An emerging market is a country where politics matters at least as much as economics to the market. — Ian Bremmer
It is about a month since my last article. Reason: I had to pause to make sense of the new normal imposed on my world as I know it. The compulsory house arrest, to flatten the spread-curve of the pandemic. In the first week of the lockdown in my present city, I freaked out. But, thanks to having friends who are friends indeed. I reached out to them, and they helped calmed my overactive imagination, with their wise words. One of my friends indeed, went the extra mile, to find me a free online yoga session — which I am yet to make time for.
Well, after a month of watching and experiencing the disruption of my normal, like you, I have come to appreciate the little things my daily shuffling from activity to activity, has made me take for granted. But, most importantly, I do applaud celebrities and influencers. Who performed live from their homes, to help their fans not get into a depression spiral, from the present landscape of affairs.
“In the future, everyone will be world-famous for 15 minutes.” — Andy Warhol
While, from the current norm, necessity has proven to be that it is indeed the mother of invention. I am talking about Torey Lanze’s use of Instagram, in his live sessions, #QuarantineRadio. The live function of Instagram has proven Andy Warhol wrong, in his 15 minutes of fame prediction. So far, in this era of quarantine, fame has been achieved in less than 3 minutes. I will be remiss not to mention the widespread acknowledgment of simple and productive activities that have been neglected before the quarantine.
While I have friends, who have taken it upon themselves to help businesses and individuals improve their estates post the pandemic — which I commend, the state of the global economy has taken the forefront of my imagination, where I have been more curious about the possible choices and actions of governments, businesses, and individuals in emerging economies, considering their economies Post COVID-19.
Renowned Recession Bounce-Back Predictions
This time I am in luck, it is not just me wondering about the global economic outlook of post Covid19. Goldman Sachs chief economists’ predictions have been the topic of hot debates, where the main prediction is that the economic recession will be V-Shaped, which simply means that the duration of the economic recession will be equal to the duration of the economic bounce back. The prediction is backed up with a phrase economists call “Pent-Up Demand”, which simply means that since consumers’ purchases have been halted by the imposed house arrest, that after the imposed house arrest is lifted, consumers’ purchases and demands will cause the economy to rapidly bounce back.
This can best be explained by the analogy of a hose, where one end is connected to an open faucet, and the other is blocked with your hand for say 30 seconds, and, when you unblock the other end, the pent-up water bursts. Here, the hand that blocks the hose at the open end, is the imposed house arrest, and the water, the consumers’ purchases, and demand.
However, this optimistic view is not universally shared by all economists and history. This leads to the U-shaped and L-shaped recession recovery outlooks. Where the U-Shape is relatively like the V-Shape, here the expected growth rate occurs, but the economy loses some of its output. Using the hose analysis, what happens here is that due to the blocked outlet, and the pressure in the hose, this causes the hose to have several tears. Thus, when the blocked outlet is unblocked, due to the tear, the water does not gush out as expected, and the flow is not as forceful as it was before it was blocked. So, before the expected flow of the water resumes, the torn parts of the hose will need repair.
The L-Shaped recovery outlook is the grimmest of all outlooks because it means that COVID-19 will harm several pillars of the economy. Thus, with our hose analogy, it simply means that the blocked outlet caused the pressure to damage the source of water. Hence, when the blocked outlet of the hose is unblocked, the source of the flow is damaged, and it takes a longer time to fix the source of the water flow.
However, history has it that previous epidemics have had a V-shape effect on the economy.
It is also important to also point out that the V and U-shaped outlooks are demand-driven while the L shaped outlook is often supply-driven. From our hose analogy, we see that for V and U-shaped outlooks, it is dependent on the purchasing patterns and demand of consumers, while the L-shaped is dependent on the effects the pandemic has on the supply and source of the economy.
The EFFECTS OF V-U-L Outlooks in Emerging Markets
To be clear, the hose analogy is most suited to the outlooks in developed economies — DEs: Europe, North America, Singapore, and partly China. for emerging markets — Ems, especially in Africa, this analogy works only in theory. Because unlike in developed economies, with financial, political, and economic systems that were started centuries ago, and are in a continuous upgrade to match the times, EMs in Africa have financial, political, and economic systems that came to existence mostly half a century ago, 50 years ago. Thus, causing Africa’s EMs to be at mercies of DEs.
The DEs of Europe and North America have activated monetary and fiscal policies that are set to safeguard their economies from the harsh effects of the ongoing recession. Where the US has a plan to give its SMEs access to over 2 billion USD, in loans, and, the European Central Bank, ECB has also launched a 750 billion Euros Pandemic Emergency Purchase Program. Additionally, the EU has activated fiscal policies of over 3 trillion Euros to boost the economy, and the US on the 25th of March implemented a path-breaking stimulus plan of 2 trillion USD.
While G20 members have pledged over 5 trillion USD to help poorer countries cope with the adverse economic conditions of the pandemic. The World Bank and the IMF have also pleaded with official bilateral creditors to give debt relief to the world’s poorest countries as they battle with the human and economic aftermath of the pandemic.
I’ve always believed in expansionary monetary policy and if necessary fiscal policy when the economy is depressed. Paul Krugman
EMs COVID-19 Recession Shield
EMs like Nigeria, Angola, Ghana, and Gabon who depend on the revenue from oil exports have seen their dollar-denominated debt drop sharply, causing the interest payments of their debts to rise above 20%. African countries do not have the financial power or foreign currency reserves required to deter the adverse effects of the COVID-19, and presently the health care systems in these countries cannot also withstand the capacity strains that DE economies have weathered. With that said, it is important to note that Africa’s EMs cannot afford to implement the stimulus packages implemented by DEs to balk against the economic harm of COVID-19; EMs don’t have the funds to pay its citizens to stay at home.
So, DEs could experience either a V or U-shaped economic recovery outlook, regardless of the required or expected bounce back timespan. Africa’s EMs bounce back period will be multiplied by 2 or 3 of DEs bounce-back periods.
Finally, it is important to add that though Africa’s EMs will face the harshest economic conditions caused by the pandemic, I believe all hope is not lost. Because, now more than ever, is the time that leaders of Africa’s EMs should aggressively champion the SDGs. Champion them from the top to the bottom, and repeat. With oil prices falling below 0 USD, and a burgeoning youthful population, Africa’s EMs leaders will need to implement the SDGs in the spheres of all their nations’ affairs. This way, the continent will veer off from the arduous path and faith of dependency to the empowering and collaborative path of independency.
Like always, I remain radically open-minded to your comments and perspective, to any flaws in my proposition.
By the way, in my last article, Climate Change vs SDGs awareness, I left a link for you to test your Climate Change and SDGs awareness, here’s the direct link to the form. I’ll appreciate your input in the form. Thank you in advance.