Case Study

Impact of the COVID-19 Pandemic on Businesses of the CARICOM Region

The global economy is facing an unprecedented pandemic called the Coronavirus or COVID-19 which has severely impacted economic activity and everyday living for consumers and businesses alike. Recent estimates indicate that there are over two million COVID-19 cases globally with over one hundred thousand deaths recorded. (Perper, 2020)

International trade and investment flows have drastically plummeted in many economies due to the closure of national borders to help mitigate against the spread of this virus. The International Monetary Fund describes this pandemic as the worse since the great depression, as quarantines and national shutdowns have caused economic output to collapse. Consequently, the IMF projects that the global economy will contract by 3% in 2020, which is more severe than the 2008-2009 recession when the world economy contracted less than 1%. (Rappeport & Smialek, 2020)

The United National Conference on Trade and Development (UNCTAD) estimates that this pandemic could cause Foreign Direct Investment to shrink by 5% to 15% in 2020 to 2021 with the greatest impact on investments being felt in the automotive, airline and energy industries. UNCTAD projects that the pandemic could result in global FDI flows being at its lowest since the 2008-2009 global financial crisis. (UNCTAD, 2020)

Secretary General of UNCTAD, Mukhisa Kituyi stated that, "COVID-19 is no longer only a global value chain issue but is affecting all types of foreign investment. The nature and scale of policy packages adopted by governments will be critical to stemming the pandemic's long-term impact on cross border investment and global supply chains." (WTO, 2020)

On the trade front, the World Trade Organization (WTO) predicts that world trade may fall between 13% and 32% in 2020 due to the impact of COVID-19, with nearly all regions expected to suffer double digit declines in trade volumes. It is further predicted that trade will likely fall more steeply in sectors with complex value chains such as electronics and automotive products. (WTO, 2020) The airline sector for example is expected to have revenue losses as high as 29 billion US dollars in 2020. (Stanisljevic, 2020)

According to Director General of the WTO Roberto Azevdo, "the unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself. The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries, however policymakers must start planning for the aftermath of the pandemic." DG Azevdo goes further to add that "decisions taken now will determine the future shape of the recovery and global growth prospects." (WTO, 2020)

Task

The Minister for Commerce and International Trade of your home country is preparing for an Extraordinary Meeting of the Council for Trade and Economic Development of CARICOM (COTED) to discuss the impact of the COVID-19 pandemic on businesses as well as the impact on Foreign Direct Investments of the CARICOM region. Ministers will also revisit lessons from previous crises and how they can be applied now as part of recovery efforts. National and regional measures will also be proposed to help businesses recover in the shortest time possible, as well as strategies to encourage foreign direct investment to build economic resilience.

As a Trade and Investment Officer of the Ministry of Commerce and International Trade, you are required to advise your Minister on impact of the pandemic on businesses, trade and investment for discussion at the COTED by providing a report on the following;

Questions:

1.Give detailed explanation of the economic impact of the COVID-19 pandemic on businesses by looking at two (2) economic sectors that have been impacted the most. (Your response should include, inter alia, the impact on various aspects of business operations such production, sales, import/export, licensing, supply chains etc.)

2.Discuss the impact of the pandemic on Foreign Direct Investment flows of key industries of the global economy and the CARICOM region.

3.Using theories and perspectives of Foreign Direct Investment, critically discuss four (4) ways regional governments can attract and secure inward investments in key sectors post COVID-19.

4.What are some of the lessons learnt from the financial crisis That governments can apply to stimulate the economies of the CARICOM region given financial losses experienced from COVID-19?

5.What role can regional agencies such as the CARICOM Secretariat and the Caribbean Development Bank, as well as international organizations such as the World Trade Organization and the World Bank play in helping CARICOM governments deal with the trade and investment impacts of COVID-19?

6.Give detailed explanation of five (5) sound, substantiated, plausible policy recommendations for implementation by governments nationally and/or regionally to help businesses bounce back and CARICOM economies build greater financial, social and economic resilience post COVID-19.