Uncertainty and crisis are not uncommon to global supply chains. The present disruption sheds light on the unsustainability of production and logistics and is an opportunity for economic players like the international financial institutions to rethink the way supply chains benefit those at every stage.
Aleksandra Antonowicz-Cyglicka, Researcher | 27 April 2020
Amulsar Mine, Armenia
In an opinion piece for the Financial Times, the EBRD’s Chief Economist Beata Javorcik outlined the extraordinary shock to the global supply chains caused by the current pandemic, one that is ‘likely to spark nothing less than a rethink of how the world does business’. Indeed, Javorcik is right to call for a closer look at the sustainability of global supply chains, but it should be done from both ends of the chain.
Uncertainty and crisis have always been the natural state of the global supply chain, especially in the industries most removed from consumers – raw materials and manufacturing.
To make a profit, these industries rely on competitive advantages and cost efficiency derived from tightly controlled human labor, working on deadlines set to the second (the just-in-time system of manufacturing and logistics). They frequently operate without backup stocks of raw materials and finished products.
Under this paradigm, global supply chains have been known to cause a whole variety of impacts such as environmental destruction, violations of workers’ or communities’ rights, harmful labour patterns or deepening poverty in the peripheral regions at the beginning of the global supply chain.
These shocks primarily affect some of the most isolated but necessary links in today’s global supply chains. Small and medium mines – the first block in the global information and communication technology (ICT) supply chain – are usually situated on the peripheries of the globe, beyond scrutiny. In connection with its aggressive exploitation of natural resources, mineral mining can severely affect the environment and the rights of people living in the vicinity of the mines.
As a Swedwatch report shows the unsustainable extraction of copper, a mineral frequently used in ICT products, has caused environmental degradation and adverse impacts on local communities in Zambia, the second largest copper producer in Africa. The pollution of water in mining areas has impacted their health, destroyed farmlands and reduced crop yields.
In Armenia, where the Amulsar gold mine is being developed with the support of the EBRD, locals who make their livelihoods tending apricot orchards, collecting wild plants, breeding animals and farming fish have been protesting for almost two years against the lack of meaningful public engagement in decisions about the mine. Their safety and security in exercising their rights to information and freedom of opinions has been repeatedly threatened.
After sites of extraction come smelters, the next block in the chain, which are often situated in places with low legal standards and a lack of scrutiny of working conditions. This is the case of the copper smelter in Namibia, where highly toxic substances, like arsenic trioxide, are being kept in unsafe conditions at a smelter in Tsumeb and affecting the health of workers and local communities.
Another vulnerable part of the supply chain is manufacturing. Some societies that make their livelihoods from the production of a whole range of goods have become subject to abusive labour conditions, such as the workers in the Turkish metal sector.
Unfortunately, corporate businesses, governments and development finance, which are now so shocked by the fragility of supply chains, have not been doing enough over the years to see the reality of what has been happening at the foundations of global supply chains.
The lack of transparency in supply chains enabled the dismantling and violation of workers’ rights. Dodgy deals between big business and governments exclude tax payers and societies from decision-making processes. As pressure to extract diminishing natural resources grows, so too do instances of attacks and threats against human and environmental rights defenders.
The most developed countries in the world are surprised that well-engineered, global supply chains have led to critical shortages of basic products, such as medicine and protective masks or gowns, desperately needed in the current situation. But how can the current setup be considered well-functioning if it fails during abnormal spikes in demand?
The role of public finance in such a scenario should be to work in the public interest and not focus primarily on furthering private interest. The assumption that promoting the private sector is in all of the public’s interest is in part responsible for what led to the current crisis of the global supply chains.
Today’s shock is affecting ‘the rich end’ of the supply chain, and while it has already started to shake, the question is what will be the result of it. Diversification of the full range of suppliers is surely not enough. The crisis should be an opportunity to fix not just the proximity of supply chains but also to end their obscurity and bring resilience into labour relations and stakeholder engagement.
Public finance institutions, such as the EBRD, should explore more space to examine and address these structural issues. For example, why not give some new meaning to the EBRD’s transition indicators like Resilience, Competitiveness, Green Economy or Inclusion?
The 2008 economic crisis caused the overhaul of the previous transition methodology at the EBRD. So why not strengthen it again? Instead of plugging the gaps, alternatives can be introduced: starting from ending extractivism and unsustainable logistic chains, through just transition and strengthening local economies, to public finance institutions using a human rights-based approach to development.
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