In this episode of the McKinsey Global Institute’s Forward Thinking podcast, guest interviewer Acha Leke talks with Ngozi-Okonjo-Iweala. Acha Leke is a McKinsey senior partner in Johannesburg and is chairman of McKinsey’s Africa region. Okonjo-Iweala became director-general of the World Trade Organization (WTO) in March 2021—the first woman and the first African to serve in this role.
Okonjo-Iweala talks about her first few months leading the WTO and some of the initiatives underway, and discusses the challenge of inclusive and sustainable growth in the years ahead. She answers questions including:
- How has the COVID-19 crisis affected world trade?
- As trade rebounds, what will it take to ensure that trade patterns are much more inclusive?
- How do emerging economies ensure that they have the access they need to vaccines and build the capacity to manufacture them? What role can trade and the WTO have?
- What is the interplay between growth, inclusivity, and sustainability?
- What else do we need to do to ensure that women and SMEs have access to trade?
- What do you see as some of the opportunities emerging from the pandemic crisis?
Michael Chui (co-host): In this episode of Forward Thinking, we are delighted to have our colleague Acha Leke as guest presenter. He chats with Ngozi Okonjo-Iweala, who is coming up on the first anniversary of being appointed as director-general of the WTO. The conversation took place in late December 2021. Janet, I believe that you have met Dr. Okonjo-Iweala.
Janet Bush (co-host): Yes indeed. Before I joined McKinsey, I did some work for Ngozi—I am sure she won’t mind me using her first name because she is incredibly down-to-earth. At the time, she was Nigeria’s minister of finance. She led negotiations with the Paris Club that led to $30 billion of debt being eradicated. That was the biggest single debt relief in Africa’s history, I believe. She was passionate about trying to stamp out corruption. I was privileged to witness her chairing a meeting of the government’s anti-corruption committee. And she walks the walk. Great person.
Michael Chui: What a great insight into our guest. I am really looking forward to hearing her insights about the global economy. Now over to Acha.
Acha Leke: Good morning, everybody. I am pleased to be here with Dr. Ngozi Okonjo-Iweala.
As many of you know, she has more than three decades of experience working as a global finance expert, as an international development professional as well. She’s the director-general of the World Trade Organization. Prior to that, she’s held many, many leadership positions, including chair of the board of Gavi, managing director at the World Bank. And her achievements don’t stop there. She also served two terms as finance minister of Nigeria and was the first woman to do so. And just recently, she was recognized as one of the Financial Times’ 25 most influential women in the world. Welcome, and thank you for being with us.
Ngozi Okonjo-Iweala: Thank you, Acha. Good to see you.
Acha Leke: Some months into your role at the helm of the WTO, how has it been so far?
Ngozi Okonjo-Iweala: I think it’s one of the most interesting jobs that one can be privileged to have. But it’s also one of the toughest. When you’re trying to get 164 representatives of members, ambassadors, to coalesce around an issue and to move forward negotiations that have been going on for more than two decades, it’s pretty tough because countries or members are sticking to their positions. Getting them to come out of it and see what’s happening in the new world and change tack is not easy. We are getting there. We are struggling with issues of intellectual property and how to come to an agreement on a waiver on vaccines and therapeutics and diagnostics. We are trying to finish a sustainability-related issue with fisheries subsidies. So, there are lots of exciting things going on.
Acha Leke: The pandemic has had far-reaching consequences, with unprecedented disruptions, including to the global economy and world trade. Talk us through the impact on global trade.
Ngozi Okonjo-Iweala: We’ve seen the most visible kind of form of impact on global trade, which is the supply chain issues that we’re facing now. I can start there. I think when the pandemic struck, many investors, many businesses, perhaps decided that there was going to be a long or deep recession and pulled back on investment plans.
Shipping companies left containers in the wrong places. They didn’t know that anything other than a deep recession would follow. And what happened is that with the massive amounts of fiscal stimulus we saw—particularly in the developed countries, particularly in the US, $26 trillion worth of fiscal stimulus—and monetary policy easing, money in the pockets of households and easing for businesses have led to unprecedented demand for goods. That was also heightened by the digital access to online or digital trading, to e-commerce. And so we have a supply-demand mismatch that has led to the kind of supply chain issues that we’ve seen.
After the initial dip last year in global trade, the value of trade declined by about 8 percent. We’ve seen an increase, a rebound based on all these demand issues that I talked about. So we are actually forecasting 10.8 percent growth in merchandise trade this year, 4.7 percent next year.
We do see with the new omicron that [in] fourth-quarter numbers, there might be a slowdown. But you’ve seen, for the first time, trade is growing faster than GDP, which it didn’t do for a few years prior to the pandemic.
We’ve had a seesaw, a volatile impact. First you had a downer in terms of the value of merchandise trade. Then you’ve seen it come back bounding up robustly in spite of the supply chain snafus that we see. But I think starting from next year, based on the trends, we are going to see a slowdown in global trade.
