The Ethiopian Herald has been covering different issues in the country and worldwide on its guest column. In today’s Sunday edition and the coming one, we shall delve into the Corona virus impacts over all sectors. Dr. Ravi Kanth Makarla, an Assistant Professor in the Department of Accounting & Finance, College of Business and Economics at Ambo University, Ethiopia.
The Ethiopian Herald had a while with Dr. Ravi Kanth Makarla. Excerpts…
Herald: What is unique about this global financial crisis as compared to others in the past?
Dr. Ravi: Our word has experienced different crisis at several times. To mention few, Great depression started in 1929 and lasted for a decade, on 9-11-2001 attacks on World Trade Centre damaged the Economy, In 2007 Sub-Prime Mortgage crisis in USA led to Global Financial Crisis, and in 2020 Pandemic has shocked the global economy.
This financial crisis is different and worst because of the nature of health crisis. Many of the countries couldn’t control the spread of this virus resulting sever economic losses across the globe.
Many of the countries are putting pressure on healthcare capacity resulting lockdown and welcoming severe impact on economy. Government priority is saving lives by implementing lockdown resulting in economic recession. Lockdown and recession are inversely related. On a time scale a longer lockdown period results in severe economic recession.
It is the trade-off between lives and livelihood. In India, 1.3 Billion people are under lockdown of which 80% of the workforces are on daily wage & self-employed and 120 million are migrant workers. Almost all sectors of the economy had been hit by this pandemic because everyone has been asked to stay home. In South Africa unemployment rate was around 30% before the incidence of Covid-19 and with this health crisis it reached to its peak. Global unemployment and economic stagnation has resulted mainly due to supply-side factors due to lockdown and work from home measures and also demand-side factors lack of income resulting in lack of demand.
China having huge manufacturing hub and being the factory to the world countries, it is only the major and only source to some of products in the global supply chain and on the other hand it is also massive buyer of raw materials, agriculture and luxury products in the international market.
International Trade shocked both in terms of supply and demand sides have made severe adverse impact on global stock markets.
In the event of trade-off between saving people and saving economy, first we must deal to settle these pandemic and later central banks must deal with credit flows from banks to various segments of the society and also by implementing lockdown if necessary and maintaining social distancing.
Government has to take first priority to save lives of the people and later saving the economy.
The economic impact of this covid-19 crisis is multi-dimensional as it had hit almost everyone in this world directly or indirectly, where service sector is mostly affected. This is the worst case scenario of the world. In South Africa 57 million people have stayed at home.
Herald: How bad is the corona virus impact on Ethiopian & Global Economy?
Dr. Ravi: We are in an acute global financial crisis situation; this would be worst global recession since great depression in 1929, where activities are expected to resume normal by the end of June 2020.
Where the IMF Recent estimates reveals Global Economy contraction by 5% approximately.
Including US all Stock Markets have fallen more than 32% within a few days (18 days) after corona virus touched the shores of USA and Europe that was not witnessed even during past events of Global Financial Crises. Oil Prices have tumbled from a cliff, 6.6 Million People in USA applied for unemployment. It’s more than 5 times of the record.
Herald: How covid-19 aggravated or worsened the global unemployment?
Dr. Ravi: The database of tourism, hotel and restaurant, retail sales, etc. service sector employees is the key to frame any guideline to protect and ensure their livelihood on humanitarian basis because this segment of Labour Market was badly affected.
The exponential increase in unemployment has led to greater crisis after the great depression during 1930-40.As a result inequalities are widening. In America the majority of Black and Latino workers are majorly in low wage segment and thereby having low savings to cushion crisis. Hence, covid-19 took the lives of Black and Latinos twice as much as white Americans because ‘work from home’ is merely impossible to the low wage labour force. Many of the low wage workers in the world lack education and skill and thereby not adhere to the earlier Government norms and finally disqualify
for Government support on the basis of eligibility and finally be harmed by any recession or crisis.
During crisis economic disparities are much higher even in developed world. In USA millions of jobs are already destroyed and thereby unemployment rate is at alarming levels.
Some countries are implementing ‘Pay-out Protection Program’ to protect jobs by giving guidelines to employers to remain employees formally employed and the pay-out reimbursed by the Government to the employers like 100% in Norway, 75% in UK and 80-90% in France. Hence, the unemployment rate is not rising as much as we see in USA and other countries due to the anticipation of slow recovery, majority of the jobs may not be recreated immediately after Covid-19 crisis.
Herald: What do you observe measures to protect undocumented daily labourers?
