The Covid-19 pandemic has caused damage not only to public health but also to the global economy. This calls for an economic emergency after the health emergency. The pandemic, on one hand, has thrown national health systems into a tailspin and on the other hand, it has paralyzed the global economy which is now severely compromised. International travel, a key driver of international trade was at some point nonexistent or totally diminished. For the lucky few, enabled by the internet, business carried on from homes as people adhered to strict rules of social distancing.
The Covid-19 pandemic may lead to a volatile global market with no global growth in 2020. A report by the Organisation for Economic Cooperation and Development (OECD) reveals that 2020 can see an estimated decline of 2.4% for the global economy. This would come before the growth of 3.3% next year.
Another Economic Crisis
Since the 2008 depression, the global economy has become worryingly dependent on government stimulus measures. America’s car manufacturing industry, was a receiver of the stimulus package from the then Obama administration. The economic implications of the long lockdown caused by the pandemic is, however, evident in China, the United States, and Europe.
These areas represent the three major centers of production, exchange, and business. Each of the three hubs has a hinterland that extends into neighboring regions in Latin America, East-Central Europe, Africa and all of Asia. They are all part of a global financial system that uses the US dollar as a trading and credit currency. Although this is gradually being challenged with the ascendancy and gradual acceptance of the Chinese Renminbi as an alternative store of value.
China Faces Economic Setback
China is the first country to suffer from the Coronavirus outbreak and they represent an important supplier of intermediate goods in many sectors. Chinese intermediate goods used by other countries as inputs for their exports, rose from 24% of total Chinese exports in 2003 to 32% in 2018, according to data from the United Nations Conference on Trade and Development (UNCTAD).
With the drastic lockdown and cessation of commercial activities, China faced an economic slowdown. Restrictions on shipments and order cancellations have plunged Chinese exports to the lowest rate ever, which could translate to $50 billion annually, according to UNCTAD.
However, there are high hopes as China has finally contained the spread of the coronavirus as it is, despite intermittent surges at the epicenter of Wuhan.
The concern about China now is the sustainability of its debt-driven economic growth. Since other countries are still suffering from the lockdown, all is not yet well as overseas markets are still shut down.
A paper by IMF economists reveals that China will experience a reduction in global demand. A weakened purchasing powers by its trading partners and calls for decoupling from companies and nations who outsource their productions there, are responsible for the forecast. Another study from a China-based logistics and transportation consulting firm, Cefuture, reveals that 41% of China’s citizens plan to reduce their spending.
This would be a preventive measure for future uncertainties. The report also reveals that only 8% of citizens plan to spend more after the pandemic. This is an ongoing concern but not unexpected as vaccine for the virus is yet to be developed. But the recovery of China is a sign of hope to other parts of the world, especially in the United States and Africa as it exports finished goods and imports raw materials including crude oil from these respective locations.
Job Losses, Stimulus Packages and a Shaken Europe.
In the United States, national economic policy institutions actually work: they demonstrated this in 2008 and are doing so now. The unemployment figures released on March 26 and April 2 exceeded everything previously seen: 3.3 million people registered for benefits in the first week and 6.6 million in the second week. An even worse development is expected for the coming days and weeks.
The Fed and the Treasury have a tremendous impact not only on the US economy but on the entire global system. The basic issues of the Euro area are that it still has no backing for its shaky banking system and it lacks common fiscal structures and instruments. In addition, Italy’s finances are so weak that they repeatedly threaten to shake European solidarity.
It’s no secret that China’s debt bubble, Europe’s divisions, and America’s irrational political culture pose a challenge to the functioning of what we know as the global economy. What triggered the panic in 2020 was the realization that Covid-19 uncovered all three issues at the same time.
Back at home, Nigeria has responded with a stimulus package of N2.3trn projected to leave the oil producer at a 0.59% economic decline. Hedging on a $30 per barrel for crude oil, the mainstay of the economy, the pandemic further reveals Nigeria’s exposure and reliance on a major revenue stream, technologically-unskilled workforce and nonexistent social safety net beyond a shrinking pensions pool.
The Need for Collaboration
In recent years, each of these issues has attracted the attention of fund managers and business leaders who run the global economy, as well as the experts and technocrats who advise them. With the current situation caused by Coronavirus pandemic, a possible way to revive the economy would be through collaboration.
Once the coronavirus outbreak recedes, the global economic sector will need concerted international efforts at collaboration. It may take at least a year or more to see the full effect of the pandemic economically fade away. However, recovery calls for close international collaboration. China and the US could reconsider their hard stances on aggressive import duties on both sides of the table to encourage export and stimulate their respective markets. A recent restriction order on some visa classes may need a reconsideration to attract immigrants with their job creation and research skillsets.
Stimulus packages are good and well-intentioned. Being a palliative to a problem, they have their runaway. For instance, the Coronavirus Aid, Relief and Economic Security (CARES) Act passed in March by the American Congress is expected to run out within six months. Perhaps, no better time for Nigeria and Africa to embrace collaboration.
The African Continental Free Trade Agreement(AfCTA) should be embraced. Nigeria, a late and reluctant ratifier to that agreement, should open its borders to allow trade flow freely once again.
Cross-border travel, a major ingredient to trade should be unkinked with current regulations hindering African countries from trading with fellow Africans. There is no better time to reap the dividends of a large population looking for an opportunity to trade and earn than now.
- Post-Covid-19: Back to Normal Using Collaborations - July 3, 2020