Acha Leke: The impacts of the pandemic have disproportionately been borne by the more vulnerable, emphasizing the need for more inclusive trade policies. As trade rebounds, how do we foster development and shape more inclusive patterns across the world?
Ngozi Okonjo-Iweala: I talked about a 10.8 percent rebound in trade this year. But there’s a real divergence in that. You see North America and Europe and Asia in particular bounding back strongly. And the rest of the world, South America, the Middle East, and Africa in particular, rebounding more slowly.
You have this K-shaped rebound with some regions at the lower end of the K-shape. We need to really think about what we need to do to have a more inclusive recovery. And if we don’t do that, if we continue the patterns we have now, then I think we’re going to see continuing divergence.
Now, what is responsible for this divergence, and how do we make the recovery more inclusive? There are two factors. One is the amount of fiscal stimulus and monetary policy easing that economies have been able to do. And the other big factor is access to vaccines. That’s what has been making me say that trade policy is vaccine policy. [International Monetary Fund (IMF) managing director] Kristalina Georgieva also says vaccine policy is economic policy. But what we’re really trying to say is that if we want a more inclusive recovery, we’ve got to really sharply reverse the vaccine inequality that we see now.
We’ve got to get more vaccines into developing countries. A situation where 66 percent of people in rich countries are vaccinated, 3 percent in low-income countries, 7 percent in Africa isn’t going to do it. And economically, it’s very beneficial. There’s this study that the IMF did showing that if we can vaccinate 40 percent of people by the end of this year  and 70 percent by mid–next year , we’ll add $9 trillion to the world economy by 2025. So there’re all kinds of incentives to have a more inclusive recovery.
At the WTO, we’re trying to see how trade can be part of the solution to the problem. And I think that trade has been, and will be, quite instrumental to this recovery. One, in getting vaccines and vaccine inputs from where they are made to where they are needed, and outputs to where they are needed. Two, in making the external demand of countries that are recovering faster available to those that are not, so that trade can be part of this inclusive and sustainable recovery.
Acha Leke: I was definitely going to talk about vaccines because we’ve seen that, especially on the continent, but also, like you said, in many other emerging economies, there’s a big gap between what is needed, firstly from vaccine equity—so actually being able to access the vaccines—let alone to manufacturing vaccines.
What’s your sense for what global economies, especially maybe in Africa, need to do to start to manufacture? Twenty-five percent of the vaccines consumed in the world is being consumed in Africa. But Africa only manufactures 1 percent of these vaccines. What, in your view, must emerging economies do to prepare and build capacity to manufacture, and importantly, what role does trade and, in particular, the WTO have in making that happen?
Ngozi Okonjo-Iweala: We should look at things in the short term to solve this inequity. There are short-term solutions, of course, and then more medium- to longer-term ones, which has to do with manufacturing. In the shorter term, WTO is part of this multilateral task force of IMF, World Bank, and WHO [World Health Organization], WTO, four of us.
We’re trying to work with vaccine manufacturers to encourage transparency and swapping of contracts so that COVAX and poor countries can get to the front of the queue whilst richer countries go to the back. Like, Switzerland just agreed to a swap with COVAX.
We are also trying to get more transparency and production numbers and distribution so we can get more to the countries where they are needed. So in the short term, donations, contract swapping, and all that is the short-term answer. In the medium term, we really need to emphasize production in Africa.
We’ve seen how concentrated exports of vaccines are. Eighty percent of exports come from ten countries in the world. And we’ve seen that politics trumps humanitarian or even economic incentives or issues.
When push comes to shove, politicians, even when they don’t really have to, close the door, neither exporting inputs nor outputs, to prove to their population that they’re trying to safeguard them. This is what happened when the US closed the door on some of the inputs going to India for manufacture. Or India closed the door to export of the Serum Institute vaccines to COVAX, most of which was going to Africa.
So we have to look at manufacturing. How do we decentralize this? And I think Africa has been doing all of the right things, I have to say. High marks to the region. You’ve got the presidents who’ve been out front really advocating for this. You’ve got the vaccine task force and the manufacturing task force, of which you’re a member—I should say leading light—trying to get manufacturing on the continent and to be financed by the Afreximbank [African Export-Import Bank], which is part of the source of finance on the continent but it needs more capital.
We need to do that: recapitalize. Now, the issue is to encourage the vaccine manufacturers to go into partnerships with voluntary licensing, since we’re still debating the IP issues at the WTO. We haven’t yet, unfortunately, come to an answer, but I hope soon.
