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Pandemic highlights role of digital readiness in mitigating supply-chain risks

1st May 2020

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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Covid-19 is disrupting economic and social life, but it is occurring at a time of rapid digitalisation, which, in turn, is helping governments, businesses and consumers in their decision-making to respond and adapt to the situation.

However, differences in digital readiness hamper the ability of large parts of the world to take advantage of digital technologies, the United Nations Conference on Trade and Development (Unctad) says in its April report, ‘The Covid-19 crisis: Accentuating the need to bridge digital divides ’.

Global supply chains are expected to experience significant disruptions, including disruptions in the form of reductions in trade volumes, declines in foreign direct investment, lower consumer goods demand, reductions in commodity prices, and general economic decline, in particular for vulnerable developing countries, Unctad says in its April guidelines report, ‘Adapting the use of Automated System for Customs Data (Asycuda) to Customs Administrations to the Covid-19 Situation’.

While some industries have noted a significant increase in demand for their services, including ecommerce, delivery and online content streaming, most companies and supply chains have reported significant risks, disruptions and earnings impacts.

Unctad analyses show the top 5 000 multinational enterprises are revising their earnings estimates, and have warned of a decrease in earnings of between 30% and 200% for the current financial year, says Unctad secretary-general Dr Mukhisa Kituyi.

“The equity markets across the world are heralding a global recession, with a precipitous decline in global foreign direct investment and a flight of capital from developing nations as portfolio managers retreat to more secured markets. African nations are forced to address the immediate health and livelihood challenges. They must ride out the emergency and prepare for uncertain times as we confront a fundamentally changed economic landscape.”

The loss of export earnings through supply chain disruptions and lockdowns is projected to cost Africa more than $500-billion. This is compounded by the collapse in petroleum prices. Petroleum accounts for about 27% of Africa’s total export earnings ($131-billion in 2018). For a continent that imports 90% of its medicines and medical equipment, any disruptions of cargo movement directly impacts on the emergency procurement of health supplies.

Africa is a net importer of food. As major cereal exporters worldwide grapple with economic challenges, there is concern that some might ban exports, as was the case in the previous recession, he adds.

“The pandemic has revealed the vulnerabilities and fragilities in global supply chains across most, if not all, sectors and industries,” says information technology multinational IBM cognitive process re-engineering global head Jonathan Wright.

Understanding supply chain risks requires gaining visibility into Tier 2 and Tier 3 suppliers that, despite their relatively small size, can quickly and significantly disrupt production, he highlights.

“The knock-on impacts of China’s shutdowns early in 2020 sparked strong interest in the geographical diversification of supply chains. Recent reports show that more than 90% of the Fortune 1000 companies have Tier 2 suppliers in the regions of China most affected in the initial phase of Covid-19. Any impediment to interaction and engagement with these suppliers makes risks hard to manage.”

There is a heightened premium on accelerating or driving greater agility into supply chains to better manage rapidly evolving situations and maintain supply lines. Some European firms are moving from ocean freight to more expensive, but faster, rail transport from China.

However, the most resilient course may be to team up with supply chain partners to establish a coordinated crisis-support system. In such situations, partners will likely rise or fall together, while sharing information, ideas, and response strategies in that climate becomes highly valuable, explains Wright.

Digital Dividend or Divide?

Compared with the 2008 global financial crisis, there has been a significant increase in the use of the Internet, from 1.6-billion to 4.1-billion people worldwide.

Internet penetration has increased to 54%, from 23% in 2008, while there are 3.2-billion smartphone users currently. Global Internet-protocol traffic has also increased from 4 000 GB/s to 100 000 GB/s since 2008.

Additionally, the number of online shoppers has doubled since 2008, and the yearly value of business-to-consumer electronic commerce (ecommerce) has increased from less than $1-trillion to $3.8-trillion.

Covid-19 has also led to a shift to ecommerce, with strong growth in online orders for food, pet food, toilet paper and some medicines in the US. Chinese online retailer JD.com reported that online grocery sales jumped 215% year-on-year to 15 000 t/d during a ten-day period from late January to early February.

“The digitalisation of economic activities is a reality. All countries face, though at different levels, challenges to adapt to this fast-evolving technological environment and adopt smart, forward-looking policies to fully participate in ecommerce, moving from offline to online commerce,” says Unctad Technology and Logistics division director Shamika Sirimanne.

There are incredible positives emerging that show the potential of a digitally transformed world, and the coronavirus crisis has accelerated the uptake of digital solutions, tools and services, as well as the global transition towards a digital economy.

However, the pandemic has also exposed the wide chasm between the connected and the unconnected, revealing just how far behind many countries are in terms of digital uptake, she says.

Only 20% of people in the least developed countries use the Internet and fewer than 5% of people in these countries buy goods and services online. A lack of Internet access in homes also limits the ability of students to remain connected when schools are closed, and insufficient broadband services inhibit online collaboration and working remotely.

“This situation has significant development implications that cannot be ignored. Changes in behaviour are likely to have lasting effects when the economy starts to pick up. We need to ensure that we do not leave those who are less digitally equipped even further behind in a postcoronavirus world”.

Encouragingly, more developing countries are exploring ecommerce and other digital solutions that can help build local resilience to future shocks. Given the cross-cutting nature of ecommerce, better synergies and cooperation between development partners and governments are needed for implementation.

