Socio-Economic Effect of Covid-19 on the Global Economy-Part Two
April 4, 2020
Economic Effect Covid-19 on Ghana
The global rankings as at 29th March, 2020 revealed Ghana ranks 94th among 199 countries and territories with confirmed cases of the epidemic; and ranks 8th among 46 infected economies on the African continent.
In Ghana, at least seven (7) immediate- and medium term Economic Effect of Covid-19 pandemic on the economy have been identified.
These include fall in projected revenue mobilisation from the sale of crude oil in the global market; likely fall in revenue projections from tariffs collection by the Ghana Revenue Authority (GRA) through the various ports; fall in periodic corporate tax payments; challenges to prompt payments on national debt or interests or both; increase in national health expenditure; significant reduction in international trade, foreign direct investment (FDI), travels, tourism, conferences, poverty reduction, and food nutrition; and financing gap in the 2020 Budget, among others.
Some economic analysts attribute the fall in price of crude oil per barrel in the global market to sharp decline in demand for the product by China.
Other factors include closure of borders, and considerable decrease in exports and imports among global economies.
The enactment of quarantine policies by most COVID-19-infested countries, including Ghana has impacted negatively on business operations and productivity in many sectors of their respective economies.
On Friday, 27th March, 2020, Ghana’s President, Nana Addo Dankwa Akufo-Addo, announced additional preventive measures instituted by the State to curb further spread of the Coronavirus; and economic measures to assist small- and medium-sized businesses to mitigate adverse effects of the pandemic on their trading activities and operations.
These include fourteen (14)-day partial lockdown with strict enforcement, GH¢1 billion financial assistance through the Ministry of Finance, GH¢3 billion monetary assistance through GCB Bank; reduction in policy rate from 16% to 14.5%; and directive by the Bank of Ghana to various banks to lower their minimum reserves requirement by 2% to increase liquidity to facilitate economic stimulation.
In addition, charges on mobile money transactions (involving transfers) from a Pesewa to GH¢100 have been waived; and respective limits on GH¢300, GH¢2,000, and GH¢5,000 mobile money transactions have been increased to GH¢1,000, GH¢5,000, and GH¢10,000.
The latter is intended to improve on social distancing by limiting face-to-face transactions; and encouraging cashless transactions in the economy.
Due to the exigencies of the pandemic outbreak, Ghana’s projected gross domestic product (GDP) growth rate for the 2020 financial year has been revised from 6.8% to 2.5%.
However, this compares favourably with the current negative 42% growth rate projected for the Chinese economy during the same period.
Should the projection hold, it would be the first contraction for the Chinese economy since the 1970s.
Earlier growth projection by Morgan Stanley revealed the Chinese economy would grow between 5.6% and 5.9% in 2020 with the 5.6% being the worst-case scenario.
In a related development, an earlier promise by the Australian Treasury to maintain a fiscal surplus for the 2020 financial year has become a challenge owing to the impact of COVID-19 on the economy.
The possibility of ending the current fiscal year with a surplus is now a mirage, rather than a reality to the Australian government.
Agitations by some economic analysts about sustainability of the Ghanaian economy should COVID-19 last longer than expected are expected to be mitigated by the strong gross international reserves (GIR) of over US$10 billion, which is equivalent to 4.8 months import cover; and in excess of the 3.0 months import cover projected for the current financial year.
The sharp decline in inflows from crude oil is likely to be off-set by the increase in prices of gold and cocoa in the world market.
Currently, an ounce of gold sells at about US$1,682 while the telepathic understanding between Ghana and La Cote D’Ivoire has resulted in an appreciable increase and relative stability in the price of cocoa per tonne in the global market.
The necessary remedial measures put in place by the Government of Ghana to bridge the financing gap in the 2020 budget include discussions with the World Bank to access part of its US$12 billion facility intended to fast track the treatment ofCOVID-19 related cases.
Similar discussions are ongoing with the International Monetary Fund (IMF) to tap into its US$10 billion rapid credit facility; and with othermultilateral and bilateral partners across the globe.
Another option is withdrawal from the Ghana Stabilisation Fund (GSF) to off-set any potential shortfall in the Annual Budget Funding Amount (ABFA).
Economic Effect of Covid-19 on China
China remains a significant economy; and maintains a major manufacturing hub among global economies.
Available data from the World Bank indicate China’s GDP for 2019 was US$14.2 trillion. This represented 11.72% of the global economy.
In absolute terms that is, in terms of individual economies, China is the world’s second largest economy after the United States of America (USA).
The latter’s total GDP in 2019 was US$21.2 trillion; and represented 17.5% of the global economy.
Further, China manufactures one-third (1/3) of all goods required globally. As a result, any socio-economic unrest in China is likely to have a ripple-effect on the global economy.
Stated differently, socio-economic unrests in China are likely to destabilise economies around the world.
The foregoing is corroborated by Agathe Demarais of the Economist Intelligence Unit (EIU) who affirmed global markets would remain volatile until the world gets a clearer picture of the potential outcomes of COVID-19.
The devastating Economic Effect of Covid-19 pandemic on twenty-four (24) of the thirty-one (31) provinces in China cannot be overemphasised.
The affected provinces generate about 90% of China’s total exports; and contribute about 80% to GDP.
Statistics released by Mr. Tedros Adhanom, Director-General of the World Health Organisation (WHO) indicate demand for personal protection equipment (PPE) across the globe has increased over hundred (100) times; and the excess demand over supply has resulted in upward price adjustments over twenty (20) times the normal price.