So we need to encourage voluntary licensing. The WTO has been very active in trying to support this manufacturing. What have we done? Supply chains are critical to the manufacturing because manufacturing vaccines in particular takes so many components, like 280 for Pfizer and Moderna, for instance, 180 for J&J. Any stoppage of one really blocks the system. And our members are the ones that put in export restrictions and prohibitions that block supply chains. So we’ve been very active with our monitoring program and jawboning of our members to reduce these restrictions so that goods come through.
I’m quite proud of what we’ve done. We’ve been working closely. In fact, on our website, you see some of this work where we’ve looked in great detail at supply chain bottlenecks for companies and worked hard to ease those for them.
The other thing is, as we’re doing this, we’re encouraging them to invest in other countries, especially emerging markets, especially in Africa. We’ve been instrumental in doing that. We’ve built up some amount of trust with them in doing this work.
I think things are going the right way in Africa. Africans are advocating for this. They are preparing the ground. We need to make sure the red tape is minimized, the regulatory systems are in place. Regulatory frameworks are critical to vaccine manufacture. Both the African Medicines Agency and the CDC, all these have to be strengthened and be in place. We also need regulatory systems in individual countries to be in place if they want to attract manufacturing. And, of course, we need partnerships.
Governments might put in their own money to partner with companies, or we find African private sector [firms] that can partner [with] these companies to come in. Those are some of the things. And finally, we need advance purchase commitments. In other words, for vaccine manufacturers, they need to know that when they manufacture, this is going to be bought, because these are not goods that can hang around for a long time. So our countries need to band together to provide the volume, the advanced market commitments that are needed.
Acha Leke: I love it. It is really wonderful to hear about the very deliberate and concerted efforts to set things right. More and more we hear about and we talk about growth, but also inclusivity and sustainability. What do you see as an interplay between these three dimensions as regards recovery and future development, and how do you make this happen in practice?
Ngozi Okonjo-Iweala: You had a good background paper concept note that spelled out some of these issues. The bottom line is that growth and sustainability and inclusivity, there need not be trade-offs between them. They need not be antagonistic to each other. That’s not to say that they can be perfectly aligned. But really, you can have the kind of growth that also is sustainable and is equitable. What am I talking about? The world has grown very much by burning fossil fuels and having high carbon emissions.
We have been, as a globe, on a carbon-intensive growth path prior to the Paris Agreement and so on. We are still not doing that well in reducing carbon emissions. But we could grow by focusing on renewables, some of which have become much cheaper than fossil fuels.
And at the same time, we can make sure that access to the technology for renewables gets into the hands of poor countries and poor people. So instead of developing fossil fuel–intensive energy systems to give access to electricity to people in poor countries, why don’t we think of funding renewables to help them get access to this—solar panels, some of the things you’ve said in your paper? These are very pertinent.
So I really see a congruence between sustainable growth and equitable growth. They are not opposed to each other. Now, to be able to do that, you need to be mindful of what will be a just transition that people talk about, if we’re to move to a sustainable growth path.
This “Build Back Better” slogan, if you think about it, it really means a lot. If we’re recovering from this pandemic, we don’t want to do it and go back to the trajectory we were on before as a world. We need to be on another trajectory.
To get there for the developing countries, you need financing in practical terms. And this is one of the things that was a little disappointing at COP26. Still not being able to come up with $100 billion a year that the rich countries pledged to finance a just transition for the poor ones, that was disappointing.
That’s what we need to do, Acha. We need to make sure that we have financing so these countries can move. It’s not going to happen with a miracle. And they don’t have the fiscal space to be able to do all of that.
Some of the inequality we see can also be due to the impact of technology on certain industries. Poor people in rich countries, working in certain industries like coal, have been impacted by this and they are increasingly vocal and populist. And the inability of governments to deploy active labor market policies to correct this, is a factor. So we need to really encourage government to take action in order to make sure that redistribution occurs. Of course, there are also poor countries that are left behind. This feeds into marginalization and inequality.
And actually, there have been studies. I think there was one, by Ostry et al. at the IMF in 2014, that showed that redistribution does not necessarily harm growth. And that in fact, lower net inequality can be beneficial to growth. So all these ideas that if you try for equal growth, equity, or inclusive growth, you’re going to necessarily have lower growth—it’s not true.
We need to focus attention that you can be sustainable and you can be inclusive. Now, at the WTO, I just want to say that one of the things we’re focused on here is, indeed, inclusive trade. When we look, we find that those who are marginalized in trade are what we’ll call MSMEs—micro, small, and medium enterprises. The owners of these enterprises, women in most cases, are not part of national, regional, or global value chains. And our attempt is, how can we get rules that will underpin the kinds of trade that will help women, that will help micro, medium, and small enterprises?
How do we get more information into their hands so they know where to trade, how to trade, what the rules are, what the regulatory frameworks are? Those are the things we are working on at the WTO. I’m very proud to say we just finished an agreement, the Services Domestic Regulation, regulation of domestic services, where for the first time, the WTO has included a nondiscriminatory rule so that men and women are treated equally in the services trade.
