Building back better together: resilience cannot be achieved by turning inwards
15 December 2020
VIENNA, 15 December 2020 - The COVID-19 pandemic is putting globalization to the test. In this context, the key challenges of assessing risks to global value chains and developing strategies to increase their resilience were the focus of the fifth edition of the Forum on Globalization and Industrialization, the joint initiative of the United Nations Industrial Development Organization (UNIDO) and the Kiel Institute for the World Economy (IfW Kiel). This year’s Forum was held virtually under the title, “Globalization at the Crossroads: Risk, Resilience and Recalibration in Global Trade and Value Chains”, and brought together more than 300 participants from over 60 countries.
In his opening words, UNIDO’s Director General, LI Yong, said, “The pandemic has led to increased scrutiny of some of the established economic paradigms. Globalization, which relies on the premise of international production, trade and investment flows, and which has widened the economic opportunities of millions of people, has been called into question.”
He also highlighted the supply chain disruptions caused by the pandemic which prompt firms to make their supply chains more resilient. “Reinforcing regional operations by shortening supply chains and staying closer to the consumer is one of the possible strategies. Yet, resilience is not a call for self-sufficiency, and reinforcing regional integration is not a call for anti-globalism,” stated Li.
Professor Felbermayr, President of the Kiel Institute for the World Economy, said, “In the spring (of this year), scepticism was looming large but today we see that certain problems that we saw are solved. Personal protective equipment is no longer scarce at all.” He further highlighted the relevance of multilateralism for the development of the COVID-19 vaccine, taking the example the cross-border cooperation between Biontech and Pfizer that produced the first supplies of a COVID vaccine. But although multilateralism has proven to be efficient during the pandemic, Felbermayr still sees a danger of economies turning inwards in their search for resilience and independence.
Rania Al-Mashat, Egypt’s Minister of International Cooperation, discussed the future of global value chains in Egypt and the MENA region. Talking about potential trends towards localized supply chains, Al-Mashat raised doubts about the feasibility of moving supply chains to new regions. She further addressed the concept of green recovery as an international trend, mentioning that both governments and companies increasingly attach importance to Environmental, Social and Governance (ESG) criteria. “This also pushes, implicitly, a globalized agenda because ESG are rules and guidelines that everyone is reading about, talking about, writing about and trying to comply with.”
“Forty-four percent [of executives surveyed] said they would start to consider resilience at the cost of short-term efficiency,” said Susan Lund, from the McKinsey Global Institute. Lund gave insights into firm-level policies to increase resilience and remarked that the actions to increase resilience, such as dual sourcing, may offer development perspectives for new markets. “We will see trade flows shift more over the next three to five years than we have in the past, as companies seek to diversify their supplier base. And I think this is good news for countries that haven’t participated as heavily in global value chains in the past,” concluded Lund.
Drawing on his long experience as a researcher, Ricardo Hausmann, Professor at the Harvard University, discussed industrial policy implications of the pandemic. Since the pandemic has hit middle-income countries harder than high-income countries in terms of debt growth and GDP reduction, and as the distribution of the vaccine is expected to be later in emerging economies, Hausmann expects adverse effects on the recovery of middle-income countries. “My concern is that there is too little fiscal room in middle-income countries. […] They have been too cautious from a global optimum point of view. There has been an enormous destruction of jobs and firms. So, I think we need more international finance,” said Hausmann.
Based on recent experiences, all panellists agreed that one of the main lessons learned from the pandemic is that value chains have to become more resilient. However, resilience cannot be achieved by turning inward. Instead, companies should focus on building up diversified supply chains which can create development potential for new regions. All panellists also agreed that the road to a sustained recovery requires a strengthening of international collaboration and alignment efforts at different levels and across multiple stakeholders.
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