Tayo Oke
Coronavirus infection (aka COVID-19), is spreading worldwide like bushfire. Like the fallout from a nuclear explosion, no one, no country, is immune from its deadly effect. It is a pandemic on the much heralded biblical (apocalyptic) proportions in its scale and reach. It is more than just a disease; it is a rude awakening for humanity. There are two dimensions to it though; the medical and the economics. ‘Coronavirunomics’ as we name it here, is the economics of survival within the context of a rapidly evolving pandemic. The $2tn emergency spending just passed by the United States Congress, largest in its history (10% of its GDP), and already signed into law (in a country with natural disdain for government intervention) represents a good example of this newest economic doctrine. Other countries are bound to do likewise sooner or later. It is the defining moment of our generation. Its consequences will linger long after the scientists have come up with its antidote. Coronavirunomics redefines the meaning of “profit”, “inflation”, “tariffs”, “growth” “employment” “work ethics” “deadlines” “bottom lines” “vacation” and “family values” in a way unimaginable even a couple of months ago. It is on a par with the “dot com” revolution of the 1990s whose impact has reshaped humanity beyond recognition.
The airwaves are filled to the point of saturation in the West not only with the medical, but also with the financial implications on the stock market, distribution of goods, interest rates, quantitative easing, panic buying, growth forecast, recession, etc. It could lead to a global financial meltdown on the scale not witnessed since 2008, according to the International Monetary Fund as well as the European Central Bank. Treasury ministers across Western capitals are scouring around to debate, and decide on emergency economic measures (cut in interest rate, mortgage freeze, unemployment pay, small business rebate, etc), to cushion the effect of the virus on the market, and stave off depression. By contrast, in Africa, the focus has been almost exclusively on the medical; absence of test kits, inadequate medical personnel, lack of manpower, porous borders, containment, and self-isolation in naturally cramped environments. It is almost as if we are living, in this part of the world, on an economic island, totally divorced from the happenings elsewhere. Almost as if our leaders on this side of the Atlantic have connived to hand to the Europeans, Americans, and others, the response and strategy for the economics, while we concentrate solely on the medical.
Why are we not banging on the economic impact more forcefully, and measures to curtail it? Is it another “Third World”, “underdeveloped” mind-set? We just sit and wait on Western governments to do what is right for their own economies, then, accuse them of not having thought enough of us? If predictions come to pass, Africa could yet be the repository of the greatest proportion of the casualties from the virus further on, at which point the continent becomes a real basket case, relying on Western charities and celebrities to make our case. The West’s main concern in this regard is in not allowing our innate inability to cope with a major disaster become a secondary issue for them later on. So, what are the immediate economic challenges, and the measures being talked about to ameliorate them? First, it is about the stock market going down. The stock market is where large companies go to borrow money to keep their business going. It usually involves millions and billions of dollars changing hands in minutes and hours. When it goes down, it usually means money going out of those businesses, reducing their capacity to invest in new equipment, expand their productive capacity and create jobs. Eventually, if this continues, workers will be laid off, and prices of consumer goods will go up.
There are a number of things governments do to ameliorate this. It is called providing ‘stimulant’, meaning, encouragement to market participants to carry on doing business. The first of which is ‘monetary’ tool, meaning, that central banks will act to cut the rate at which people borrow money in order to encourage them to take risks. In Nigeria, for example, the cost of borrowing money is already too high. It ranges from 15-35% even higher in some extreme cases. The CBN can do very little to cut this directly, but it can engineer a cut in inter-bank rates. If there is a diminution in the rate at which banks lend to each other, it is hoped that this will be passed on to customers. Another thing being done in Western economies is what is called “quantitative easing”, which means in ordinary parlance, government pumping money into the economy. There are so many means open to government to do this, mainly through their capital markets, but also, ultimately, printing money. The situation we have in Nigeria is that the CBN is forever afraid of doing this kind of thing because we have a stubbornly high rate of inflation in this country. It is called ‘double digits’ (16%) inflation. It is structural, meaning, that it is in-built because we lack the capacity to produce and sell. Inflation in advanced economies in the West is hovering around one, two, three, four, or five per cent. What then will the government do when demand is choked up later on?
There is hardly a single African country without a huge borrowing gap in their budget. This runs into trillions of naira in our own case. The globalised nature of the world economy makes this even more acute. When China suffers heavily from coronavirus, which started in their country, their growth forecast has been revised down as a result. And, this affects the supply chain throughout the world, as China is responsible for 1/5 of the world’s GDP. China has also been investing heavily in economies throughout Africa, in the billions of dollars. This will inevitably be revised down as well. So, there is every likelihood of a recession happening at some point here because we are heavily dependent on commodities like oil to make ends meet. The price of crude oil has already dropped from $57 to $22, and it is scheduled to drop even further down. Our currency is struggling to maintain its value, which means we will pay more for consumer items. These are some of the little things, everyday issues, that are not being talked about. They have been exacerbated by coronavirunomics. That said, the main area that government in African countries ought to direct the most attention is debt re-scheduling. If you have less revenue coming in, you are not selling as much, and you rely on borrowing from outside the continent, the gap for servicing the debt will widen and unless you start renegotiating the terms of repayment now, we are all heading for the rocks in the near future.
The way things are shaping up, African countries may soon be forced into the arena of asking for debt forgiveness again. Not repayment, but ‘forgiveness’. Even if this materialises, it is bad news simply because there is no such thing as a free lunch in capitalism. If lenders are going to take a hit for having lent us money in the first place, it will make the terms of any future lending even more unfavourable, creating a vicious circle of borrowing for consumption, reduced industrial capacity, and increased poverty. Our focus on the medical side of the virus to the exclusion of its economic ramifications may be wise, but it is rather foolish. If we do not prepare for the economic fallout, then, that leaves us vulnerable to the consequences of any spillover from the financial sector. It leaves us sitting ducks basically. It is not too late, but the window of opportunity for countermeasures is closing.