Dr. Ravi: Many countries are implementing Social Safety Networks in making people alive by distributing the policy benefits. In some countries, undocumented daily labourers were protected by establishing food camps, health camps spread across every small region in order to protect the deprived people seeking a helping hand.
Herald: How do you see the transfor mation of work force from conventional working system to technology based ‘Work from Home’?
Dr. Ravi: The idea of working remotely from home is not a practice for many of the industries except IT industry, because of this health crisis people falling into different rhythm of work flow across the globe, where teleconferencing has become a common practice resulting savings in time and cost. Many of the teleconferencing platforms are working in China due to firewall restrictions such as Zoom, Google Hangouts, Cisco Systems, Bluejeans, Slack
Video, etc. has made China to create net set of teleconferencing tools to meet the immediate needs of their industry.
Work from Home has resulted in a rapid growth in the usage of internet even with developing and under developed countries. This is positive note that the world is adopting technology at a faster rate.
Herald: How do you see the on-going changes in Education Sector due to Covid-19?
Dr. Ravi: Education is extremely important for any nation in its development. In China, from primary schools to higher education has moved very quickly to online mode as a result China has created large volumes of depository of educational materials due to class recordings and online assignments. This education depository can be used for next generations at a significant low cost can be made available round the clock to all levels.
Internship is the common practice in getting job training to graduating students before they actually qualify for any dream job with stipend as monitory benefit. Due to this health crisis many of them are less likely than their senior batch students in achieving their dream job even before their graduation through campus placements.
Herald: What new norms can be considered in Tax System as Government Budget Deficits are on the raise?
Dr. Ravi: Historically, tax on excess profits has been implemented by many countries like USA implement in the events of World War – I, World War – II, Korean War. The definition and measurement of excess profits vary among the countries. This is levied on the firms making excess profits even during crisis at a very high rate to support the national integrity.
At the same time Government must protect
the weaker industries that are badly affected by crisis up to liquidation to make them alive.
Herald: How do you see the role of Health Insurance as risk mitigating tool at grass root level?
Dr. Ravi: Universal Health Insurance Policies must be framed and need to be implemented to protect the lives of the citizens in any future health crisis. At the moment, penetration of health insurance in Ethiopia is less than 1%. Opening health insurance policies without having much constraints like employment status, age, immigration status, etc.
Mandatory health insurance may be implemented at least to Government Sectors, some specific sectors like construction, decease prone production industries, etc.
Across the globe people die without medical treatment. This might be because of worrying about the cost. They were denied of healthcare due to lack of health insurance.
Herald: What is the impact of covid-19 on International Trade?
Dr. Ravi: Covid-19 has exposed badly the international trade, where global countries relying more on China as single supply source. This will definitely going to change over a period of time by identifying, creating and developing multiple supply sources in the supply chain management and there by resulting in appropriate trade balance.
Herald: How Covid-19 affected the Oil Prices?
Dr. Ravi: Both in supply and demand sides there is a big change in the Oil Market. USA is also producing oil for the last couple of years.
On one hand oil prices have fallen as over supply pressures of the market. On the other hand, Covid-19 emptied many cities resulting a fewer people driving cars, boarding aeroplanes, production at
factories are abandoned.As a result global consumption has reached historical bottoms over the past 30 years. OPEC and no-OPEC have agreed on production cuts to stabilize the oil price. But, Saudi Arabia launched price war against Russia by deciding to increase the production from March 2020. This made oil price around USD 20 per barrel on 18th March 2020 which was 1/3rd of the January 2020 price USD 60 per barrel. Finally oil price reached 70 year historical low price USD 10.11 per barrel on 20th April 2020 and slightly increased to USD 12.78 per barrel on 27th April 2020 as per WTI reports.
This resulted windfall gains to all Oil Consuming Countries.
Herald: What shape of recovery do you expect?
Dr. Ravi: Managing recovery is next level challenge. China has managed to get factories back to work by implementing social distancing, distancing at work, distancing at travel and also monitoring using new mobile applications. Business relies upon prediction on valid data and confidence building. It is anticipated a few business will fail in post Covid-19 due to valid reasons. It is more optimistic to expect ‘V-shape’ recovery. But, it is more likely to be ‘U-shape’ recovery. The slope of recovery depends upon the leadership multidimensional measures to support all stakeholders of the community. International cooperation and coordination is very much needed than rivalry during recovery period.
Global debate on International trade has already started, where big Governments seeking the support of small Governments in negotiating the modifications to the International Trade Laws. Negotiations between UK and European Union failed many times.
Natives of western world opting for roll backing from globalization due to the fear of reoccurrence of pandemic.
The Ethiopian Herald May 10/2020
BY AMBO MEKASA
