an approach.
Now, with respect to what developing countries should say, well, Africa, for instance, produces three to four per cent of the carbon emissions in the world and has few resources with which to make a transition to renewables and to low carbon emission development. So what we're saying, African countries should be asking for the financing that was promised them, the $100bn a year for helping transition has not been as forthcoming as it should. And we need a just transition.
You cannot expect this continent, for instance, and other low income countries to transition at the same pace if they don't have the financing to put in the kind of green low carbon infrastructure, which is really possible to do, but it needs money to be able to do it. So I'm sure they'll be asking for that.
At the same time, I think that African countries should also [INAUDIBLE] their nationally determined contributions. And even though they didn't cause much of the problem, they also need to be part of the solution to the extent they can. So they need the finance to deliver the commitments that they have made. But I do believe they should contribute.
You think they can go green and develop at the same time? Is it realistic to think of leapfrogging?
Absolutely, Roula. Absolutely. I think that dichotomy that, if you go green, you won't develop, is not true. It's been shown that new technologies, renewables also can create new jobs that were not thought about before. When you have solar, for instance, we have sun in abundance on the continent. So if we can manufacture solar panels ourselves rather than importing them, that will create lots of jobs. Servicing and maintaining all this, it creates other jobs. There are other environmental services that we can render. So I think that fear that if we go green we will fall behind in development, it's not really justified, provided we can get the support and the financing to transition.
The theme of our conference today is trade. How important is the African Continental Free Trade Area? And how can it be implemented successfully, because if anything, manufacturing has gone backwards in most of Africa in recent decades?
Roula, you're absolutely right. There's been a deindustrialization on the continent in recent decades. And we need to bring back maybe not the old type of manufacturing jobs, but some manufacturing jobs so that we can have decent jobs for our youth. And I think that the African Continental Free Trade Area is absolutely critical. It is what makes it so attractive. Imagine a market of 1.3bn consumers where you can cross borders.
I think what to make this work, I'm very proud that ratification by different countries has gone on, beginning digitalization. And the WTO is trying to work with the secretariat and with various countries to try and help with capacity building, regulatory frameworks. But we also need infrastructure between the countries to improve because one of the ways we can have a smooth functioning of markets is to have borders that are very easy to cross.
And that needs a lot of investment, but we have to start somewhere. Just imagine, Roula. My dream is that we can have, for instance, for pharmaceuticals a whole ecosystem of production on the continent. Some countries can be making some inputs, others other inputs. Others can be finishing the product if you have this kind of large market.
Do you think Nigeria is committed to the free trade area? It has signed up, but there is a suspicion that it's quite a reluctant participant. Do you see it as a reluctant participant?
Well, you can understand a little, no, I think not. In the beginning, yes, because I think the manufacturing association, they were trying to see, what does this really mean for Nigeria? Is it really going to be a case where goods are being manufactured on the continent, issues of rules of origin? Are we going to have products brought into the continent and then billed as being manufactured there with little finishing, just little value added? And how would that undermine competition?
So you can see how the manufacturers were worried that some of these issues need to be sorted out. But I think, once sorted out, they see the advantage of the vast market because Nigeria has the ability to add value to its products. And so it should be looking at this as a good thing now, not a bad thing.
I know I have to let you go in literally one minute, so my last question to you because I'm not going to let you go without asking it, what does it mean for Africa that there is an African at the head of the WTO?
Well, I think for Africa, what it means is that there is someone who is of the continent, knows the problems, has been a policy maker on the continent, and therefore can help deliver some of the solutions that maybe be needed, somebody with an attentive ear. Yes, I'm DG WTO for all the members worldwide, but I'm from the continent, and I know its problems first and not secondhand. So they have a very attentive ear and someone who is eager to help solve as many of the trade-related problems on the continent as possible
Dr Ngozi, thank you for giving us your time.
Thank you, Roula. Nice talking to you.