A pandemic-induced health crisis is rapidly igniting an economic crisis with yet unknown consequences for financial stability, and all of this is playing out against the backdrop of a climate crisis, huge levels of unemployment and increasing economic and wealth inequality. This cannot be addressed as 'business as usual'.
This is the nature of the pandemic economy: In the face of the deadly COVID-19 pandemic and following the declared state of public emergency, many parts of the country will be severely locked down and the state will curtail people’s ability to move around, to shop, to attend conferences, to eat at restaurants, or to simply show up at work.
While some people will be able to work from home, there will inevitably be a very sharp drop in economic activity. The question is whether the immediate downturn develops into a prolonged slump (an economic recession) or whether it could be a tough, short period from which the economy can quickly rebound.
The economic response package presented by Finance Minister, Matsheka and Trade Minister, Peggy Serame was clearly intended to contain the longer-term economic damage. It takes care of the basic substantive issues and priorities that any economic response strategy should address; to keep wages intact, increase healthy spending, put in place compensation measures for business losses and ensure any momentum that guarantees positive direction for the economy.
But can the response package stop a recession? This isn’t and won’t be a conventional recession; Paul Krugman described it as “more like a medically induced coma, where you temporarily shut down much of the brain’s activity to give it a chance to heal”. We can only hope that the stimulus at least provides the necessary confidence needed to keep investments flowing in. Afterall, confidence is the chief stimulus of any economy.
The state bank is yet to provide figures as to how much the economy will likely contract and be affected overall but judging from how the global economy has been affected, it is going to be a significant drop.
The picture is quite gloomy. The uncertainty will present challenges for key sectors of the economy. Retailers don’t know when customers will be coursing through their stores again. Nor do the thousands of workers and owners of small-to-medium enterprises who have been told to stay home and suspend their operations. In each case, economic behaviour will be severely affected. The retailers will be reluctant to order new stock in a way they would if this downturn were for a set time period. And workers will likely cut back on their spending if they see a jobless period of unknown duration ahead. Each of these moves would help turn a short downturn into something longer.
That brings us back to the response package that was just presented by President Mokgweetsi Masisi’s Cabinet. Its intent is to surely bridge these difficulties. By offering remedies to workers and businesses, the hope is that they keep on spending and that guaranteed incomes and deferred loan payments can keep an economic crisis at bay. Deferred loan payment schemes for small businesses are in due part meant to allow those businesses to pay their rent
This is a serious and important effort to keep the downturn as shortlived as possible. Yet there are fundamental uncertainties that no economic response package and economic stimulus programme can address, such as the duration of the lockdown. This uncertainty may prompt caution and economic pullbacks that prove self-perpetuating.
The lessons in global finance and economics are clear. After the 2008 financial crisis, we learned the hard way what happens when governments flood the economy with unconditional liquidity, rather than laying the foundation for a sustainable and inclusive recovery. Now that an even more severe crisis is underway, we must not repeat the same mistake.
This public health crisis has revealed several problems with how government responds to certain challenges, and how it deals with its own shortcomings, all of which must be solved at the same time that we address the immediate health emergency. Otherwise, we will simply be solving problems in one place while creating new ones elsewhere.
The COVID-19 crisis is especially exposing more flaws in our economic structures. The importance of the digital economy is coming to the fore but exposing severe defects in our internet infrastructure. The gig economy and ‘working from home’ have been trends in economic behaviour that developed economies have been exploiting and benefiting from for years. In this day and age, it is undeniable that access to high-speed broadband internet has the potential to create opportunities that enhance socio-economic development and cultivate innovative, thriving economies. The impact of COVID-19 exposes the fact that many Batswana lack, not just access to quality highspeed internet, but also access to digital devices that would enable them to work remotely and continue with other aspects of their lives via online channels. As many will be restricted to working and studying from home during the lockdown, the impact of the pandemic underlines the importance of functioning ICT infrastructure now more than ever.
Telecommuting simply is not an affordable option for most workers, and the wage subsidies that government is extending to workers with regular contracts puts the self-employed out in the cold, high and dry.
Although the COVID-19 crisis has exposed major weaknesses within Botswana’s economy and governance the good news is that we can use the current state of emergency to start building a more inclusive and sustainable economy. As Trade Minister Serame mentioned in her address, opportunities are now riper to ramp up our productive and manufacturing capabilities.
Now that government is on a positive momentum and Cabinet are on a war footing to counter the possibility of a devastating outcome, we have an opportunity to fix the system. If we don’t, we will stand no chance against other major crises in the future.
*Bakang Ntshingane is a political economist with interests in politics, trade and foreign policy