Those are the kinds of things we are trying to do on a macro level, rules that are beneficial to inclusive growth. And we also have a sister institution, by the way, the International Trade Centre, which is an offshoot of the WTO and UNCTAD [UN Conference on Trade and Development], which focuses in a more direct fashion on getting resources into the hands of women entrepreneurs, into micro, medium, and small enterprises, to help them get onto these value chains and be integrated into trade.
Acha Leke: It’s really inspiring to hear about the plans underway and work being done by the WTO. You spoke about some of the inequalities we can see. Without question, the pandemic has deepened inequalities, and in particular for women. Women could be left behind in the recovery unless adequate measures are put in place to support them. What else should we be doing to make it more acceptable and easy for women-led businesses and SMEs to trade within borders, across borders, and across the world?
Ngozi Okonjo-Iweala: I think there is a big missing piece that people don’t often talk about, and that’s trade finance. We find that micro, medium, and small enterprises, and women-owned businesses in particular, have very poor access to trade finance.
And after all, you cannot really integrate into trade if you don’t have access to trade finance. You can’t put in letters of credit, things like that. There’s a $1.7 trillion gap now totally in trade finance. So Africa is [a] $450 billion trade finance opportunity, of which we need $80 billion to fill the gap, something like that.
And that’s a huge amount. So one of the things about trying to help women is, how do we improve access to trade finance? And so we’ve been talking to the IFC [International Finance Corporation], for example, to see what they can do. I think this time, they put in about $20 billion to help plug that gap during this pandemic.
This is very, very helpful. But we need to do more. So that’s one of the missing links that we need to think about. How do we improve access to trade finance for these micro, medium, and small enterprises? And also invest in them for them to scale up?
That’s the other thing. When women-owned enterprises want to move from one level to the other, they often don’t have the finance. They don’t have the expertise. They don’t have the support technically to be able to do it. So these are some of the things you could think about if you really want to help women move to the next level.
Acha Leke: Got you, very clear. Targeted interventions will be very important. We have touched on some of the critical challenges that the world is facing. What do you see as some of the global opportunities emerging from the crisis?
Ngozi Okonjo-Iweala: Coming out of the crisis, I think there are some lessons and opportunities we need to think about. One is, I’m thinking of Africa directly, that this has shown us some big gaps. The fact that we found out that we must put in place a pharmaceutical industry is a big opportunity to me. I tend to look on it not as a challenge, but really as a huge opportunity for a market for 1.3 billion people. Especially given the African Continental Free Trade Area. We need to now make use of that to be able to develop certain industries. I think also it has opened our eyes to the fact that we need to add value to our own products.
If we want to trade more, we need to add value. We cannot continue selling the same raw materials or barely processed products we used to do in the past if we want to move forward. So there’s a huge opportunity on the continent.
I think McKinsey has studied it very well. This is like preaching to the converted. But the perception of risk on the continent, I’m finding, has not changed. The perception of risk far outweighs the actual risk in investing. And when you tell people that in some countries, you can get a 30+ rate of return on investment, they don’t believe you. I think we need to have something to help mitigate those risks, first-loss kind of approaches, you know? Getting the IFC, the World Bank, and other multilaterals to be able to put in place instruments that can give comfort to investors in one way or the other. To me, Africa is a huge opportunity.
So let me say another one. I think from the trade front, I see three opportunities for the future. One is services trade. Services trade prepandemic was growing much faster than merchandise or goods trade. So there’s a huge opportunity. Services have been hit by the pandemic, of course. But I expect that postpandemic, this will be one of the ways the world economy’s going to recover faster.
The next is digital trade, which is also helpful to services. And that’s a huge opportunity. E-commerce is becoming so important now that we are looking at rules. What rules do we need to craft? And there are negotiations going on now by 86 members to try to come up with rules that will underpin digital trade for the world economy.
This would also help women. It would also help micro, medium, and small enterprises, by the way. We found through studies—and I think the Economic Commission for Africa also found similar things—that one of the ways that enterprises survived during the pandemic was through the internet and through digital trade. So there’s a huge opportunity there.
I think the third is green trade. There is going to be a big opportunity in green—green investment, green trade. That’s the way the world is going. It may go faster in some areas than others, but I think focusing attention on that area will be a very big opportunity. So those are some of the exciting new areas [where] I think growth opportunities lie.
Acha Leke: We certainly saw that with digital trade in Africa, where we found that the crisis catalyzed the acceleration of Africa’s digital transformation. It had started before the crisis, but globally we saw much of the surge and drive for digital change in response to the crisis. Thank you so much for your time and, more importantly, for the pivotal role you play in shaping a stronger and more inclusive global economy especially in these tumultuous times.
Ngozi Okonjo-Iweala: Thank you, Acha. Take care.