Further, the excess demand is likely to have negative effects on regular supply of medical products and equipment among global economies between four (4) and six (6) months.
Globally, demand for the following medical products is high relative to supply: patient monitors, infusion pumps, syringe pumps, detection reagents, disinfection supplies, purifying respirators, gloves, masks, and face shields, among other significant medical products necessary for the cure of the COVID-19 pandemic.
While the rest of the world is struggling to come to terms with the Economic Effect of Covid-19 pandemic and how to possibly contain and curb its further spread within and across countries, China seems to have recovered from the social shocks; and has already begun economic restructuring.
Stated differently, industrial activities have resumed in China while the Chinese government has announced a stimulus package of over US$344 billion for fiscal measures, including assisting various businesses; and bringing the Chinese economy back on track.
The overarching idea is to stabilise the Chinese economy; and to enhance her competitiveness in the global market as soon as practicable.
Chinese firms are currently encouraged to manufacture pharmaceutical and medical products such as nose masks and gloves in large commercial quantities to meet increasing demand in the international market.
Zoos and some tourist attraction sites in China have been re-opened to Chinese tourists. About 9,000 new businesses were established in February 2020 to manufacture medical products, especially nose masks, gloves, and ventilators.
Daily mask production in China has increased from 120 million units to over 160 million units. Most of these masks are sold to countries outside China.
BMW and other auto manufacturing firms with factories in China have resumed operations.
Available reports indicate all foreign-funded businesses in China have resumed operations with 80% returned-employed rate and 70% business resumption rate.
Overall, the Chinese business climate in particular and the economic environment in general is improving steadily. China’s ban on most foreign visitors to the country took effect on 28th March, 2020.
This initiative is intended to minimise the importation of the virus, curb the spread, and accelerate the economic restructuring efforts.
Effect on Politics
Indeed, the Coronavirus pandemic has proven beyond reasonable doubt that it is no respecter of persons.
For instance, in the Islamic Republic of Iran, Advisers to Messieurs Mohammad J. Zarif and Ali Khamenei were reported dead from COVID-19 while fifteen (15) current and former top government officials, including the Vice President have been infected.
In addition, more than twenty-four (24) Members of the Iranian legislature have tested positive. In the United Kingdom (UK), Prime Minister Boris Johnson and Prince Charles have been infected.
Some people in the United States have chided President Donald Trump for closing down the global health security unitof the United States Security Council, a unit founded to prepare the United States Government for potential pandemic outbreaks.
Critics believe the global health security unit would have envisaged the outbreak of the pandemic, and subsequently advise government on its prevention and containment to avert its catastrophic effect on the United States economy.
The COVID-19 pandemic has renewed and intensified protests in the administrative region of Hong Kong against the government of the Communist Party of China (CPC) while Taiwan has raised concerns about her possible inclusion in travel ban by China.
Meanwhile, the Communist Party of China led by its General Secretary, President Xi Jinping, has dismissed a number of administrative leaders in some of the provinces affected by the pandemic.
The dismissal followed poor handling of the response and quarantine measures in those provinces, and in Central China. Prime Minister Hun Sen of Cambodia recently visited China to express Cambodia’s solidarity and support for China’s fight against the pandemic.
Impact on the Global Economy
It is believed the Economic Effect of Covid-19 on the global economy would be more severe than the shocks associated with the Severe Acute Respiratory Syndrome (SARS) outbreak in 2002.
The effect of the Coronavirus outbreak on global supply chain has been projected to be in excess of US$300 billion; and the disruption to global supply chain may last up to two (2) years.
Earlier global economic growth projection for 2020 by the Organisation for Economic Co-operation and Development (OECD) was 2.9%.
Later, the OECD revised the global economic growth projection for the current fiscal year to 2.4%; and further to 1.5%.
Panic buying has surged in economies affected by the pandemic; and in economies where Governments have announced measures for containment including shutdowns or lockdowns.
Reports indicate widespread shortage of medical and pharmaceutical products, food and other essential groceries relative to demand.
The global airline industry is projected to lose US$113 billion in revenue while the global economy is estimated to lose US$2.7 trillion in revenue.
The pandemic has affected China’s regular supply of machinery, chemicals and communication equipment to the European Union, United States, Japan, Vietnam, Taiwan, and Korea.
Shortage in supply of medical and pharmaceutical products relative to demand is resulting in price hikes; and causing inflation in some economies across the globe.
Some global leaders have taken steps to seek the intervention of the Supreme Being in the fight against the Coronavirus outbreak.
In the United States, 15th March, 2020 was declared a National Day of Prayer by President Trump’s Administration.
The objective was to implore all Americans to pray to seek God’s healing hand on the Nation in the wake of the Coronavirus.
On 25th March, 2020, President Nana Akufo-Addo’s government, through the Ministry of Chieftaincy and Religious Affairs, declared a National Day of Fasting and Prayer for all Ghanaians to seek God’s Divine favour in the fight against; and an end to COVID-19, a single virus believed to have caused the greatest socio-economic disruption in human history.
Many were those who underestimated the propensity and magnitude of the Economic Effect of Covid-19 across the globe.
Today, it is stirring in the face of all and sundry. The onus lies on each one of us to find a lasting antidote to arguably, the most devastating pandemic ever encountered on the planet, earth.
Undoubtedly, the world requires concerted efforts and holistic approach to curb the menace; and to halt the “carnage” inflicted on global economies by the predatory Coronavirus.
By Ebenezer M. Ashley (PhD)
Fellow Chartered Economist &
CEO of EBEN Consultancy
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