Developing countries should focus more attention on bridging existing and emerging digital divides to enable them to take advantage of digitalisation, Sirimanne advises.

New policies and regulations, including information and communication technology infrastructure, payment solutions, skills and legal frameworks, are needed to ensure a fair distribution of the gains from digital disruptions. E-commerce and digital initiatives can help build local resilience to future shocks, she adds.

Cross-Border Automation

Borders remain open in most countries to keep supply chains functioning and allow for continued trade in essential items, including food, manufactured goods and vital medical supplies.

Customs administrations and cross-border agencies provide essential services to guarantee and secure the cross-border movement of goods, especially essential products.

The Southern African Development Community (SADC) adopted guidelines in March for cross-border freight transport operations regarding the cargo, goods and services that will be allowed to operate in inter-State operations to ensure the conti- nuity of supply chains.

The guidelines called on member States to simplify and automate trade and transport facilitation processes and documents by accele- rating the creation of online platforms for processing; clearing imports and exports; applications; the issuance and renewals of licences and permits; the registration of drivers, operators, vehicles and loads; the payment of fees; and information dissemination and sharing.

Along with introducing or enhancing the preclearance of goods and single-window processing, these guidelines will help to reduce face-to-face interaction and delays at ports and border crossings.

Products such as food; medicines, including medical supplies and equipment and personal protective equipment; fuel, including coal; agricultural inputs and supplies; chemicals; packaging; equipment, spares and maintenance materials; and ancillary products used in the production and processing of food products should be permitted to transit SADC borders, the guidelines state.

Security, emergency and humanitarian relief services are permitted, while other goods and products may be agreed to among member States, the guidelines add.

The South African Revenue Service (Sars) has also announced certain qualifying goods, mainly essential and critical goods, for import value-added tax exemption as part of Covid-19 response measures.

In an update on April 19, the Sars Customs division said the Minister of Transport, Fikile Mbalula, had remarked in a April 16 media statement on the domino effect that the earlier decision allowing only the movement of essential cargo had on the value chain, including the unintended consequence of congestion at ports and surrounding storage facilities, which were not designed to handle the storage of such volumes of cargo.

Amendments to the regulations were made on April 2 that allowed all cargo to be moved away from ports of discharge and onwards to their intended destinations to ease port congestion.

The latest April 16 amended regulations allow for imported cargo, with the exception of liquor, to be transported from ports of entry to warehousing sites, while essential goods may be transported from warehousing sites to essential services providers.

Government specifically made provision for the export of cargo in the amended regulations to decongest ports. Cargo may also be transported to ports of entry for purposes of exporting.

“These developments have a direct impact on the inspection of cargo by Customs and Customs services rendered at places of entry. As a result, Customs inspections will now take place in respect of all cargo and will no longer be limited only to essential cargo,” the Customs division said in the April 19 note.

Customs will, however, still prioritise essential cargo for inspection in order to avoid any undue disruption in respect of the supply of critical goods.

Extensive use will be made of documentary inspections and, where possible, nonintrusive examination methods will be used in an effort to limit physical inspections to numbers that match operational capacity at this time.

Additionally, the Sars Customs division implemented its new customs registration, licensing and accreditation (RLA ) system on April 20 for traders to submit their applications, but the amended rules were due to be published only on April 24 and outcomes were to be held back until then, Sars said in April in a letter to traders and cross-border agencies.

The RLA system is one project under the Sars New Customs Acts Programme. While the new Customs Control Act will only be operationalised in about 2025, a decision was made to bring forward the implementation of certain business processes and systems capabilities.

“The implementation of RLA is in line with Sars’ strategic objectives to make it easier for traders to comply and fulfil their obligations, and for Sars to modernise its systems to provide streamlined digital services,” the revenue service says.

The main focus of the roll-out will be the introduction of eFiling as a channel for the submission of new registration and licence applications. This ensures the availability of services during the lockdown to minimise face-to-face contact.

All applications regarding the importing and/or exporting of essential goods will take priority over other applications during the lockdown, Sars notes.

The roll-out of the system was expected to be enabled for customs branches from April 24; however, owing to lockdown regulations, with branches operating only on an appointment basis, Sars urged clients to use eFiling for new applications to register or be licensed as a customs client type.

This first phase of implementation focuses on new applications for client, predominantly importers and exporters, the revenue service adds.

Meanwhile, Unctad has proposed using Asycuda to help customs administrations cushion the expected disruption to the international-trade supply chain and national economies.

The automated system enables customs, cross-border agencies and traders to electronically submit and exchange data and documentation, as well as computerise the procedures for the clearance of imports, exports, transits and other trade transactions.

Consequently, face-to-face interactions and hard-copy requirements are significantly reduced, while continued operations and trade facilitation are ensured by closing the gap towards a paperless processing environment.

Asycuda will continue to support partner countries to mitigate the impact of Covid-19 and recover strongly from the pandemic, Unctad adds.

Differences in digital readiness and the high concentration of market power in the digital economy underline the need for new policies and regulations aimed at ensuring a fair distribution of the gains from digital disruptions.

In response to the Covid-19 crisis, as with other development challenges, the world will need a coordinated, multilateral response to deal with the challenge of digitalisation, concludes Sirimanne.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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